My 2 Biggest Tax Wins and Failures

Paying taxes is a part of almost everyone’s life. And when it comes to doing my taxes, I’ve been making some pretty smart moves lately. However, I have made big mistakes in the past and recently. Here are some of the biggest wins and mistakes when it comes to taxes.

First Win: Making the Most of Your Solo 401(k) Plan

If you are self-employed, you have a variety of options when it comes to saving for retirement. You can open an IRA at any financial institution that offers IRAs. Or, you could fund a standalone 401(k).

What I like about the Solo 401(k) is that it has generous contribution limits. The 2024 limit is $69,000 for those under 50 and $76,500 for those over 50. On the other hand, for a 401(k) through an employer, the limit is $23,000 if you are under 50 and $30,500 if you are 50 or older.

That means the amount you can contribute to a solo 401(k) will depend on your income. But for several years, I invested the maximum amount I could personally contribute to my solo 401(k). And every dollar I put into that account shielded a portion of my income from taxes.

Success #2: Hiring a great accountant

Filing taxes was something I did on my own even though I was self-employed. But eventually I realized that if I tried to do my taxes on my own, I could be missing out on a big tax break.

I asked my friends to recommend a good accountant, and I found one. And while his fees aren’t cheap, the amount I pay for his services more than makes up for the tax benefits I can’t claim on my own.

Failure No. 1: Forgetting to sell distressed stocks before the end of the year.

Last year, the stocks I owned plummeted and their future seemed uncertain. I wanted to sell those stocks at a loss in my brokerage account to offset some of the capital gains, but I forgot. you’re right. You could have saved a significant amount of money on your 2023 tax bill, but you missed that opportunity due to a brain fart.

I realized my mistake earlier this year and went and sold the stock, so I’ll still be able to profit from my loss. But now I have to wait for it to be filed. this year Taxes that can be utilized.

Failure #2: You underestimated your quarterly tax payments.

I did my best to estimate my quarterly tax payments, something every self-employed person should do before using an accountant to do their taxes. And most of the time, I failed. This meant writing a sizable check to the IRS every April.

Now, to be clear, I think it’s better to owe some money than to get a refund. Getting a refund means you’ve paid too much tax upfront and essentially given the IRS a free loan.

However, if you understate your quarterly payment and send a check to the IRS: large in size. And in some cases, it messed up personal plans. For example, I had to put off renovating my home because I owed the IRS a five-figure sum for the year.

If you’re self-employed, it’s common to have to pay a small amount to the IRS when you file your tax return. But these days, you hire an accountant partly to get a better estimate and partly to avoid IRS penalties that can result from too many underpayments.

The U.S. tax code is very complex, so don’t worry if you don’t think you’re an expert in the field. But at least read up on tax-advantaged retirement plans like IRAs and 401(k)s. Not only will this allow you to save money for the future, but it will also help you protect some of your income from taxes.

Additionally, if you’re nervous about filing your own return, don’t hesitate to hire an accountant or tax professional. What you lose in the form of fees, you may gain in the form of additional tax relief you never thought to claim.

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