Owe IRS $33K, need help with tax planning for 2018

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
booradley83
Posts: 53
Joined: Sat Jan 18, 2014 9:02 pm

Owe IRS $33K, need help with tax planning for 2018

Post by booradley83 » Wed Feb 21, 2018 11:21 pm

Hi all;

I'm very glad that this forum exists and am thankful for all the help and knowledge that this community has provided.

Age- 35
Spouse- 34
Children - 4,1, and expecting 3rd this summer :happy

Occupation - physician
wife's occupation - physician
Location - HCOLA

For the past 5 years; both wife and I have maximized our 401k's each year, and have bought an investment property in cash with equity around $300k and cash flowing roughly - $1500 per month after expenses; paid down pretty much all debt and lived in a 'bogleheads friendly' way with little waste.

In 2017, W2 income for both wife and I was roughly $400k combined. The investment property net income was around $18k and we also got a new 1099 independent contractor job as a physician (home based, never leave the house) which netted us around $50k for the year. I also had a short work gig in Canada which netted me roughly $10k after expenses.

When I filed my taxes, I owed the IRS around $6k after I entered in the W2 income (there is a mistake with the w4 apparently and our employer isn't withholding enough). Fair enough, when I entered the 1099 income, Canadian income, and rental property, that tax bill swelled to $33k combined with federal and state taxes which WE OWE TO THE IRS AND TO OUR STATE. The other issue was I literally had almost NO deductions on that 50k 1099 income aside from some miscellaneous internet, and some medical dues, literally everything I earned in 1099 was taxable.

My mistake - I didn't end up paying any estimated taxes during 2017 with this new 1099 gig we both landed in February 2017 onwards(we are still doing this job). So, I will pay this big tax bill. Also, I went to Canada and came back; so this is a 1 and done mistake; shouldn't have any further Canadian income or tax to report in the future.

For 2018 our situation should look like this:

My w2 income - $180k
wife's w2 income - $150k
both of us will be contributing the maximum 18k via our employer's 401K - - - - - so our total contribution will be $36k just like it has been in the past few years
My expected 1099 income - $180k-200k
her expected 1099 income - $30k
Unfortunately, in terms of deductions, aside from some medical dues/license fees, 99% of that 1099 income will be taxable as I have literally no other deductions. I don't plan on going to any conferences, no other expenses, not buying any fancy electronic or office equipment, and the home office deduction should I choose to take it will be negligible because the space is literally nothing as a percentage of my house.

My question to you guys are:

1. Aside from the 401k that my employer provides, which we both are contributing the max to, what else can I do to maximize TAX DEFERRAL?
2. Can I open up an individual 401k for both myself and my wife? What would be the contribution limits? Is there any other type of retirement plan that I should consider?
3. Is there anything else that I can do to decrease my tax burden?
4. My overall goal is tax deferral and to maximize retirement accounts.
5. I will obviously start making estimated tax payments to the irs and to my state so I avoid a huge tax bill and penalty for 2018

DVMResident
Posts: 1195
Joined: Mon Aug 01, 2011 8:15 pm

Re: OWE IRS $33K, NEED HELP WITH TAX PLANNING FOR 2018

Post by DVMResident » Wed Feb 21, 2018 11:33 pm

Wow, 2 kids with one on the way, full time work plus side gigs, and a rental.

Couple rambling thoughts:
-HSA
-Rental: too late for your current rental, but I'd seriously consider a mortgage for the future units. To buy cash, you have to use expensive after-tax dollars and the interest is fully deductible on a schedule E.
-You may also want to talk to CPA about an LLC or other pass through mechanism for the rental and/or maybe some of your side gig income. Might be worth it for the rental and tax management, too.

Lafder
Posts: 3696
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: OWE IRS $33K, NEED HELP WITH TAX PLANNING FOR 2018

Post by Lafder » Thu Feb 22, 2018 12:41 am

If the self employment is just you and your wife, you may be eligible for Solo401k's.

But they must be set up during the tax year so it is too late for 2017 for solo401k.

However look into SEP for 2017, and solo401k for 2018. You need to read how the existing employed retirement accounts limit the max SEP contribution, it might make it not possible to have both.

If you can do a SEP, you can then open solo401k for 2018 for both of you and max those out. You have until your tax filing deadline to fund a SEP or solo401k. But the latter must be set up in the tax year.

Fidelity allows you to roll other retirement accounts in, so you could roll your SEP or any existing IRAs into a solo401k to consolidate and open the possibility for back door Roths.

lafder

booradley83
Posts: 53
Joined: Sat Jan 18, 2014 9:02 pm

Re: OWE IRS $33K, NEED HELP WITH TAX PLANNING FOR 2018

Post by booradley83 » Thu Feb 22, 2018 2:46 am

Yes, this sounds like a good way to reduce my taxable income for 2017; I can fund a SEP IRA with maybe 12K from my 1099 earnings; and then roll that over to an individual 401k for 2018..............excellent idea! Thank you!

TwstdSista
Posts: 741
Joined: Thu Nov 16, 2017 4:03 am

Re: OWE IRS $33K, NEED HELP WITH TAX PLANNING FOR 2018

Post by TwstdSista » Thu Feb 22, 2018 4:36 am

Agree with the SEP and then solo 401k suggestion above.

The $10,000 Canadian income might also be eligible for an additional SEP contribution, as well as deductions for travel to Canada. (But I'm not sure if you can use the same SEP). Are you supposed to pay Canadian taxes on this money as well?

Longdog
Posts: 1022
Joined: Sun Feb 09, 2014 6:56 pm
Location: Philadelphia

Re: OWE IRS $33K, NEED HELP WITH TAX PLANNING FOR 2018

Post by Longdog » Thu Feb 22, 2018 4:57 am

While it won’t have a significant impact this or even next year, making backdoor Roth IRA contributions will, over time, allow a portion of your portfolio to grow without any future tax consequences, reducing what you otherwise might have in a taxable account that contributes to your tax burden. Just a good practice to get into; your future (older) self will thank your younger self!

Don’t be too hard on yourself; you learned a valuable lesson that will pay off handsomely.

Out of curiosity, is your home gig for Doctors on Demand?
Steve

booradley83
Posts: 53
Joined: Sat Jan 18, 2014 9:02 pm

Re: OWE IRS $33K, NEED HELP WITH TAX PLANNING FOR 2018

Post by booradley83 » Thu Feb 22, 2018 4:59 am

Hi,

No, I moved to Canada with the intention of staying there, but decided to come back for many reasons, I only stayed there for <6 weeks. I called the CRA which isbasically their IRS, and they told me I only had to file in the USA with the IRS.

I'm not sure what I can deduct from those 6 weeks. I know I can deduct the medical license and fees to start practice there, but not sure if I can deduct my stay/lodging/meals or immigration fees. It ended up being a waste of time, I earned maybe $15k in those 6 weeks.

booradley83
Posts: 53
Joined: Sat Jan 18, 2014 9:02 pm

Re: OWE IRS $33K, NEED HELP WITH TAX PLANNING FOR 2018

Post by booradley83 » Thu Feb 22, 2018 5:02 am

No, my home gig is an independent contractor gig with a national pharmacy chain for a medical director position overseeing midlevels/creating clinical guidelines.

User avatar
Tamarind
Posts: 930
Joined: Mon Nov 02, 2015 2:38 pm

Re: OWE IRS $33K, NEED HELP WITH TAX PLANNING FOR 2018

Post by Tamarind » Thu Feb 22, 2018 7:14 am

I would suggest you increase withholding on your W-2, or else start making quarterly estimated payments, to deal with the 1099 income. No one is going to withhold to cover your tax liability on that unless you do.

JBTX
Posts: 2977
Joined: Wed Jul 26, 2017 12:46 pm

Re: OWE IRS $33K, NEED HELP WITH TAX PLANNING FOR 2018

Post by JBTX » Thu Feb 22, 2018 8:27 am

booradley83 wrote:
Thu Feb 22, 2018 5:02 am
No, my home gig is an independent contractor gig with a national pharmacy chain for a medical director position overseeing midlevels/creating clinical guidelines.
Did you have any auto miles associated with this gig?

It may be worth chatting with CPA given your bill is so large.

booradley83
Posts: 53
Joined: Sat Jan 18, 2014 9:02 pm

Re: Owe IRS $33K, need help with tax planning for 2018

Post by booradley83 » Thu Feb 22, 2018 11:18 am

Nope, that's the whole issue, it's a remote position working from home. So I literally can't find any real deductions because of this..........and I don't want to spend money just to 'save on taxes.' So I didn't buy any fancy equipment, computers, furniture,or go on any conferences or continuing medical education. I simply want to maximize my tax deferral for this year. And yes, I should definitely be doing the Roth IRA.

suemarkp
Posts: 26
Joined: Sun Nov 12, 2017 8:18 pm

Re: Owe IRS $33K, need help with tax planning for 2018

Post by suemarkp » Thu Feb 22, 2018 11:02 pm

Look at the tax rates for 2018 compared to 2017. You should be taxed quite a bit less this year, but you're still going to end up in the 35% bracket. I just did my 2017 taxes and crept into the 33% bracket. In 2018, I'm only going to be in the 24% bracket and my income will be higher.

But you make so much your tax deferral options are mostly used up. Look at where you are investing taxable money to make sure it doesn't get worse... Perhaps municipal bonds where you want bond money and investments that are good with long term capital gains and qualified dividends for the rest.
Mark | Kent, WA

whigrean
Posts: 17
Joined: Sat Feb 03, 2018 8:51 pm

Re: Owe IRS $33K, need help with tax planning for 2018

Post by whigrean » Thu Feb 22, 2018 11:12 pm

What is this remote contracting work? I'm interested as a physician who has 17 days off per month. I'm assuming radiology work?

niceguy7376
Posts: 1900
Joined: Wed Jul 10, 2013 2:59 pm
Location: Metro ATL

Re: Owe IRS $33K, need help with tax planning for 2018

Post by niceguy7376 » Fri Feb 23, 2018 3:44 pm

How is your 1099 setup? S Corp for you and/or spouse together or individually OR Sole Prop.

At your income levels, it is most appropriate to set everything right once (maybe with help of a specialist).
Since you are already contributing to employEE part at your W2 job, any Solo 401ks can only be EmployER part which is a % of earnings.

Since you already earn more than the Social Security(SS) limit (127K? for 2018) at your W2 job, any S Corp setting for your 1099 might be a costly expense as you (EmployER) will still need to pay the SS share.

booradley83
Posts: 53
Joined: Sat Jan 18, 2014 9:02 pm

Re: Owe IRS $33K, need help with tax planning for 2018

Post by booradley83 » Sat Feb 24, 2018 1:46 am

Hi, my wife and I get paid 1099 from individual companies. We are ‘sole proprietor’ I guess, we haven’t formed an LLC or an s-Corp or anything else. We are getting paid under our names respectively.

booradley83
Posts: 53
Joined: Sat Jan 18, 2014 9:02 pm

Re: Owe IRS $33K, need help with tax planning for 2018

Post by booradley83 » Wed Feb 28, 2018 4:34 pm

Question: I opened a fidelity sep-ira and funded it with max contributions based on 1099 income for 2017. I took the deduction on turbotax.

If I roll-over this sep-ira to a new solo 401k; what is the maximum contribution to both solo 401k and employee 401k for w2 job? My understanding is:

Employer 401-k - 18500 total
solo 401k- 54k - 18500 - 35500 employer deferral based on 1099 income; max 20% of earnings.

is the above correct? that 54K is the TOTAL between w2 job and my side 1099 income??

niceguy7376
Posts: 1900
Joined: Wed Jul 10, 2013 2:59 pm
Location: Metro ATL

Re: Owe IRS $33K, need help with tax planning for 2018

Post by niceguy7376 » Wed Feb 28, 2018 9:48 pm

Rollovers dont count against the max limits.

I dont have experience with Sole Props and I wont recommend S Corps for you either.

WanderingDoc
Posts: 584
Joined: Sat Aug 05, 2017 8:21 pm

Re: Owe IRS $33K, need help with tax planning for 2018

Post by WanderingDoc » Wed Feb 28, 2018 9:58 pm

booradley83 wrote:
Wed Feb 21, 2018 11:21 pm
Hi all;

I'm very glad that this forum exists and am thankful for all the help and knowledge that this community has provided.

Age- 35
Spouse- 34
Children - 4,1, and expecting 3rd this summer :happy

Occupation - physician
wife's occupation - physician
Location - HCOLA

For the past 5 years; both wife and I have maximized our 401k's each year, and have bought an investment property in cash with equity around $300k and cash flowing roughly - $1500 per month after expenses; paid down pretty much all debt and lived in a 'bogleheads friendly' way with little waste.

In 2017, W2 income for both wife and I was roughly $400k combined. The investment property net income was around $18k and we also got a new 1099 independent contractor job as a physician (home based, never leave the house) which netted us around $50k for the year. I also had a short work gig in Canada which netted me roughly $10k after expenses.

When I filed my taxes, I owed the IRS around $6k after I entered in the W2 income (there is a mistake with the w4 apparently and our employer isn't withholding enough). Fair enough, when I entered the 1099 income, Canadian income, and rental property, that tax bill swelled to $33k combined with federal and state taxes which WE OWE TO THE IRS AND TO OUR STATE. The other issue was I literally had almost NO deductions on that 50k 1099 income aside from some miscellaneous internet, and some medical dues, literally everything I earned in 1099 was taxable.

My mistake - I didn't end up paying any estimated taxes during 2017 with this new 1099 gig we both landed in February 2017 onwards(we are still doing this job). So, I will pay this big tax bill. Also, I went to Canada and came back; so this is a 1 and done mistake; shouldn't have any further Canadian income or tax to report in the future.

For 2018 our situation should look like this:

My w2 income - $180k
wife's w2 income - $150k
both of us will be contributing the maximum 18k via our employer's 401K - - - - - so our total contribution will be $36k just like it has been in the past few years
My expected 1099 income - $180k-200k
her expected 1099 income - $30k
Unfortunately, in terms of deductions, aside from some medical dues/license fees, 99% of that 1099 income will be taxable as I have literally no other deductions. I don't plan on going to any conferences, no other expenses, not buying any fancy electronic or office equipment, and the home office deduction should I choose to take it will be negligible because the space is literally nothing as a percentage of my house.

My question to you guys are:

1. Aside from the 401k that my employer provides, which we both are contributing the max to, what else can I do to maximize TAX DEFERRAL?
2. Can I open up an individual 401k for both myself and my wife? What would be the contribution limits? Is there any other type of retirement plan that I should consider?
3. Is there anything else that I can do to decrease my tax burden?
4. My overall goal is tax deferral and to maximize retirement accounts.
5. I will obviously start making estimated tax payments to the irs and to my state so I avoid a huge tax bill and penalty for 2018
1) $18K on a $300K investment in real estate in a very poor return. Almost entirely pointless to invest in rental property without leverage. Return stinks, and you have dead equity in the property which is earning you exactly $0. You can easily get a $18K annual return on a deal you have $20-40K of your money in. $300K is insane - $300K down would get you a $1.2M apartment complex, 16-20 units with a $45K net annual income. That isn't even a good deal, its paying retail.

2) You should legally pay little to no taxes on rental real estate. Thats its appeal. I'm happy to talk via PM. Good luck.
I'm not looking to get rich quick (crypto), I'm not looking to get rich slow (index funds).. I'm looking to get rich, for sure (real estate).

booradley83
Posts: 53
Joined: Sat Jan 18, 2014 9:02 pm

Re: Owe IRS $33K, need help with tax planning for 2018

Post by booradley83 » Wed Feb 28, 2018 11:35 pm

WanderingDoc wrote:
Wed Feb 28, 2018 9:58 pm
booradley83 wrote:
Wed Feb 21, 2018 11:21 pm
Hi all;

I'm very glad that this forum exists and am thankful for all the help and knowledge that this community has provided.

Age- 35
Spouse- 34
Children - 4,1, and expecting 3rd this summer :happy

Occupation - physician
wife's occupation - physician
Location - HCOLA

For the past 5 years; both wife and I have maximized our 401k's each year, and have bought an investment property in cash with equity around $300k and cash flowing roughly - $1500 per month after expenses; paid down pretty much all debt and lived in a 'bogleheads friendly' way with little waste.

In 2017, W2 income for both wife and I was roughly $400k combined. The investment property net income was around $18k and we also got a new 1099 independent contractor job as a physician (home based, never leave the house) which netted us around $50k for the year. I also had a short work gig in Canada which netted me roughly $10k after expenses.

When I filed my taxes, I owed the IRS around $6k after I entered in the W2 income (there is a mistake with the w4 apparently and our employer isn't withholding enough). Fair enough, when I entered the 1099 income, Canadian income, and rental property, that tax bill swelled to $33k combined with federal and state taxes which WE OWE TO THE IRS AND TO OUR STATE. The other issue was I literally had almost NO deductions on that 50k 1099 income aside from some miscellaneous internet, and some medical dues, literally everything I earned in 1099 was taxable.

My mistake - I didn't end up paying any estimated taxes during 2017 with this new 1099 gig we both landed in February 2017 onwards(we are still doing this job). So, I will pay this big tax bill. Also, I went to Canada and came back; so this is a 1 and done mistake; shouldn't have any further Canadian income or tax to report in the future.

For 2018 our situation should look like this:

My w2 income - $180k
wife's w2 income - $150k
both of us will be contributing the maximum 18k via our employer's 401K - - - - - so our total contribution will be $36k just like it has been in the past few years
My expected 1099 income - $180k-200k
her expected 1099 income - $30k
Unfortunately, in terms of deductions, aside from some medical dues/license fees, 99% of that 1099 income will be taxable as I have literally no other deductions. I don't plan on going to any conferences, no other expenses, not buying any fancy electronic or office equipment, and the home office deduction should I choose to take it will be negligible because the space is literally nothing as a percentage of my house.

My question to you guys are:

1. Aside from the 401k that my employer provides, which we both are contributing the max to, what else can I do to maximize TAX DEFERRAL?
2. Can I open up an individual 401k for both myself and my wife? What would be the contribution limits? Is there any other type of retirement plan that I should consider?
3. Is there anything else that I can do to decrease my tax burden?
4. My overall goal is tax deferral and to maximize retirement accounts.
5. I will obviously start making estimated tax payments to the irs and to my state so I avoid a huge tax bill and penalty for 2018
1) $18K on a $300K investment in real estate in a very poor return. Almost entirely pointless to invest in rental property without leverage. Return stinks, and you have dead equity in the property which is earning you exactly $0. You can easily get a $18K annual return on a deal you have $20-40K of your money in. $300K is insane - $300K down would get you a $1.2M apartment complex, 16-20 units with a $45K net annual income. That isn't even a good deal, its paying retail.

2) You should legally pay little to no taxes on rental real estate. Thats its appeal. I'm happy to talk via PM. Good luck.


1. I agree, 18k on a 300k investment is a very poor return; however I have that much in equity due to increase in value for the property; I didn't spend 300k to obtain a 18k return. I spent a little more than 1/2 of that to obtain the property...........which is actually excellent in a HCOL area such as NJ where property taxes kill you..........
2. I agree; I will PM you

User avatar
celia
Posts: 7624
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Owe IRS $33K, need help with tax planning for 2018

Post by celia » Thu Mar 01, 2018 12:24 am

To plan for 2018, first finish up and file for 2017. Then what you can normally do for the following year, is to use the software to plan for the next year. Make a copy of your submitted 2017 return and only work on the copy. Update all the dollar amounts to what you expect to be paid in this year.

However, since the tax rules changed starting last month, particularly in regards to the tax brackets, you will have to look at the Taxable Income (line 43) for your estimated 2018 return and then look up the new tax brackets to determine your tax liability. Then you will want to divide that number by the number of pay periods you have each year, and then change your tax withholding according to that calculation. Also don't forget that we've completed 2 months already, so you only have 10 months left to withhold the shortfall, so you aren't so short for this year. The easiest way to have your withholdings come close is to keep the same number of dependents on your W-4s (which will cause the amount currently withheld to be withheld again for this year), but also withhold an extra fixed dollar amount to cover the shortfall.

booradley83
Posts: 53
Joined: Sat Jan 18, 2014 9:02 pm

Re: Owe IRS $33K, need help with tax planning for 2018

Post by booradley83 » Thu Mar 01, 2018 1:24 am

So is 54k for my solo 401k plus 18.5k for my w2 401k.......is 72.5k the maximum I can defer in taxes theoretically? With 54k being the 1099 employer contribution and maxing out 18.5k to my employer at my w2 job? Assuming I make a substantial 1099 income?

booradley83
Posts: 53
Joined: Sat Jan 18, 2014 9:02 pm

Re: Owe IRS $33K, need help with tax planning for 2018

Post by booradley83 » Thu Mar 01, 2018 5:56 pm

booradley83 wrote:
Thu Mar 01, 2018 1:24 am
So is 54k for my solo 401k plus 18.5k for my w2 401k.......is 72.5k the maximum I can defer in taxes theoretically? With 54k being the 1099 employer contribution and maxing out 18.5k to my employer at my w2 job? Assuming I make a substantial 1099 income?
does anybody have an answer to ^^^^^^^

TwstdSista
Posts: 741
Joined: Thu Nov 16, 2017 4:03 am

Re: Owe IRS $33K, need help with tax planning for 2018

Post by TwstdSista » Fri Mar 02, 2018 5:30 am

Backdoor Roth IRAs? Do you have any traditional-type IRAs (Traditional, SEP, SIMPLE, Rollover, or Inherited IRAs) that would trigger the pro-rata rule?

ETA: That would not defer any taxes. But it's another retirement vehicle.


ivk5
Posts: 237
Joined: Thu Sep 22, 2016 9:05 am

Re: Owe IRS $33K, need help with tax planning for 2018

Post by ivk5 » Fri Mar 02, 2018 7:09 am

booradley83 wrote:
Thu Mar 01, 2018 5:56 pm
booradley83 wrote:
Thu Mar 01, 2018 1:24 am
So is 54k for my solo 401k plus 18.5k for my w2 401k.......is 72.5k the maximum I can defer in taxes theoretically? With 54k being the 1099 employer contribution and maxing out 18.5k to my employer at my w2 job? Assuming I make a substantial 1099 income?
does anybody have an answer to ^^^^^^^
Some thoughts:
  1. 55k solo 401k limit for 2018 (increase from 54k) - and don't forget to open one up for your wife too, can add up to 20% of net SE earnings for her
  2. 18.5k limit for employee elective deferral - assuming you're not eligible for 6k catch-up contribution (age >= 50)
  3. HSA (if eligible)
  4. 529 (some states provide some amount of income tax deduction/credit)
  5. Any other pre-tax programs / Section 125 cafeteria plan available through your W2 employer (eg FSA or HSA-compatible limited-purpose FSA)
  6. SE health insurance premiums. I assume your health insurance is through W2 employer and your premium contribution (if any) is made as pre-tax payroll deduction, but if for some reason you're buying directly, may be able to deduct premium payments (1040 line 29).
  7. I Bonds as part of fixed income allocation - no deferral of present income taxes, but deferral of tax on interest = effectively increases your available tax deferred space - up to 25k per year for MFJ couple (including 5k via tax refund)
  8. Investigate cash balance plans (see for example this WhiteCoatInvestor post and his more recent article on the topic here)

Post Reply