As I’m wrapping up my 2015 tax return, I have a good problem. For the first time I made enough money (just as important, didn’t squander it) to actually owe the government. This seems to fall under the ‘every good deed goes unpunished’ maxim, but I refuse to believe it is not a good idea to get out of debt.
Very briefly, I have a permanent p/t position with one company doing grantwriting, my own business (which is an S-Corporation, grant writing and voice overs), and on the side I teach yoga. If you’re not familiar, in an S-Corporation, any business loss or earnings ‘flows’ over to your personal tax return. In 2015 I made significant money from both my permanent p/t position and my S-corp. Though I spent significant money on yoga training to match a scholarship I received), I didn’t have a lot of business expenses on my S-Corp. So an add’l $16,000 has to be reported on my personal income tax.
Last year, my priority was to pay off my credit card, which I did. My next priority was to save money to have a bigger EF, which I did. To the tune of $4,000 in my personal EF and $7,000 in my Business EF. My priority in 2016 is to pay off my student loan which is about $15,000 right now.
Good stuff, right? Well, unfortunately, and not surprisingly, cc debt elimination is not a deductible expense. Nor does the government reward you for saving money. (Is it me or does that seem really wrong? At least from an FPU perspective.) So now I have a situation where because I didn’t use up all my money buying things, I’m going to end up paying more tax.
BEFORE you say it, I just made a big contribution ($2,500) to my IRA applied to 2015. So that helps a little bit. I could make contributions up to $6,500 (I’m over 50), but I don’t want to decimate my EF and end up with fewer funds available for an emergency. So, it seems that I will have an additional tax bill of $3,000 for 2015. Blech! Before I cough up those funds, I wanted to ask if someone could make a suggestion for how to keep more of the money I earned for 2015 that doesn’t put it out of reach (like an IRA).
One thing that I think I’m seeing is that. It won’t help me to open a Roth IRA or SEP, because the IRS combines the total of all those accounts and the combined total cannot be over $6,500 for any one year. Is that right?
To be clear, I am not anti-government, but I worked really hard to save this money. I just don’t want to give the govt more than I have to. Having significant money is a new experience for me! lol.
Looking forward to my 2016 tax return. Step 1. I will use DR’s services and find a reputable financial advisor, because in 2016 I will be seeing even bigger financial income. Based on 2015 figures, it could be as much, or more than, $30,000. I am determined to pay off my student loan this year, but I see that I also need to be smart about this money and am looking to
a. set up a 401-K for my business (had this before FPU, but based on DR advice closed it until I got out of debt.)
b. I think this is the year to buy that new computer, ipad and anything else that benefits my business operations, toward end of year.
c. Identify one or two charities for my business to contribute a modest ($1,000 range) donation.
a. make sure I make the full $6,500 contribution to my IRA
b. Hmm. buy a new yoga mat! There’s just not that much expense attached to my teaching yoga. lol.
Beyond getting the DR approved financial advisor and the things I’ve mentioned here. Any other advice?