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best option for owed taxes

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pranaman

Junior Member
Hi, I live in California, am mostly self-employed. I've been working on my 2018 taxes, and using tax.creditkarma.com and turbotax.com. I've been comparing entries in both to see which would be better. I did it myself and had 4 sources of income.

I work in tech, and don't have a lot of expenses. After deductions, it looked like I would owe $12k, and filed a Federal and State extension yesterday. I haven't paid anything yet.

Income is roughly as shows:
checks, credit cards, wire transfers30000
2 1099-MISCs20000
paypal*7000
W-21700
total~60000
*I haven't entered that yet.

I have some small investments, I didn't even list them in either program:
~$100 in an IRA
$500 in fundrise.com
$100 in swell.com

Through turbotax I was able to speak with a CPA, and she showed me options if I invest in either a Roth, SEP, and Keogh IRA, I could save a little bit. I learned that the Roth option expired 4/15, but the other I have until later.

Seems it's a 10:1 ratio, that is, if I put in 10k, I can save 1k on my taxes.

I've been interested in buying a house, and was told it's advantageous to show more on my tax returns, although, I want to pay as little taxes as possible. I will most likely use the installment plan.

I don't want much, if any penalties, and of course, have proper investments.

Have I missed anything to lower my 2018 taxes and keep my penalties low? What can I do to keep my penalties down?
 


Taxing Matters

Overtaxed Member
If you owe a significant amount of tax on 4/15 and file an extension there is the possibility that the extension you filed will be invalid. The extension is only an extension to file, not to pay. So if you are in that situation it is best to file the return by 4/15 if you can to avoid any late filing penalty from an invalid extension. The late filing penalty, if the IRS assesses it, will be 5% of the unpaid tax per month that the return is late, up to a maximum of 25%. That penalty is reduced by the amount of the late payment penalty assessed for the same month. The late payment penalty is 0.5% per month that tax remains unpaid.

Because of that if you have the return ready to file I suggest you file the return now to avoid the possibility of a late filing penalty. If not, get the return ready to file as soon as you can to keep the penalty as low as possible. If you cannot pay in full now then file a Form 9465 with the return. See also the Form 9465 instructions. Note that if you get on an installment agreement before the IRS sends its notice of intent to levy (which is usually the 3rd or 4th collection notice you get, and it comes certified mail) then the late payment penalty rate will get cut in half to 0.25% per month, saving you money. So if you know you need an installment agreement it's best to get on it ASAP. The IRS will also add interest to what is owed. You may also get a penalty for underpayment of estimated tax. That penalty is basically an interest charge on the estimated payments you were supposed to make.

I have no idea if you have other deductions or credits you might qualify to take on you return. A tax professional can help you sort that out. You can always file the return and ask for the installment agreement now and then if you find other deductions/credits to claim you can amend the return to reduce what you owe.
 
Advantageous to show more income so you can buy a house? So essentially someone is advising you to misrepresent your income as being greater than it really is so you may be able to qualify for a loan that you wouldn't qualify for if you reported all of your expenses. That may lead you to a loan that you can't afford based on your actual income. This would require you also paying a higher tax bill now when it sounds like you don't have enough money to pay your current tax bill.

In terms of investing in retirement accounts to lower your tax bill, once again if you don't have enough money to pay your current tax bill, I don't understand how are you going to invest an additional $10k in a retirement account.

In order to save on penalties pay your tax bill off quickly. Consider additional work or selling assets to pay it off faster. After paying off your tax bill ASAP, then consider making estimated tax payments for next year and consider retirement account options to save on future tax bills.
 

pranaman

Junior Member
Thank you. I see it's straightforward. I filed yesterday thru creditkarma, paid the state taxes, and applied for an extension on federal.
Thank you for the advice for estimated tax payments for next year and to look into retirement account options for future tax bills.
 

justalayman

Senior Member
Did you figure in your penalties on the state taxes for not filing quarterly? To avoid penalties you need to pay at least these amounts of your estimated annual tax

  • 30 percent First quarter (April 15)
  • 40 percent Second quarter (June 17)
  • 0 percent Third quarter (September 16)
  • 30 percent Fourth quarter (January 15)
Here is what you need to use so you can avoid paying a penalty next year



As you can see, the first installment for 2019 is already past due if you have not paid it already.



Here is a page from the IRS regarding quarterly payments for your federal taxes. There is info that applies to your 2018 tax filing as well as your tax requirements going forward.

 
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