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Anyone know if there's a fee for setting up direct debit with the IRS? I'm using FreeTaxUSA too and I owe about $3,800. Really confused about the whole process.
Yes, there's a setup fee, but it's lower if you choose direct debit vs. other payment methods. I think it's around $31 for direct debit if you set it up online. Regular installment agreements have higher fees (like $149). If your income is below a certain threshold, you might qualify for a reduced fee or fee waiver. Check out Form 13844 for fee reductions based on income.
I just went through this exact same process with FreeTaxUSA last week! You're right that it can be confusing at first. Here's what worked for me: 1. Complete your entire tax return in FreeTaxUSA first 2. When you get to the payment section, don't worry about finding a "direct debit installment agreement" option - FreeTaxUSA doesn't handle that part 3. Select "I cannot pay the full amount now" or similar wording 4. Finish filing your return through FreeTaxUSA 5. After your return is accepted, go directly to irs.gov/payments 6. Click "Online Payment Agreement" 7. Choose "Direct Debit Installment Agreement" from the IRS menu The key thing I learned is that FreeTaxUSA just gets your return filed - the actual payment plan setup happens directly with the IRS afterward. Don't stress about not seeing the direct debit option in FreeTaxUSA itself. Once you're on the IRS site, you'll have full control over your monthly payment amount, withdrawal date, and all the other terms. Hope this helps! The whole process took me about 20 minutes once I knew where to go.
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One thing nobody's mentioned yet that I think is important - if you're thinking about switching to Solo 401k next year, you should know there are administrative differences. SEP IRAs are super simple with almost no paperwork, but Solo 401ks require a plan document and potentially Form 5500-EZ filing if your plan assets exceed $250k. That said, I've used both with my S Corp and still prefer the Solo 401k because of the higher contribution limits. With a SEP, you're capped at 25% of W-2 wages from the employer side only. With Solo 401k, you can do the same 25% employer contribution PLUS contribute up to $20,500 (2022 limit) as an employee deferral, even if that takes you above the 25% limit.
Do you use a specific provider for your Solo 401k? I've heard some have much better options than others, especially for someone who might want to do a Roth option or take a loan from the plan eventually.
I use Fidelity for my Solo 401k. They offer both traditional and Roth options for the employee contribution portion, which is a huge advantage. Their plan doesn't allow loans, but that wasn't important for my situation. If loans are important to you, check out E*TRADE or TD Ameritrade. The paperwork was surprisingly minimal - just a one-time plan adoption agreement. I haven't had to file Form 5500-EZ yet since my balance is still under $250k. The investment options are excellent and there are no setup or maintenance fees, which was important to me.
Just want to add about the Box 13 checkbox - it's super important for your overall tax situation! If that box isn't checked and you're actually covered by a retirement plan, you could accidentally claim deductions for traditional IRA contributions when you're not eligible. That can result in penalties later if the IRS catches it. I learned this the hard way a few years ago when my S Corp made SEP contributions but my accountant didn't communicate it to my payroll provider. The box wasn't checked, I contributed to a traditional IRA and took the deduction, and ended up having to file an amended return and pay penalties.
That's exactly the kind of situation I want to avoid! So even though the S Corp is making the contribution and not me personally, the Box 13 still affects my personal IRA deductions? That seems really counterintuitive.
Yes, that's exactly right! Even though your S Corp is making the SEP contribution (not you personally), you're still considered "covered" by a retirement plan for IRS purposes. The Box 13 checkbox indicates plan coverage, which then affects your ability to deduct traditional IRA contributions based on your income level. If you're covered by a workplace retirement plan (including SEP IRAs), your traditional IRA deduction phases out at lower income levels. For 2022, if you're single and covered by a plan, the deduction starts phasing out at $68,000 of modified AGI. Without the Box 13 checked, the IRS systems won't flag this limitation. It's one of those interconnected tax rules that isn't obvious - your business retirement plan affects your personal tax planning. Definitely make sure your payroll provider understands this!
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You should check your year-end pay stub and compare it with your W2. Your last pay stub of the year should have a YTD (year-to-date) total for all your 403b contributions - both mandatory and voluntary. Then compare: 1. The Box 1 wages on your W2 should be lower than your gross income by at least the amount of BOTH types of contributions 2. Box 12a code E should match ONLY your voluntary contributions 3. There should be no specific box showing your mandatory contributions If these three things check out, your W2 is correct!
My pay stubs are so confusing though. There are like 5 different retirement-related deductions and I can't tell which ones count as "elective deferrals" vs mandatory contributions. Is there an easy way to know which is which?
The easiest way to identify them is by looking at the names or codes on your pay stub. Elective (voluntary) deferrals are usually labeled something like "403b," "403b elective," or "voluntary retirement." The mandatory contributions might be labeled "mandatory retirement," "required contribution," or sometimes with your employer's specific plan name. Another clue is that elective deferrals usually show a percentage or amount that matches what you selected during benefits enrollment. Mandatory contributions are typically a fixed percentage that's the same for all employees. If you're still unsure, your HR or benefits department can tell you exactly which line items are which type of contribution.
I'm a benefits coordinator (not tax advice!) and just wanted to add that different employers handle 403b reporting slightly differently. If you work in education or healthcare, there's a good chance you have both mandatory and voluntary contributions. The 403b contribution limits ($23,000 for 2025 for those under 50) only apply to voluntary contributions (those shown in Box 12a with code E). Mandatory contributions don't count toward this limit, which is actually advantageous!
So does that mean we can potentially put more into retirement overall by having both mandatory and voluntary contributions? Like if my employer requires 5% mandatory but I also elect to contribute 15% voluntary, I'm getting 20% going in but only the 15% counts toward the annual limit?
That's exactly right! The mandatory contributions don't count against your annual elective deferral limit, so you can effectively save more for retirement. In your example with 5% mandatory and 15% voluntary, you'd be putting away 20% total but only the 15% voluntary portion counts toward the $23,000 limit (for 2025). This is one of the advantages of working for employers with mandatory retirement contributions - you get forced savings that don't reduce your ability to make additional voluntary contributions up to the IRS limit. Just make sure you understand vesting schedules for any employer contributions!
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Has anyone tried just checking the box in Step 2(c) for multiple jobs? I did that thinking it would be similar to the old 0 allowances, but my first paycheck had WAY more withheld than I expected. Almost 35% of my check went to federal taxes!
That checkbox is designed for people with multiple jobs or working spouses - it essentially tells your employer to withhold at a higher rate to cover the tax from your combined income. If you only have one job, you shouldn't check that box unless you have other significant income sources.
I went through this exact same confusion when I started my new job last month! The key thing to understand is that the new W-4 is designed to be more accurate, but it works completely differently from the old allowances system. Here's what worked for me as a single person with no dependents: I filled out Step 1 (basic info) and Step 5 (signature), leaving Steps 2-4 blank. This gives you the standard withholding for a single person with one job. DO NOT put anything in the dependents sections unless you actually have qualifying dependents - that's not how you adjust withholding anymore. The "other dependents" field is for actual dependents like elderly parents you support, not a way to reduce withholding. If after your first paycheck you find the withholding is too high or too low, you can always submit a new W-4 using Step 4(c) to add extra withholding (positive number) or reduce withholding (you'd work with HR on this). The IRS withholding estimator on their official website is really helpful once you have a pay stub to work with. It'll tell you exactly what adjustments to make if needed. Much better to start simple and adjust than to guess wrong from the beginning!
Oliver Zimmermann
Don't forget about your options for deducting the equipment! Since you're buying a $6,500 kiln, you have a few choices: 1) Section 179 deduction - deduct the full cost in the year you buy it 2) Bonus depreciation - similar to Section 179 but with different rules 3) Regular depreciation - spread the deduction over several years Most small businesses prefer Section 179 since it gives you the immediate tax benefit, which would offset the GoFundMe income right away.
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Dmitry Popov
•This is really helpful, thank you! I hadn't thought about the different ways to handle the equipment deduction. Is there any advantage to depreciating it over multiple years vs. taking the full deduction immediately? Our business is still pretty small but growing.
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Oliver Zimmermann
•It depends on your profit situation. If your business is growing but currently operating with tight margins or minimal profit, taking the full deduction now using Section 179 makes more sense because it offsets the crowdfunding income immediately. If you're already quite profitable and expect to be in a higher tax bracket in future years, spreading the depreciation might save you more in the long run. Most small businesses in growth mode benefit from taking the deduction upfront, especially when it directly offsets related income like your GoFundMe campaign.
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Alina Rosenthal
Thanks everyone for all the helpful advice! This thread has been incredibly informative. Just to make sure I understand correctly - the GoFundMe donations will count as business income on our tax return, but then we can deduct the kiln purchase as a business expense, essentially balancing it out? I'm leaning toward using Section 179 to deduct the full equipment cost in the same year since we're still a small operation and this would help offset the crowdfunding income immediately. Does anyone know if there are any specific requirements for Section 179 eligibility with pottery kilns? I assume it qualifies as business equipment, but want to make sure before we launch the campaign. Also planning to be extra diligent about documentation - screenshots of the final GoFundMe total, the equipment invoice, bank transfer records, everything. Better to have too much paperwork than not enough if the IRS ever has questions!
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