You're absolutely right to be frustrated about this! What makes it even more maddening is that the IRS has the authority to waive interest and penalties in cases of "reasonable cause," but they almost never extend that same flexibility to taxpayers who've been essentially forced to give them interest-free loans through overwithholding. I've been tracking this issue for years, and the numbers are staggering. The average tax refund is around $3,000, which means millions of Americans are collectively giving the government billions in interest-free loans annually. If you calculate what that money could earn in even a basic high-yield savings account (currently around 4-5%), we're talking about serious money that taxpayers are losing out on. The irony is that the IRS actively encourages people to overwithhold through their messaging around "getting a refund" rather than educating taxpayers about optimizing their withholding to break even. It's in their financial interest to keep this system exactly as it is.

The frustration is totally justified! What's particularly galling is that this asymmetric interest policy isn't just unfair - it's actually quite profitable for the government. The Treasury Department essentially gets to use taxpayer overwithholding as a massive, interest-free financing mechanism for government operations throughout the year. I did some quick math on your $3,400 excess withholding: if that money was spread evenly throughout the year (about $283/month), and you had put it in a basic 4.5% high-yield savings account instead, you'd have earned roughly $77 in interest by tax time. Multiply that across millions of taxpayers, and we're talking about billions in lost opportunity cost. The real kicker? When the government borrows money through Treasury bonds, they pay interest rates that are often higher than what most savings accounts offer. So they're essentially getting a better deal from us (0% interest) than they give to actual investors who lend them money voluntarily. Your best move is definitely to adjust that W-4 and put those extra dollars to work for YOU instead of Uncle Sam. The peace of mind from a smaller refund is worth way less than having access to your own money throughout the year.

I work as a tax preparer and see this confusion about Roth IRA dividends constantly during tax season. The bottom line is that dividends earned within a Roth IRA cannot be separated from other earnings for withdrawal purposes - they all get lumped together as "earnings" by the IRS. Here's what happens: When dividends are paid inside your Roth IRA, they increase your total earnings balance. If you withdraw ANY amount beyond your contributions, the IRS treats it as coming from earnings first (after contributions are exhausted), regardless of whether you think you're "just taking the dividends." The 5-year rule clock starts January 1st of the tax year for your first contribution. So if you first contributed in 2020, your 5-year period ends January 1, 2025. You need both the 5-year rule AND to be 59½ to take earnings (including dividends) tax and penalty-free. One thing I tell clients: if you need current income from investments, consider keeping dividend-paying stocks in a taxable account instead, where you can access the dividends immediately and only pay the qualified dividend tax rate (usually 0-20% depending on your income).

Just want to echo what Paolo said about keeping dividend stocks in taxable accounts if you need current income. I made this switch last year after getting burned by early withdrawal penalties, and it's been much better for my cash flow situation. One thing that really helped me understand the Roth IRA ordering rules was looking at Form 8606 instructions on the IRS website. It clearly shows how withdrawals are treated: contributions first, then conversions, then earnings (which include all dividends, capital gains, and other growth). There's no way to cherry-pick just the dividends. For anyone still confused about this, I'd recommend reviewing your annual Roth IRA statements to see the breakdown between contributions and earnings. Most brokerages show this clearly, and it helps you understand exactly how much you could withdraw penalty-free if needed (just the contribution portion). The tax code isn't intuitive here, but once you understand that ALL growth inside a Roth IRA gets treated the same way regardless of its source, the rules make more sense.

I'm surprised nobody mentioned quarterly estimated taxes yet! If you're making money from self-employment, you might need to make quarterly tax payments to avoid penalties. The IRS expects you to pay taxes throughout the year, not just at filing time.

As someone who went through this exact situation a few years ago, I can share what worked for me. First, yes you do need to report this income since you're over the $400 threshold for self-employment. But don't stress too much about the bank deposits - for amounts under $10k, they typically won't question where the cash came from. Here's what I wish someone had told me: start keeping better records NOW. Create a simple spreadsheet with dates, jobs, and payments. Also track your expenses like gas, equipment, supplies - these deductions can significantly reduce what you owe. I ended up saving about $400 in taxes just by deducting my lawn mower, gas, and maintenance costs. For filing, you'll use Schedule C and Schedule SE along with Form 1040. The self-employment tax is about 15.3%, but you might not owe income tax depending on your total income. Since your parents claim you as a dependent, you still need to file your own return. Consider it good practice for adult life! Most tax software can handle this situation, or you might want to have your parents help you through it the first time.

Another option to consider is filing separately from your spouse. If your spouse has significant income but few deductions, while you have business losses or lots of deductions, filing separately might help. But be careful! Filing separately has drawbacks like losing certain tax credits.

As someone who went through this exact same confusion when I first became self-employed, I can tell you it gets much clearer once you understand the flow. Here's the simple breakdown: 1. First, calculate your business profit on Schedule C: $135,000 revenue - $120,000 business expenses = $15,000 net business income 2. Then, on your main tax return (1040), you'll have that $15,000 as self-employment income plus any other income you and your wife have 3. Finally, you choose standard deduction ($27,700) vs itemized deductions. Since $15,000 - $27,700 = $0 taxable income, standard deduction wins unless you have huge personal deductions One important thing others mentioned: you'll still owe self-employment tax on that $15,000 (about $2,120), but your income tax would be $0. Don't overthink it - business expenses and personal deductions are completely separate things in the tax system. Your business expenses always get deducted first on Schedule C, then you decide standard vs itemized for personal stuff.

Something I haven't seen mentioned yet is the impact of Net Investment Income Tax (NIIT) on your decision. As a single filer, you'll pay the 3.8% NIIT on investment income once your modified AGI exceeds $200,000. This applies to pass-through income from an LLC but NOT to income retained within a C Corp. Given that you're already in the 22% bracket and expecting to move to 24%, you're likely approaching or exceeding the NIIT threshold. This means your effective rate on LLC pass-through income could be 24% + 3.8% = 27.8%, making the 21% corporate rate even more attractive. However, you still need to factor in the eventual double taxation when you take distributions. If you're truly planning to reinvest profits for years, the C Corp structure might make sense despite the accumulated earnings tax concerns. Just make sure you have a clear business purpose for the retained earnings and document it well. Another consideration: C Corps can carry forward capital losses indefinitely, while individual taxpayers are limited to $3,000 per year in capital loss deductions. If you're doing active trading, this could be significant.

Building on the excellent points about NIIT and loss carryforwards, there's another angle worth considering: the potential for C Corp tax rate changes. While the current 21% rate is attractive, corporate tax rates have historically been more volatile than individual rates. If you're planning a long-term strategy of retaining earnings in the corporation, you're essentially betting that corporate rates will remain favorable. Also, don't overlook the practical complexity of operating a C Corp for investment activities. You'll need separate books and records, potential quarterly estimated tax payments at the corporate level, and annual corporate tax returns (Form 1120). The compliance costs can add up quickly - typically $2,000-5,000 annually in professional fees depending on your activity level and complexity. One hybrid approach I've seen work well for some traders is starting with an LLC structure to keep things simple initially, then converting to C Corp status once the investment activity and profits reach a level where the tax benefits clearly outweigh the additional complexity and costs. The conversion can be done tax-free under certain circumstances, giving you flexibility to adapt as your situation evolves. Have you calculated the break-even point where the C Corp tax savings would exceed the additional compliance and operational costs?