Thanks for suggesting the SEP IRA option. I'm curious though - since my main goal is to take advantage of the mega backdoor Roth strategy, would you still recommend going with the Solo 401k despite the additional complexity? Also, are there any specific providers you'd recommend that definitely support after-tax contributions and in-plan Roth conversions?

If your specific goal is to implement the mega backdoor Roth strategy, then yes, you'll definitely need to go with the Solo 401k despite the extra paperwork. The ability to make after-tax contributions and do in-plan Roth conversions is simply not available with a SEP IRA. For providers that support these features, I'd recommend checking out Schwab, E*TRADE, and Fidelity's Solo 401k options. Not all providers support after-tax contributions or in-plan conversions, so you'll want to specifically ask about those features when setting up your account. Vanguard, surprisingly, doesn't offer these features for their Solo 401k plans despite being popular for retirement accounts.

That's really good to know! I definitely have an established side business that I've been running for a couple years, with multiple clients and proper bookkeeping. I just haven't set up a retirement account for it yet. Is there any specific documentation I should keep to prove the business is legitimate in case of an audit?

Great question! Keep detailed records of everything - client contracts, invoices, payment receipts, business expenses, marketing materials, and correspondence showing you're actively seeking new clients. A separate business bank account is crucial, and document any business licenses or permits you have. Also maintain a business calendar showing time spent on business activities, and keep records of any professional development or training related to your side business. The IRS wants to see that you're operating with a profit motive and treating it like a real business, not just occasional income. Having solid documentation like this will make setting up your Solo 401k much smoother and give you confidence if questions ever arise about the legitimacy of your business.

that gives me hope! did u get any letters in the mail?

nope! just disappeared one day and got my refund the next week

ya claimed EIC... guess thats why im getting the extra attention 🙄

@Yuki Yamamoto That s'exactly it! EIC claims trigger automatic reviews almost every time now. They re'super strict about verifying eligibility. The good news is it s'just a routine check - as long as everything on your return is accurate, it should clear soon. The 810 freeze with EIC usually takes 3-6 weeks to resolve.

Yep, and the requirements got even stricter for 2023. I heard they're working on new reporting rules that will catch even more crypto activity.

Absolutely right. The Infrastructure Bill that passed included expanded cryptocurrency reporting requirements. The IRS is now treating crypto very seriously. They're requiring exchanges to report transactions just like brokerages do for stocks, and they're increasing enforcement in this area. Even small traders need to properly report their activities now.

Is that really necessary for such a small amount though? I made like $4000 on Instacart last year and just paid it all when I filed my taxes. Nobody told me about quarterly payments.

Technically yes, but practically speaking the IRS usually doesn't assess penalties for missed quarterly payments if it's your first year of self-employment or if the total tax due is small. The rule is that you need to pay at least 90% of your current year tax or 100% of your prior year tax through withholding or estimated payments to avoid the penalty. For someone making under $3000 from DoorDash with a total tax bill around $550, any penalty would be minimal even if it was assessed. But it's good to know for the future - if you continue doing gig work and your income increases, you should make quarterly estimated payments to avoid penalties later.

That actually makes me feel a bit better. So even without deductions, I'm only looking at owing the self-employment tax? And if I estimate my mileage and other expenses, that would reduce even that amount?

Exactly! You're only looking at self-employment tax on that $2,850, which is calculated on your net profit after deductions. So if you can legitimately claim mileage and other business expenses, it reduces the amount subject to SE tax. For example, if you drove 3,000 miles for DoorDash deliveries, that's about $2,040 in deductions at 65.5 cents per mile (2023 rate), which would significantly reduce your tax liability. Don't forget you can also deduct things like insulated delivery bags, phone accessories for your car, and a portion of your phone bill. The key is being reasonable and honest about your estimates.

The foreign earned income exclusion mainly applies if you're physically present in the foreign country for 330 days in a 12-month period OR if you're a bona fide resident of the foreign country. Based on what you described, you probably don't qualify since you're splitting time. But you might qualify for partial exclusion or foreign tax credits depending on your specific situation.