Thanks for mentioning this! Is the $250,000 threshold based on the balance at the end of the year, or is it at any point during the year? And do you have any recommendations for providers that offer good flexibility without charging an arm and a leg?

The $250,000 threshold is based on the total assets in the plan at the end of the year (December 31st). So you'll need to file Form 5500-EZ by July 31st of the following year if your balance is $250,000 or more on December 31st. As for providers, I'm using Fidelity for my Solo 401(k) and have been happy with them. Their plan documents allow for both traditional and Roth contributions on the employee side, and they don't charge any setup fees or annual maintenance fees. E*TRADE and Vanguard are also popular options, but Vanguard doesn't offer Roth options for their Solo 401(k) last I checked. Charles Schwab is another good option with no fees, but they don't accept rollovers from other plans if that's something you might need in the future.

I did this calculation last year. For me (33% marginal tax bracket), contributing $30k to my Solo 401k saved about $9,900 in taxes immediately. Even factoring in that I'll pay taxes on withdrawal later, the tax-free growth over 25+ years makes a HUGE difference in the final amount. Plus having that $9,900 working for me now instead of going to the IRS is a big advantage.

That makes sense, thanks for the numbers! I guess I need to consider my time horizon too. I'm probably 20 years from retirement so that tax-free growth would compound significantly. Do you have a recommendation for how much self-employment income makes it "worth it" to set up a Solo 401k? I'm only making about $25k from my side gig right now.

This is really concerning. I'll definitely be talking to our payroll department. Do you know if there's a specific IRS publication or something I can reference when I talk to them? I feel like they might push back since they've been doing it this way for a while.

There's no single IRS publication since this is a state tax issue, not federal. But each state's department of revenue has employer withholding guidelines. For example, Minnesota's website clearly states employers must withhold MN tax from nonresidents who perform services within Minnesota. I'd suggest a different approach: ask your payroll department for their specific policy on multistate withholding and request documentation on how they determine which states to withhold for. If they can't provide this, mention that you're concerned about potential personal liability for unpaid state taxes. That usually gets their attention since they don't want employees filing complaints with state agencies.

This is terrible advice. The states absolutely do care and their systems are increasingly sophisticated at catching non-filers. I work in state tax compliance and see audits triggered all the time for multistate workers who failed to file. Just because you haven't been caught yet doesn't mean you won't be. The statute of limitations for non-filers can be unlimited in some states!

Smart approach! Did you have any issues with the Free File program? I heard they ask fewer questions than the paid versions, which makes me nervous about missing deductions.

I found the Free File program through the IRS site asked all the important questions for my situation. They do have a slightly more basic interface than TurboTax or H&R Block, but all the essential deductions and credits were covered. For someone with a straightforward W-2 job and maybe some basic investment income or student loan interest, it works perfectly. I did notice it might be less intuitive for self-employment or rental property situations, so in your case with the side gig, you might want to evaluate if your potential deductions would exceed the cost of the paid software.

Which app did you use? I tried one last year (can't remember the name) and it kept crashing when I tried to upload my W2.

This is actually brilliant. The psychological barrier of "sitting down to do taxes" is what causes me to procrastinate. Definitely trying the mobile approach next year!

How complicated is the 1040-X to fill out? Can I do it online or do I have to mail it in? The whole reason I'm stressed is because taxes confuse me in general.

For a simple correction like adding interest income, the 1040-X isn't too bad. You can now file amendments electronically through most tax software programs if you used one initially, which makes it much easier. If you filed your original return using tax software, just go back into that program and look for the amendment option. You'll enter the 1099-INT information, and the software should handle all the calculations and proper form completion. The software will walk you through the process step by step, and it's much simpler than filling out a paper form by hand.

This is terrible advice. All income is legally required to be reported, regardless of amount. While the IRS might not catch it or care about such a small amount, advising someone to intentionally not report income is suggesting tax fraud.

Revocable trust = you maintain control and can change/cancel it, but NO tax benefits since assets are still considered yours. Irrevocable trust = once assets go in, you can't take them back or change terms easily, BUT they're no longer part of your taxable estate, so big potential tax savings. Basically trading control for tax benefits.

That's fascinating. So the trust owns the policy, not the person? How do premiums get paid? Wouldn't that be considered a gift to the trust?

Exactly - the trust owns the policy, not the individual. For premium payments, the grantor makes cash gifts to the trust, and then the trustee uses those funds to pay the premiums. Yes, these premium payments are considered gifts to the trust beneficiaries, but that's where the annual gift tax exclusion comes in ($17,000 per beneficiary in 2023). To qualify for this exclusion, beneficiaries need "present interest" in the gifts, so trusts typically include "Crummey powers" - named after the court case that established them - giving beneficiaries temporary withdrawal rights over contributions. Most never exercise these rights, allowing the trustee to use the funds for premium payments instead.