Thanks for this breakdown! But what about the tax deductions for health insurance premiums and retirement contributions? I've heard those can make a big difference for self-employed folks.

Good point! Self-employed health insurance premiums are generally deductible "above the line" which means they reduce your adjusted gross income. Same with retirement contributions to SEP IRAs, Solo 401(k)s, etc. So if your friend pays $6,000 annually for health insurance and puts $10,000 into a SEP IRA, that could reduce their taxable income by $16,000, which would save roughly $4,000-5,000 in income taxes depending on their bracket. That would increase their take-home by the same amount.

I've been using QuickBooks Self-Employed for about 2 years now. It automatically tracks mileage, lets you categorize expenses, and calculates your quarterly tax payments. It's not perfect (sometimes categorizes things wrong), but it's been pretty close on the tax estimates.

Thanks for pointing this out. I actually think we might have messed up how we entered our income on the calculator. We put in our annual salaries but I'm wondering if we should have included the value of our benefits too? We both have health insurance, dental, and contribute to our 401ks - none of which we included in the calculator. Would that make a difference in the withholding calculation?

No, you did that part correctly. The withholding calculator wants your gross income before any deductions for benefits or 401k contributions. What might have happened is that you may have entered something incorrectly in the "adjustments" section. The new W4 form is confusing because it asks for "deductions other than the standard deduction" rather than total deductions. I'd suggest trying again with the calculator but check each entry carefully. Make sure you're entering your anticipated tax credits correctly too. And be sure to indicate that you're married filing jointly on both of your W4 forms. Another possibility is that your previous withholding as single filers was too low, and the calculator is now correcting for that on top of your married status, which would explain the large adjustment.

In most cases, filing jointly is better. Filing separately means you lose a lot of tax benefits like student loan interest deduction, child tax credits, earned income credit, etc. It's usually only beneficial in very specific situations like if one spouse has huge medical expenses or income-based student loan payments. I'd recommend running your taxes both ways before deciding, but for most couples, jointly is the way to go.

Thanks for the info! I didn't realize filing separately meant losing so many deductions and credits. We have student loan interest deductions so it sounds like joint is probably still best for us. I guess I'll just have to accept the higher withholding for now and see what happens when we actually file next year. Maybe we'll end up with a nice refund to make up for the monthly budget squeeze.

That's a good suggestion about adding a buffer. I hadn't considered that. How do you handle the timing of your Roth conversions throughout the year? Do you do them all at once, or spread them out quarterly to match when you're making the estimated payments?

I spread my conversions throughout the year rather than doing them all at once. This gives me more control and helps with cash flow since I'm making estimated tax payments quarterly anyway. I usually do slightly larger conversions in the first half of the year, especially if the market is down. This gives those converted amounts more time to potentially grow tax-free in the Roth. By December, I have a clearer picture of my exact tax situation and can make a final conversion that precisely hits my target bracket maximum.

Most tax software isn't designed for future year planning like this. I've had good luck with Excel spreadsheets that you can update with the new tax brackets each year. The IRS usually announces inflation adjustments for the upcoming year around October/November.

Thanks for confirming what I suspected! The tax software just isn't built for this kind of forward planning. I guess I'll need to build my own spreadsheet or look into some of the dedicated retirement planning tools mentioned in this thread.

I believe what you're thinking of is Interpretation Bulletin IT-518R. It talks about food, beverage, and entertainment expenses. The CRA distinguishes between expenses incurred for entertainment purposes (50% limit) and those that are part of your income-earning process (potentially 100% deductible).

What counts as "improvements" vs regular maintenance? Like if I put in a new transmission, is that an improvement or just maintenance? What about new tires or a sound system?

Great question! Improvements are additions or changes that add value to the vehicle beyond its original state, while maintenance just keeps the vehicle in working order. A new transmission would generally be considered maintenance since it's replacing an essential component that wore out. Same with new tires - that's normal maintenance. However, a new sound system, upgraded engine parts that enhance performance, custom paint jobs, or aftermarket additions like a high-end security system would typically count as improvements that increase your basis in the vehicle.

Yep! Minnesota resident here and our state has different rules than federal. I had to pay state tax on my car sale profit even though it was small enough to not trigger federal taxes. Check your state tax guidelines!

Exactly! Each state has its own approach. Some states follow the federal capital gains rules, others have separate vehicle sales tax provisions, and a few might not tax it at all. Always worth checking your specific state's department of revenue website before making assumptions based only on federal advice.