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The bonus withholding issue is super common! One thing nobody has mentioned yet is that you can actually ask your employer to withhold at a higher rate specifically for the bonus. Most payroll systems allow your employer to withhold at a different rate for supplemental wages (like bonuses) versus regular wages. You might want to talk to your HR or payroll department about withholding 25% or even 30% on that bonus instead of the standard 22% if you're worried about owing. I had my company do this for my annual bonus last year and it was the first time I didn't get hit with a tax bill in April!
I didn't know you could do that! Do I just need to tell HR I want a higher percentage taken out of my bonus specifically, or is there a special form for that?
No special form needed! Just talk to your payroll or HR department and let them know you'd like additional withholding on your bonus payment specifically. Most payroll systems can easily handle this request. If they seem confused, you can mention that you're referring to the "optional flat rate withholding for supplemental wages" and that you'd like them to withhold at a higher percentage than the standard 22%. Some companies might have a form they use internally, but it's not an IRS requirement.
Something else that might be happening - check if your employer is properly withholding for Social Security and Medicare (FICA taxes). I just went through this myself. My employer was withholding correctly for federal income tax but wasn't taking out enough for FICA. I didn't notice until I did my taxes and saw I owed a bunch. Apparently there was some setting in their payroll system that was calculating it wrong for my specific situation. Might be worth double-checking your paystubs to make sure everything looks right across all tax types, not just federal income tax!
How would you even know if the FICA withholding is correct? Isn't that just a flat percentage?
Don't overlook a Health Savings Account (HSA) if you opt for a high-deductible health plan! I'm a solo attorney with an S-Corp and this has been a game changer for me. For 2025, you can contribute up to $4,150 for individual coverage or $8,300 for family coverage. The triple tax advantage is amazing - contributions are pre-tax, growth is tax-free, and qualified withdrawals are tax-free. I've been maxing mine out every year and using it as another retirement vehicle (you can invest the funds just like a retirement account).
Can you contribute to both an HSA and a Solo 401k in the same year? Or are there limits if you're doing both?
Yes, you absolutely can contribute to both an HSA and a Solo 401(k) in the same year! There's no limitation or reduction in contribution limits for having both. They're completely separate types of accounts with different purposes in the tax code. The HSA is tied to having a qualifying high-deductible health plan, while the Solo 401(k) is related to your business income. This is one of the big advantages of self-employment - being able to stack these tax-advantaged accounts in ways W-2 employees often can't.
One more thing to consider - since you're both employer and employee, you can set up a Section 125 Cafeteria Plan to pay for things like dental, vision, dependent care, etc. with pre-tax dollars. Your S-Corp should also be taking the home office deduction if you work from home at all.
I thought S-Corp owners can't participate in cafeteria plans? Something about 2% shareholders being excluded?
Former tax accountant here - one thing nobody mentioned yet about IRC Sec. 1377 elections is that sometimes neither option is clearly better for everyone. It really depends on: 1) When income was recognized during the year 2) When expenses were recognized 3) If there were any unusual transactions (asset sales, etc.) 4) What your personal tax situation is like In some cases, the remaining shareholders might want the election because the business lost money after you left (so they don't want to share those losses with you). In other cases, they might have had big gains after you left (so they don't want to allocate those to you). I'd demand to see month-by-month P&L statements at minimum before signing anything.
This is super helpful. They finally sent over some financial statements after we pushed back, and it looks like they had really uneven income - huge contract payment in April (after we left) and then pretty steady performance the rest of the year. Is there a simple calculation I can do to figure out my tax difference with vs without the election?
The quick-and-dirty calculation is: Without election: Take your ownership percentage ร (days you were owner รท 365) ร company's entire year income With election: Take your ownership percentage ร actual income during your ownership period only So if you owned 10% and were an owner for 59 days (through Feb 28), without election you'd get 10% ร (59 รท 365) ร full year income. With election, you'd get 10% of only what was earned through Feb 28. If that April contract was huge compared to Jan-Feb earnings, signing the election form would likely save you money. Remember though, the company's expenses matter too - not just income.
I had an issue with the IRC Sec. 1377 election last year and the remaining owners tried to pull a fast one on me. The key is to ask for the MONTHLY breakdown of: - Gross revenue - Major expenses - Any significant assets purchased/sold - Any debt taken on or paid off In my case, they were pushing hard for me to sign because they had major expenses coming in Q3/Q4 that would offset the income from earlier in the year. Without the election, I would have shared in those expense deductions. With it, they'd get all the deduction benefit.
Great advice. My company's CFO initially refused to provide monthly data when we asked. We had to have our attorney send a formal demand letter. Amazing how quickly the detailed statements appeared after that! Turned out they had accelerated some income before our departure and pushed expenses to after - totally trying to manipulate the situation.
Has anyone used TurboTax to claim renaissance faire costume expenses? Does it have a special section for work clothing or do you just list it under general business expenses? Also worried it might trigger an audit if I claim too much.
I use TurboTax Self-Employed and it walks you through business expenses including "uniforms and work clothing." Just make sure you're filing a Schedule C (sole proprietor/independent contractor). I claimed about $750 in specialized performance clothing last year with no issues. Just be accurate and keep your receipts!
Don't forget to also deduct cleaning, repair and maintenance costs for your costume! If you're paying to dry clean, mend, or preserve these work clothes, those are legitimate business expenses too. I've been deducting my historical costume maintenance for years.
Mei Wong
Check Box 7 on your 1099-R! That's the distribution code and it determines how the withdrawal is taxed. If it's code "G" for example, it means it was a direct rollover to another retirement account and not taxable. Also look at Box 2a to see if there's a taxable amount. If it shows $0, that might explain why TurboTax is saying you don't need to report it (though you still need to include the form on your return even if the taxable amount is zero).
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AstroAce
โขThanks for this tip! I just checked and Box 7 on my form has code "P" and Box 2a shows $0 as the taxable amount. Any idea what code P means? Could that be why TurboTax is telling me to file it next year?
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Mei Wong
โขCode "P" is used for periodical payments from qualifying plans. If Box 2a shows $0 taxable amount, that would explain why TurboTax is saying you don't need to report it as income this year. However, even with a $0 taxable amount, you still need to include the 1099-R on your return. The software might be trying to tell you that you don't need to pay taxes on it this year, not that you should omit the form entirely. I'd suggest continuing through the TurboTax process - at some point it should ask you to enter the 1099-R information even if the amount isn't taxable.
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Liam Sullivan
Has anybody else noticed TurboTax has been extra glitchy this year? I had a similar issue with my 1099-R where it kept telling me conflicting things about when to file it. Ended up switching to FreeTaxUSA and everything worked fine there.
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Amara Okafor
โขYES! TurboTax kept giving me weird prompts about my retirement distribution too. Switched to H&R Block online and it handled my 1099-R correctly right away. Something seems off with TurboTax this year.
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