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Quick tip from someone who does this regularly - if your income is genuinely below all thresholds, you might not even need to file a self assessment next year. You can call HMRC and ask to be taken out of self assessment if you no longer meet the criteria. Common reasons people stay in self assessment unnecessarily: - They had a one-off income spike - They started self-employment but then stopped - They previously had multiple income sources but now just have PAYE Just something to consider if your situation has changed permanently.
That's really helpful, thank you! My situation was exactly that - I had a side business that generated decent income in 2020-2021, but I closed it down last year. Would I just call HMRC after filing my 2021-2022 return to ask to be removed from self assessment?
Yes, that's right! Complete your 2021-2022 return first (which will show your income is below thresholds), then call HMRC and explain that you've closed your business and no longer need to be in the self assessment system. They'll ask a few questions to confirm you don't meet any of the criteria, and if they agree, they'll remove you from the system. Make sure you keep the confirmation they send you about this. Most people find it's a huge relief not having to worry about the annual self assessment deadline anymore!
Just to add to what others have said - be careful with the timing. If you reduce your payment on account and later your actual income turns out to be higher than you estimated, HMRC will charge interest on the underpayment. Not trying to scare you - if your income is genuinely below thresholds then you're fine! But I made a mistake once where I forgot about some dividend income that pushed me over the threshold, and ended up paying interest.
One thing nobody's mentioned - make sure your kids have SSNs or ITINs! The Credit for Other Dependents (family tax credit) requires a valid taxpayer ID for each dependent. I learned this the hard way last year when I tried to claim my nephew who had just moved to the US and didn't have his ITIN yet. Also, double-check the relationship test. The Credit for Other Dependents is more flexible than the Child Tax Credit, but there are still relationship requirements. Most tax software will walk you through it, but it's good to know before you count on that money.
Do you know if I can claim this credit if my kids split time between me and my ex? We have 50/50 custody but alternate claiming them as dependents each year. This year is my year to claim them.
Yes, you can claim the Credit for Other Dependents in a shared custody situation when it's your year to claim the children as dependents. When parents alternate years for claiming dependents (which is common in divorce agreements), the parent claiming the dependent for that tax year gets all the associated tax benefits, including the Credit for Other Dependents. Just make sure you have the proper documentation that shows it's your year to claim them according to your custody agreement. This prevents both parents from accidentally claiming the same child, which would trigger IRS notices.
Does anyone know if this credit phases out at higher incomes? I make about $150k and sometimes tax benefits disappear for me.
One thing to consider is taking out a loan to pay the taxes if the interest rate would be lower than IRS penalties. I had a similar issue (owed about $18k) and took out a personal loan at 8.9% to pay it off, which was better than the combined IRS penalties and interest. Credit unions sometimes offer decent rates for this kind of thing, or you might qualify for a 0% intro APR credit card that could buy you 12-15 months to sort things out.
Wouldn't a HELOC be even better if they own a home? The rates are usually much lower than personal loans.
Yes, a HELOC would definitely be better if you own a home with sufficient equity. The rates are typically much lower than personal loans, often in the 4-6% range currently. Plus the interest might be tax-deductible if you use it for home improvements (though not for paying taxes). I suggested a personal loan because many traders who get caught in this situation are younger and might not own property yet. But you're absolutely right that a HELOC is a better option if available.
Has anyone mentioned Form 9465? That's the Installment Agreement Request. You can setup a plan for up to 72 months.
One thing nobody's mentioned yet - if you contributed to a Roth when you were over the income limit, you probably also need to account for any earnings on that excess contribution. The 6% penalty applies to both the excess contribution AND its earnings. Did your custodian provide a breakdown of how much of that recharacterized amount was principal vs. earnings? This might explain why your numbers don't perfectly align.
My custodian did break it down - there were about $78 in earnings on the excess amount. Does that change how I should handle the forms? So confused about why I'm still paying penalties even after doing what I thought was the right thing.
That explains it! When you recharacterize, both the contribution and earnings get moved. But for the 6% penalty calculation, you're still considered to have made an excess contribution until you properly "use up" that contribution amount. You need to either: 1) reduce your 2024 Roth contribution by the $390 excess amount, or 2) remove the $390 from your retirement accounts entirely. The earnings situation is properly handled through the recharacterization, but the "slot" of contribution is what's creating the ongoing penalty. Form 5329 has a specific line where you can claim a "credit" for addressing the prior year's excess. Make sure to complete that for 2024 once you've taken one of these steps, and you'll stop the penalty cycle.
Question for people who've dealt with this: Does tax software automatically handle these forms correctly or do we need to manually override things? I'm using H&R Block software and it seems confused by my recharacterization.
In my experience, NO tax software handles Roth recharacterizations correctly, especially when they span multiple tax years. I had to manually override several fields in TurboTax last year. The biggest issue is that the tax software interview questions don't properly distinguish between recharacterization vs conversion, and they don't track your basis correctly across tax years. I'd strongly recommend either getting professional help or at minimum running your completed forms by a tool that specializes in these situations before filing.
Thank you! That's really helpful. I think I'll have to do some manual overrides then. I was worried I was doing something wrong but it sounds like the software itself just doesn't handle these complex situations well.
Aurora St.Pierre
Honestly, most people are wasting money at places like H&R Block. I've used TaxSlayer for the last 3 years and it's been way cheaper (around $60 total for federal and state) and super easy to use. Has all the same features as TurboTax but without the higher price tag. Unless you have a really complicated situation (like owning a business, multiple rental properties, or complicated investments), the tax software options are more than enough. The people at those tax prep places are usually just entering your info into similar software anyway, but charging you $200+ for the privilege!
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Grace Johnson
β’Do you know if TaxSlayer handles crypto transactions well? I did some trading last year and heard that can be a nightmare to report correctly.
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Aurora St.Pierre
β’TaxSlayer does handle crypto transactions, but I found it to be somewhat limited for more complex crypto situations. It works well if you have straightforward trades from major exchanges that provide good documentation. If you have extensive crypto activity across multiple platforms or DeFi transactions, you might want to use specialized crypto tax software first (like CoinTracker or Koinly) to generate the necessary forms, then import those into TaxSlayer. That's what I did this year after struggling with manual entry last year, and it was much easier.
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Jayden Reed
Spent 15 years as a tax preparer and here's my honest take: the best tax accountants are local CPAs or EAs (Enrolled Agents) who specialize in your specific situation. BUT they're expensive ($350-600 typically). For most people with W-2s and simple investments, TurboTax, TaxAct, or FreeTaxUSA are perfectly fine and will save you hundreds. The big chains like H&R Block often employ seasonal workers with just basic trainingβyou're paying premium prices for entry-level knowledge. One trick: if your adjusted gross income is under $73,000, you can use the IRS Free File program partners to file federal taxes completely free. Many states have similar programs.
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Nora Brooks
β’This is super helpful! Is there any way to know if I qualify for free file without going through the whole process first? I'm right on the edge income-wise.
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