That's good to know! Is there anything I can do to lower my AGI if I'm close to the cutoff? I'm currently single making around $35k, so I think I'm still under the limit, but I'm expecting a raise soon.

Contributing more to your pre-tax 401(k) is actually one of the best ways to lower your AGI! Those contributions come out before your AGI is calculated. For example, if you're at $39,000 and the limit is $38,250, contributing an extra $750 to your 401(k) would get you under the threshold. Health Savings Account (HSA) contributions also reduce your AGI if you have a high-deductible health plan. Traditional IRA contributions can reduce AGI too, but that might be limited since you participate in a workplace plan.

This explains so much! Been using TaxAct for years and they have weird descriptions for some credits. Wonder how many people miss out on credits they qualify for because of confusing descriptions.

Based on IRS rules, your boyfriend would need to file as Single, not Head of Household. To file as HOH, he would need a "qualifying person" who is either his qualifying child or qualifying relative. Since you're already using your child's SSN for EIC purposes, your boyfriend generally can't use the same child as his qualifying person for HOH status. This is a common issue in unmarried couples with children. Only one taxpayer can claim a specific child for purposes like this, and using the SSN for EIC essentially "locks in" that child to your tax return for these purposes.

Thanks for clearing that up! We've been doing it wrong for years then. Does this mean we should file amended returns for previous years? Or just start filing correctly going forward?

Not a dumb question at all! If they got married, they could file jointly which would eliminate the HOH issue entirely. Married Filing Jointly often provides better tax benefits than two separate returns (one HOH and one Single). When filing jointly, they could claim their daughter as a dependent (if she otherwise qualifies) and also claim EIC if they meet the income requirements. Married Filing Jointly sometimes has higher income thresholds for certain credits too. However, there can occasionally be a "marriage penalty" if both partners have similar high incomes.

How much did that third-party compensation study cost? And did you have a tax attorney help set all this up or did you DIY it? Seems like a lot of complexity just to avoid some taxes.

The compensation study cost about $3,500, but was worth every penny when the IRS came calling. I did have a tax attorney help set everything up initially - cost around $8,000 for all the documentation, agreements, and structure. Yes, it's not cheap upfront, but I've saved well into six figures in taxes over three years. It's not just about tax savings though. The structure actually makes business sense for us - the C-Corp focuses on production and operations while the S-Corp handles strategy and growth initiatives. Having the separation has helped us clarify roles and responsibilities within the company.

I'm in NY and ran into similar issues. The state was much more aggressive in challenging our management fee structure than the feds were. Ended up having to restructure everything after a state audit that disallowed most of our inter-company transactions.

Thanks for pointing this out. Did you have to pay any penalties for overcontributing? And how complicated was the process to remove the excess?

I didn't have to pay penalties because I caught the overcontribution before filing my taxes and had the excess removed. The process wasn't simple though. I had to contact the plan administrator and request a "return of excess contributions." They had to calculate not just the excess amount but also any earnings attributed to that excess. The returned excess contributions were added to my taxable income for the year they were distributed, not the year I contributed them. The earnings on the excess were taxable in the year they were distributed. The plan administrator sent me a 1099-R showing the distribution with a special code indicating it was a return of excess contributions. It was definitely a headache I don't want to repeat!

This is the correct answer! I work in benefits administration for a large university. The confusion usually comes from people misunderstanding the relationship between different plan types. The 415(c) limit (which was $58,000 in 2021 and is now $69,000 for 2024) applies across all qualified plans of the same employer EXCEPT for 457(b) plans, which have their own separate limit.

Thanks for confirming! It's amazing how much misinformation circulates about retirement plan limits. Even financial advisors sometimes get the details wrong about these specialized situations. One more thing I should mention to the OP - if your employer has a 457(b) plan available (which many educational and non-profit organizations do), that's probably what people are referring to when they say you can contribute "double" the limit. You could potentially max out both your 403(b) and a 457(b) in the same year.

Thanks for mentioning this! I had no idea they might send a paper check instead. Do you know if there's any way to specifically request direct deposit for the amended return refund?

Unfortunately, there's no option to request direct deposit for amended return refunds specifically. The 1040-X form doesn't have a section for bank information like the regular 1040 does. The IRS defaults to paper checks for amendments as a security measure, since amendments are processed differently than original returns. Just keep an eye on your mail around the time they say it should be completed. The check will come in a standard government envelope that can easily be mistaken for junk mail if you're not careful!

E-filing amendments is definitely the way to go now. I did one last month and could see it in the system after just 9 days!