Thanks for this insight! She did have retirement contributions, but they weren't anywhere near 23% of her income. She contributed about $7,500 to her 401k on a salary of around $65,000. Would there be any way to verify if this is the case rather than an error? Her previous paystubs don't break down the local wage calculation.

That 401k contribution wouldn't explain a 23% difference by itself. At $7,500 on a $65,000 salary, that's only about 11.5% of her income, so there would need to be additional factors to reach 23%. The best way to verify is to request a detailed wage and tax statement from the payroll department. Unlike regular paystubs, this report typically shows exactly how taxable wages were calculated for each jurisdiction. Ask specifically for a "taxable wage breakdown by jurisdiction" or "tax basis report." Most payroll systems can generate this report, though smaller companies might be less familiar with it. Another approach is to check if your locality has any unusual exemptions. Some cities and counties have very specific rules about what compensation is taxable. You could contact your local tax authority directly and ask what types of compensation are exempt from local taxes but subject to state taxes. They deal with these discrepancies regularly and might immediately recognize what's happening in your case.

That's terrible advice. A 23% difference could mean hundreds or even thousands of dollars in incorrect taxes. If the W-2 is wrong, you absolutely should get it fixed rather than paying taxes on incorrect wage amounts. It affects not just this year but potentially future audits too.

What exactly is a Spousal IRA? Is that different from a regular Traditional IRA? We do file jointly, so this sounds like it might be relevant for us. Also, she's not diplomatic staff - she works in their cultural affairs office, so I think she's considered regular administrative staff. Would that still qualify for any special tax treatment?

A Spousal IRA isn't actually a special type of account - it's just a regular Traditional or Roth IRA that a working spouse can contribute to on behalf of a non-working spouse. In your case, since your wife is working, it wouldn't apply directly. I misunderstood your situation initially. For administrative staff at foreign embassies, the tax treatment depends on the specific tax treaty with that country. Generally, administrative staff don't get the full tax exemptions that diplomatic staff receive, but there might still be special provisions. Some administrative staff are exempt from FICA taxes but still pay federal income tax. The pay stubs should indicate if taxes are being withheld.

That's actually terrible advice for retirement planning. Tax-advantaged accounts like IRAs are almost always better than taxable accounts for long-term retirement savings. The tax-free growth over decades makes a massive difference in the final balance.

I wasn't suggesting to completely ignore retirement accounts - just pointing out an alternative since they already have some retirement savings and might want flexibility. You're right that the tax-advantaged growth in IRAs is valuable, but taxable accounts have advantages too - no early withdrawal penalties, no RMDs, and potentially favorable capital gains rates. The ideal approach is usually a mix of both tax-advantaged and taxable accounts to give yourself options in retirement. Plus, with the contribution limits on IRAs being relatively low, many people need to use both types of accounts to save adequately for retirement anyway.

Is there a good app you recommend for tracking all that stuff? I'm terrible at keeping receipts but need to start if I'm gonna do this right.

Quickbooks Self-Employed is what I use - you can connect your bank account/credit card and it will automatically categorize expenses. It also has a built-in mileage tracker that uses your phone's GPS. Everlance and Stride are good free options if you're just starting out. The key is consistency - set aside 15 minutes each week to review your expenses and mileage, categorize everything correctly, and upload any paper receipts. Take photos of receipts immediately when you get them so you don't lose them. This regular maintenance makes tax time so much easier than trying to reconstruct everything at the end of the year.

This is super important! My brother tried to claim his whole car payment for his food delivery side gig and got audited. The IRS doesn't play around with vehicle deductions - they're one of the most scrutinized areas of tax returns.

Thanks for this insight! I checked my policy docs and it is indeed a participating whole life policy. Called my insurance company this morning and they confirmed that about 40% of what's being reported on the 1099-INT is actually considered dividend/return of premium. They're sending me a corrected statement that breaks this down clearly. Would you happen to know which form or schedule I need to use to properly report this split between taxable interest and non-taxable return of premium? The rep wasn't super clear on the tax filing part.

You'd report the taxable interest portion on Schedule B along with your other interest income. There's no special form needed for the non-taxable return of premium portion - you simply don't include that amount in your taxable income. Make sure to keep the documentation from your insurance company explaining the breakdown, especially the corrected statement. This will be important if you ever get questioned about why you reported less than the full amount shown on the original 1099-INT.

I had the same issue with TurboTax last year! I switched to FreeTaxUSA and it let me properly split out the amounts without giving me error messages. Much cheaper too.

Wait seriously?? I had no idea! I got a refund from my school last semester after scholarships and just thought it was "free money." Does this mean I need to report it as income? How would the IRS even know?

Yes, you definitely need to report scholarship money that exceeds qualified expenses as income on your tax return. The school reports the scholarship amounts to both you and the IRS on forms like the 1098-T, so there's a record of what you received. The IRS may not immediately catch if you don't report it, but they can certainly flag your return later if they notice discrepancies between what was reported by your school and what's on your tax return. It's not worth the risk of an audit or penalties. Plus, depending on your income level, you might still qualify for education credits that offset any tax you'd owe on that excess scholarship money.

Student loans don't appear on your 1098-T. That form only shows tuition payments the school received and scholarships/grants they administered. Loans are separate since they're not "payments" or "scholarships" - they're money you have to pay back. You should receive a separate form 1098-E from your loan servicer showing how much interest you paid on student loans during the year, which might give you a tax deduction (separate from credits).