Thanks for this tip! So if I understand correctly, I could still potentially avoid the penalty even now? My broker is Vanguard - would I just call them and ask for a "return of excess contribution" specifically for my 2020 contribution? Do you know if there's a time limit for doing this correction?

Yes, you would call Vanguard and specifically request a "return of excess contribution" for tax year 2020. Be very clear about which tax year you're correcting. There is a time limit - ideally you want to do this before the tax filing deadline for that year (including extensions). Since we're well past the 2020 deadline, you'll still owe the 6% penalty for 2020, but removing the excess now stops you from owing the penalty for subsequent years too. The excess contribution continues to be penalized 6% every year until you either remove it or "absorb" it by using up part of a future year's contribution limit.

I second FreeTaxUSA! TurboTax really struggles with Form 5329 and excess contributions. My tax preparer actually recommended I switch to FreeTaxUSA specifically for handling my IRA issues.

22 How do you estimate what you owe if you don't have time to do the calculations? That's the part that confuses me about extensions.

7 You make an educated guess based on last year's return and your current situation. The simplest method is to look at what you paid last year, then adjust up or down based on whether you earned more or less this year. You want to pay enough to avoid underpayment penalties. Another approach is to do a rough calculation using your 1099s and W-2s, estimating major deductions but not worrying about getting everything perfect. It's better to slightly overpay and get a refund later than underpay and face penalties. Just make sure to submit the payment with your extension form by April 18th.

19 Did they actually save you money compared to TurboTax though? I've heard mixed things about H&R Block for anything complicated.

Couldn't this be considered some kind of tax avoidance scheme? I thought the IRS had rules against transferring assets just to create tax advantages?

Transfers between spouses are explicitly allowed under IRC Section 1041, which states that "no gain or loss shall be recognized on a transfer of property from an individual to a spouse." This isn't considered tax avoidance but a legitimate planning strategy. The key distinction is that my spouse is genuinely a different taxpayer with a separate SSN. Once the assets are transferred, they legitimately belong to my spouse, who then has the right to select their preferred cost basis method for those newly acquired shares. This differs from trying to change the method on your own shares after you've already made an election.

Those robo-advisors typically use specific identification method from the start, so they avoid the average cost basis problem entirely. But they won't help with existing mutual fund positions that are already using average cost basis. You'd have to sell everything (potentially creating a taxable event) and then move to their platform.

Thanks, that makes sense. I guess there's no easy solution once you're stuck with average cost basis. I'll make sure to use specific identification for any new investments going forward.

That's a really interesting approach I hadn't thought of. Do you know if they take a percentage for administration, or how the fee structure typically works with community foundations?

Most community foundations charge an administrative fee between 1-3% of the assets they manage for giving circles. This typically covers tax reporting, donation processing, and basic administrative support. Some may have a minimum annual fee regardless of your circle's size, often around $500-1000. The advantage is they handle all the tax receipting, ensure donations go only to qualified organizations, and provide the legal structure that makes contributions tax-deductible for your members. Many will also provide a online platform for your giving circle to use. One thing to consider is that you'd need to operate within their policies, which might limit flexibility somewhat compared to running it yourself.

That's really smart! Did you have to get board approval or anything? Also do regular Rotary members get tax deductions for their contributions?

Thanks for mentioning this! My second job actually just increased my hours, so I'll probably be making about 25% more there than when I first did the W4 calculation. Should I just redo the entire IRS calculator or is there a simple adjustment I can make?

Definitely redo the entire calculator with your updated income projections. There's no simple adjustment because the calculator is considering tax brackets, your whole annual income, and how much has already been withheld year-to-date. With a 25% increase at your second job, that could potentially push some of your income into a higher tax bracket, so you want the calculator to recompute everything. While you're at it, make sure both jobs have the correct W4 settings. For the highest-paying job, use the results from the calculator. For the second job, you might want to check the box in Step 2(c) or use the multiple jobs worksheet to ensure enough is being withheld there too.

This happened to me too! That $701 sounds about right for adjusting withholding after marriage mid-year. Just don't forget to submit a new W4 in January like others said.