Doesn't that strategy risk owing penalties if you end up owing too much at tax time? I thought there were rules about having to pay enough throughout the year.

You're right to be concerned about that! You do need to be careful not to underwithhold too much. The general rule is you need to pay at least 90% of your current year tax liability OR 100% of last year's tax liability (110% if your income is over $150,000) through withholding and estimated payments to avoid underpayment penalties. What we did was calculate it pretty closely so we'd either get a very small refund or owe just a little bit. This way we avoided the penalties while also preventing large refunds that would be automatically applied to old debts. It takes a bit more planning, but the IRS has a good withholding calculator on their website that helps make sure you're still meeting the requirements.

Yes, the standard 10-year statute of limitations for IRS collections does apply to shared responsibility payments. The clock starts ticking from the date the tax was assessed, not the tax year itself. So if the assessment happened in 2017 for a 2016 tax issue, the IRS would have until 2027 to collect. Keep in mind that certain actions can extend this timeline, like if the taxpayer requests a payment plan or submits an offer in compromise. But barring any extensions, the IRS generally has 10 years to collect on this type of debt.

Oh no, I had no idea about quarterly payments! How do you even calculate how much to pay each quarter when freelance income is so unpredictable? Do you just guess?

You don't have to guess exactly. The IRS allows you to use the "annualized income installment method" for irregular income. Basically, you calculate your tax based on what you've earned so far in each quarter. Most tax software can help you calculate this, or you can use the IRS Form 1040-ES worksheet. Another approach is to set aside a percentage of each payment you receive (maybe 25-30%) in a separate savings account. Then use that to make your quarterly payments as best you can estimate.

The EITC is great but it's way less helpful for people without kids. I think at $28k for a single person with no dependents the credit is tiny or might not qualify at all. The system is really stacked against childless low-income workers.

That's really helpful to know! I'll definitely be paying my accountant to help sort this out. Do you know if there's a specific way I should document these fees to make it clear they're related to my business rather than personal tax preparation?

Ask your accountant to itemize their invoice to clearly show the time spent dealing with the business retirement plan issues. The description should specifically mention "consulting services for business retirement plan compliance" or similar business-focused language. Keep this invoice with your business records, not just your tax records. If the accountant's work includes both personal and business tax matters, having them provide separate invoices for the business portion is even better. Clear documentation of the business purpose is your best protection in case of questions later.

I went through this last year. For excess employer contributions in a solo 401k, your plan administrator will issue a 1099-R with code "E" if you do a corrective distribution. You'll owe income tax on any earnings from the excess amount, but it's better than paying the excise tax year after year. However, if you're the administrator of your own solo 401k (many self-employed people are), you'll need to generate the 1099-R yourself, which can be tricky. I ended up hiring someone just for that part.

How exactly does the employer know you did a disqualifying disposition? I'm confused about the reporting requirements here. Do you have to tell them when you sell the shares?

Your brokerage is required to report transactions back to your employer for ISO shares. When you exercise ISOs, the shares are typically "marked" or tracked in a special way. When you sell them, your employer is notified of the sale and can determine if it was a qualifying or disqualifying disposition based on the holding periods. This is why it's generally not possible to "hide" a disqualifying disposition from your employer. They'll find out and will include the income on your W-2. This coordination happens behind the scenes between your brokerage and your employer's equity administration team.

This is super helpful! I definitely need to start tracking this better. Do you have a template or example spreadsheet you could share?

I don't have a shareable template, but here's what my tracking columns look like: Grant date | Vest date | # of options | Exercise date | Exercise price | FMV at exercise | Total exercise cost | Exercise spread | AMT paid | Sale date | Sale price | Holding period | Tax treatment (qualified/disqualified) I also include a notes column for things like "partial sale of 50 shares" or "used AMT credit this year for shares exercised in 2023" etc. The most important thing is just to start tracking now before it gets complicated. Even a simple spreadsheet is better than trying to reconstruct everything later from brokerage statements.

Thank you for bringing up the income thresholds! My total income will be around $135,000 this year, so it sounds like I'd be under the phaseout range. Is there any difference in how the QBI works for real estate versus other types of businesses? And do you know if having an LLC makes it more likely to qualify?

At $135,000 you're definitely below the threshold, so no phaseout concerns for you. Real estate is treated somewhat differently for QBI purposes - the main distinction is whether your rental activity is considered a "trade or business" or just an investment activity. The LLC structure alone doesn't automatically make your rental qualify for QBI. The IRS looks at the actual substance of what you're doing regardless of how it's structured. That said, having a proper business structure with separate accounts, formal leases, and professional management practices helps support your case that it's a true business. The best approach is to carefully document all time spent on rental activities (by you or contractors), maintain detailed records, and consider electing to group all your rental properties together as a single enterprise if you have multiple properties. This can help you meet the 250-hour requirement more easily.

I claimed QBI for my short-term rentals last year and got a notice from the IRS asking for documentation of my hours. I sent them my activity logs and invoices from contractors, and they accepted it without further questions. The key was having detailed records that showed exactly when work was performed and by whom.