Isn't there also some rule about the total percentage of your income you can contribute across all retirement accounts? I thought I read somewhere that you can't put more than 25% of your income into retirement accounts total?

There is a percentage limit, but it only applies to the employer contribution portion of retirement plans. For a Solo 401k, you can contribute up to 25% of your net self-employment income as the "employer" contribution, on top of your "employee" contribution (the $23,000 limit). This doesn't affect Roth IRA eligibility or contribution limits at all. Your Roth IRA contribution is completely separate and only limited by the annual maximum ($7,000 for 2025 if under 50) and having enough earned income to cover it. Since your income is around $31,500, you're well within these limits and should be able to contribute to both accounts without any problem.

I've been doing my taxes wrong then! I thought the 401k limits were completely separate from IRA limits (which they are), but I didn't realize that the total contribution still had to be less than my business profit. My side hustle only makes about $15k but I've been maxing my solo 401k from it thinking I could use my W2 income to "cover" the rest of the contribution. Is that not allowed??

Terrible advice. The IRS computers automatically match ALL W-2s against your filed return regardless of amount. Skip it and you're pretty much guaranteed to get a letter demanding the additional tax plus interest and penalties. The system is fully automated for this kind of matching, it's not about them "choosing" to come after you.

You're probably right, and I wouldn't recommend anyone else do what I did. I got lucky that year, but it's not worth the risk. The IRS matching system doesn't catch everything immediately, so sometimes issues like this can surface years later with added penalties. Better to deal with it properly upfront rather than potentially having a bigger headache down the road.

Great question! The reason tax professionals generally advise reporting it is because the IRS has already received a copy of that W-2. If you don't report it, their automated systems will flag the mismatch. The ideal solution is absolutely to get the company to issue a corrected W-2, but that can take time and companies aren't always responsive. If you can't get it corrected before the filing deadline, you have two options: 1) File Form 4852 (Substitute for W-2) explaining the discrepancy, or 2) Report the income and then file an amended return later if the company issues a correction. Either way, it's important to document your attempts to resolve the issue with the employer. Keep copies of emails, names of people you spoke with, and dates of your communications. This documentation is valuable if the IRS questions the situation later.

That makes sense! So it's more about avoiding the automated flag than actually paying tax on money you never received. I guess $63 wouldn't be much tax anyway, but it's the principle of the thing. Thanks for explaining!

Does having multiple entities create more paperwork and higher accounting costs? I'm in a similar situation with my flooring business and some rental properties, but my accountant charges me per entity for tax filings.

Yes, having multiple entities does increase paperwork and accounting costs. I pay about $800 more annually in accounting fees and have additional state filing fees. However, the tax benefits and liability protection far outweigh these costs in my situation. The biggest advantage is clarity - there's no question about which expenses belong to which business. This makes documentation much cleaner if you ever face an audit. It also helps with planning because you can see the true profitability of each venture. My landscaping business seemed less profitable than it actually was when I was running some development costs through it incorrectly.

I'm curious about your point #3 regarding having your business be a contractor for your own real estate projects. I do electrical work and have rental properties too. How exactly do you document this to make sure it passes muster with the IRS? Do you create formal contracts between your entities?

I've heard people recommend using crypto tax software that keeps track of your cost basis across different platforms. Do you think that's necessary, or is just keeping my own records in a spreadsheet good enough?

A spreadsheet can be sufficient if you're diligent and have relatively simple crypto activity. I started with spreadsheets myself. But they become cumbersome quickly, especially if you're dealing with multiple exchanges, token swaps, staking rewards, or DeFi transactions. The key advantage of specialized crypto tax software is that it handles complex situations like FIFO vs LIFO accounting methods, tracks cost basis across platforms, and automatically identifies which specific coins were sold from your holdings. The IRS allows different accounting methods, and your choice can significantly impact your tax liability, especially if you bought the same crypto at different price points.

I used FreeTaxUSA for my crypto last year. They handle it pretty well! You'll need to enter each transaction manually on Form 8949, but the interface makes it straightforward. Just make sure you've calculated your cost basis correctly beforehand. If you have tons of transactions, it can get tedious, but for a reasonable number it works great.

What counts as "substantially identical" though? I've heard different things from different sources. Like if I sell an S&P 500 ETF (like SPY) at a loss, can I buy a different S&P 500 ETF (like VOO) within 30 days? They track the same index but are technically different funds.

Substantially" identical is unfortunately one of those gray areas in tax law. The IRS'hasn t provided extremely clear guidelines, which is why it can be confusing. For ETFs tracking the same index, like SPY and VOO both tracking the S&P 500, many tax professionals consider them substantially identical because they have nearly identical performance and holdings. So swapping between them would likely trigger wash salerules.

I used TurboTax Premier last year and it did identify some wash sales when I imported my 1099-B from my broker. But I noticed it missed some wash sales that spanned December to January (across tax years). I had to manually adjust those. Make sure you're checking transactions that happened in January 2024 against any December 2023 sales at a loss.