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9 One important thing nobody's mentioned - if you're earning self-employment income, even as a dependent, you can start contributing to a Roth IRA! It's a great way to start saving early. Just make sure you don't contribute more than you actually earn. I started doing this when I was 17 with my freelance income going through my mom's accounts and it was one of the best financial decisions I ever made.
3 Wait, is that really true even if you're claimed as a dependent? I thought dependents couldn't open retirement accounts.
9 Yes, it's absolutely true! Being claimed as a dependent doesn't affect your ability to contribute to a Roth IRA. The only requirements are that you have earned income and don't exceed the contribution limits (either your total earned income or $6,500 for 2023, whichever is lower). Many parents miss this opportunity for their working teens. It's a fantastic way to start building tax-free retirement savings early, and the compound interest over decades is incredible. I opened mine at Vanguard with help from my parents when I was still in high school.
16 Make sure to also consider state taxes in your planning! Depending on where you live, you might need to file a state return as well. I learned this the hard way when I didn't file a state return for my side gig and got a surprise bill with penalties.
I was in almost the exact same situation last year! One thing to consider that nobody's mentioned yet - check your withholding status on your W-4. When the tax laws changed a few years back, a lot of people with dual incomes had issues with underwithholding. If both you and your spouse have jobs, you might need to use the "Two Jobs" worksheet on the W-4 or check the box in Step 2, and possibly add additional withholding in Step 4(c). Since you mentioned you're both at "0" allowances, that makes me think you might be using an older W-4 form - the new form doesn't use allowances anymore. My wife and I were getting killed with a big tax bill every year until we fixed this!
Thank you for bringing this up! We haven't updated our W-4s in years, and I didn't realize the form had changed. Do you know if it's too late to adjust withholding for this year to make any difference for the upcoming April tax bill? Or would this only help for next year?
It's probably too late to make much difference for this year's April tax bill since there are only a few pay periods left in December. However, I strongly recommend updating your W-4s now so you don't face the same issue next year. The new W-4 form is completely different from the old one. Instead of claiming allowances, you now need to account for multiple jobs either by checking a box in Step 2 or using the online IRS Tax Withholding Estimator. Given your income level, you might also need to add an additional dollar amount to be withheld from each paycheck in Step 4(c). Focus on your 401k contributions for this year's tax bill, and get your withholding right for next year.
One quick thing to check - did your income jump significantly around the time you started owing $7k? Or did either of you switch jobs? Sometimes when your income increases, it pushes you into a higher tax bracket or phases out deductions you were previously eligible for. Also, have either of you started taking withdrawals from retirement accounts? At 65+, Required Minimum Distributions can really throw off your tax situation if you're not prepared for them.
Has anyone used SimpleTax (now Wealthsimple Tax) for Canadian Non resident taxes? I heard they support non-resident returns but I'm not sure if it's comprehensive enough for my situation with both US and Canadian income.
Don't forget that the deadline for non-resident Canadian returns is still April 30, unlike the US deadline which is in mid-April (or June 15 for US citizens living abroad). I've missed this deadline before and had to pay penalties, so mark your calendar!
Actually, if you have Canadian self-employment income, the deadline is June 15, even for non-residents! But any balance owing is still due by April 30 to avoid interest charges.
Just want to add that I was in this exact situation in 2019. I forgot to include a W-2 from a 2-month contract job, realized it the next year, and decided to just "let it slide" because the difference was only about $300. BIG MISTAKE. The IRS sent me a notice almost exactly 18 months later. By that time, with interest and the late payment penalty, I ended up owing almost $450 instead. Plus it was super stressful getting that IRS letter. If I could go back, I would have just filed the amended return right away.
Thanks for sharing your experience. This is exactly what I was worried about. I think I'm going to go ahead and file the amended return this week. Better to just deal with it now than have it hanging over my head.
Good call! It's definitely the smart move. The peace of mind alone is worth it. And like others have mentioned, the penalties are usually much less severe (or even waived completely) when you correct the issue yourself instead of waiting for them to find it.
Don't freak out but definitely fix it. IRS has a First Time Penalty Abatement program if this is ur first time making a mistake like this. Just file the 1040-X, pay what u owe, and include a letter requesting "first time penalty abatement" explaining it was an honest mistake. Worked for me last yr!
Can confirm this works! First Time Penalty Abatement saved me about $200 in penalties when I messed up some 1099 income reporting two years ago. You just need a clean compliance history for the past 3 years.
Ava Kim
Something to consider - even though you technically only need to fill out Part 3, I usually fill in zeros for the lines in Parts 1 and 2 that don't apply to me rather than leaving them completely blank. My accountant friend told me that completely blank sections can sometimes trigger additional scrutiny, while zeros clearly show you didn't skip anything by accident. Probably doesn't matter much either way, but thought I'd share what I've been doing for years without any issues.
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Ethan Anderson
β’If you put zeros in Parts 1 and 2, do you need to do any calculations or just literally put 0 in each box? And have you ever been audited or questioned about your Roth withdrawals?
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Ava Kim
β’You just put a zero in each box, no calculations needed for parts that don't apply to your situation. It's just to show you didn't accidentally skip that section. I've never been audited specifically about my Roth IRA withdrawals. I did get a general review letter once about three years ago, but it was about something completely different (they questioned some business deductions). My Roth withdrawal reporting with the zeros-not-blanks approach has never been flagged in the 12 years I've been doing it this way.
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Layla Mendes
Quick question for everyone - I'm using TurboTax to file and it's automatically filling in some fields in Parts 1 and 2 even though I only have Roth contribution withdrawals. Should I override it to leave those parts blank or just let the software do its thing?
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Lucas Notre-Dame
β’In my experience, let the software do its thing. TurboTax is programmed to complete forms correctly based on your inputs. If it's filling parts 1 and 2, it's probably putting zeros or calculating something based on your overall tax situation that might be relevant. Tax software is designed to handle these nuances.
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