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Best strategies to lower AGI (line 11) for tax year 2023 filing
So I'm trying to figure out how to reduce my adjusted gross income (AGI) which shows up on line 11 of my 1040 form for the 2023 tax year. My income jumped quite a bit last year when I switched jobs (about $78,000 total), and I'm worried about getting pushed into a higher tax bracket. Plus I'd qualify for some credits if I could just get my AGI down a bit more. I've already maxed out my traditional IRA contribution ($6,500), but I'm wondering what other options I have at this point? I know we're getting close to the filing deadline and I probably should have planned better, but I'm hoping there are still some things I can do. I've heard about HSA contributions, but I'm not sure if I can still make those for 2023. Also, what about business expenses? I did some freelance work on the side last year but didn't track expenses very well. Would contributing to my old 401k from my previous employer help at all? Any advice would be greatly appreciated!
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Need advice for handling large IRS tax debt - overwhelmed and need guidance
This is really embarrassing to admit, but I'm desperate for help. I've been self-employed since finishing my degree about 5 years ago and have consistently filed my taxes each year. The problem is I've gotten myself into a massive hole with the IRS. When I started my freelance career, someone told me I needed to make quarterly estimated tax payments, but honestly, I was 23 and struggling to make rent. I thought those quarterly payments were optional suggestions, not requirements. So I skipped them completely. When tax time rolled around, I was shocked by how much I owed, so I set up a payment plan. I didn't understand that skipping quarterly payments meant penalties and interest. The next year, my car needed major repairs and other expenses came up, so I continued to skip the quarterly payments, thinking "I'm already making monthly payments on last year's taxes, so I'm good." This pattern just kept repeating year after year. Then I got married, and my wife lost multiple jobs back-to-back during the pandemic. My income was keeping us afloat, and we needed every penny, so I kept neglecting those quarterly payments while just maintaining the monthly payment plans for previous years. Fast forward to now - I owe around $48,000 to the IRS from 2020 forward. I finally understand I absolutely need to make those quarterly payments, and my wife has stable employment now. We're trying to get it together, but we have a 3-year-old son and our expenses (rent, cars, childcare) are through the roof. My monthly payment plan is now $625, and I can barely cover that plus current quarterly payments. I know I need to pay way more than this to ever get out from under this debt, but I'm drowning and don't know what to do. I'm terrified this will just keep getting worse. Sorry for the long post. It took everything in me to admit this publicly. I feel physically sick typing this out, but I know I need help before this spirals even further.
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One option nobody has mentioned yet is bankruptcy. If some of your tax debt is more than 3 years old, you might be able to discharge it in bankruptcy. There are specific rules about which tax debts qualify, but it could potentially wipe out a big chunk of what you owe. I went through chapter 7 bankruptcy last year and was able to discharge about $20,000 in tax debt from 4+ years ago. You still have to meet certain criteria - the returns need to have been filed at least 2 years before bankruptcy, the assessment needs to be at least 240 days old, and you can't have committed fraud. Bankruptcy has other consequences obviously, but if you're truly drowning in debt, it might be worth talking to a bankruptcy attorney who specializes in tax issues.
Thank you for mentioning this option. I had no idea tax debt could be discharged through bankruptcy. Is that something that applies to all types of tax debt or just income tax? And did it affect your credit score as badly as people say?
Bankruptcy can only discharge income tax debt, not payroll taxes, fraud penalties, or certain other types. The debt needs to be from a return that was due at least 3 years ago, filed at least 2 years ago, and assessed by the IRS at least 240 days ago. Yes, bankruptcy did impact my credit score - it dropped about 150 points initially. However, it's already started recovering, and the relief of not having that massive tax debt hanging over me was worth it. I've been able to start rebuilding my credit, and some lenders actually see me as a better risk now because my debt-to-income ratio is so much better without the tax debt. I recommend at least having a consultation with a bankruptcy attorney who specializes in tax issues. Many offer free initial consultations, and they can tell you exactly which portions of your tax debt might be dischargeable.
If you're dealing with IRS debt, consider contacting the Taxpayer Advocate Service. They're an independent organization within the IRS that helps taxpayers resolve problems. Their services are free and they can help negotiate with the IRS on your behalf, especially in cases of financial hardship. I was in a similar situation with about $42k in tax debt and couldn't afford the payments they wanted. The Taxpayer Advocate helped me get into Currently Not Collectible status when I was at my financial lowest, which paused all collections. Later, they helped me set up a reasonable payment plan based on what I could actually afford. Their website is https://www.taxpayeradvocate.irs.gov/ and you can find your local office there. It might take some persistence to reach them, but they can be incredibly helpful when you're overwhelmed.
Were you able to get your penalties reduced too? I've heard the IRS sometimes gives "first time abatement" but wasn't sure if that applies when you've already been on payment plans.
Need help filing HSA as a deduction - confused about employer contributions!
I'm really struggling to figure out my HSA deduction on my taxes this year. I've already entered all my W-2 information into TurboTax, but I'm totally confused about how to handle my HSA. My health savings account has both my personal contributions and about $800 that my employer kicked in throughout the year. I've used the HSA multiple times for various medical expenses. On my W-2, I can see my employer's contributions (around $800) listed in box 12 with a code, but I'm not sure what to do with this information. TurboTax is asking me questions about my HSA that I don't understand, and I'm worried about double-counting the contributions or missing deductions I'm entitled to. Should I be entering the HSA information somewhere else, or is it already included since it's on my W-2? I don't want to mess this up and either pay too much in taxes or end up getting audited. Has anyone dealt with HSA deductions before? Any guidance would be super helpful!
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One thing nobody mentioned yet - make sure you're not confusing an HSA with an FSA! They sound similar but are totally different for tax purposes. HSA (Health Savings Account): - Stays with you forever, even if you change jobs - Contributions from both you and employer are tax-advantaged - Unused money rolls over year to year - Need a qualifying high-deductible health plan to contribute FSA (Flexible Spending Account): - Usually use-it-or-lose-it each year - Only available through employers - Different contribution limits - Different tax reporting requirements I've seen people try to deduct FSA contributions like they were HSA contributions and that can trigger big problems with the IRS!
This is such an important distinction! I messed this up one year and it was a nightmare to fix. Quick question - if you have access to both an HSA and FSA (limited purpose FSA), can you contribute to both in the same year? My benefits coordinator gave me conflicting info.
Yes, you can contribute to both an HSA and a Limited Purpose FSA in the same year. The key is that it must be a "Limited Purpose" FSA that only covers dental and vision expenses, not a regular medical FSA that covers all healthcare expenses. Regular medical FSAs would make you ineligible for HSA contributions, but the Limited Purpose FSAs are specifically designed to work alongside HSAs. This combination actually gives you the most tax advantages, as you can use the Limited Purpose FSA for immediate dental/vision needs while letting your HSA investments grow for future medical expenses.
For anyone still confused about HSA deductions, here's the simple version that helped me understand: 1) EMPLOYER CONTRIBUTIONS: Already tax-free, shown on W-2 Box 12 with code W 2) YOUR PAYROLL DEDUCTIONS: Already tax-free, also reflected on your W-2 3) YOUR PERSONAL CONTRIBUTIONS (from your bank account): These are the ones you claim as a deduction HSA Limits for 2023: - $3,850 for individual coverage - $7,750 for family coverage - Extra $1,000 allowed if you're 55+ TurboTax sometimes makes this more complicated than it needs to be!
The limits for 2024 are higher just fyi: - $4,150 for individual coverage - $8,300 for family coverage Plus still the +$1,000 for 55+ folks
Is the contribution limit per calendar year or plan year? My company's health plan runs July-June but taxes are Jan-Dec. Always confuses me when figuring the max I can contribute.
I owe $48,000 in taxes due by May 15th but don't have the money. What are my options?
So I really screwed up this year. I got into trading stocks for the first time and did pretty well - turned about $8k into almost $200k by December. The problem? I never set aside any money for taxes. Fast forward to now and the market has been tanking since January. My portfolio is down significantly, and I've calculated that I owe $48,000 in taxes by the filing deadline. The thing is... I don't have anywhere near that amount available right now. I know I messed up big time - no need to lecture me on that. I'm fully aware I should have been making quarterly estimated payments or at least putting money aside. Lesson painfully learned. What I need to know is what options I have with the IRS at this point. Can I set up some kind of payment plan? Are there penalties I should expect? Is there any way to delay payment until I can gather the full amount? I really don't want this to spiral into something worse than it already is. Any advice from people who've been in similar situations would be really appreciated!
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One thing nobody's mentioned yet - consider whether using a low-interest loan to pay the IRS might be better than an installment plan. I had a $22k tax bill last year, and I ended up taking a personal loan at 8% to pay it off because the combined penalties and interest from the IRS were going to be higher. Credit unions sometimes offer good rates, and if you have good credit, it might be worth exploring. Also, if you have a 401k, you might be able to take a loan from that (though be careful with this option).
Wouldn't using a credit card work too? Especially if you can get one of those 0% intro offers? My tax bill is much smaller than OP's but I was thinking of going this route.
Credit cards can work for smaller amounts, but there are a few things to consider. First, most credit cards charge a processing fee (usually around 2-3%) when paying taxes. Second, those 0% intro offers typically only last 12-18 months, and $48,000 would be hard to pay off in that timeframe. If you can't pay it off before the promotional period ends, you'll get hit with much higher interest rates than what the IRS charges. For smaller tax bills, credit cards with promotional rates can definitely make sense if you have a solid plan to pay it off before the promotional period ends. Just make sure to calculate the processing fee into your total cost comparison.
Anyone know if the irs will settle for less than what u owe? I heard something about that but not sure how it works... in a similar boat with about 35k owed
You're thinking of an Offer in Compromise (OIC), which allows you to settle your tax debt for less than the full amount. However, it's not as easy as people think. The IRS only accepts an OIC if they genuinely believe they can't collect the full amount from you, either now or in the future. They'll look at your income, expenses, asset equity, and ability to pay. Most OICs get rejected because people have the means to pay through an installment agreement. If you have assets you could sell or a decent income, it's unlikely to be approved.
Can I skip claiming Schedule C expenses to maximize my Solo 401k contributions?
I run a small bookkeeping side business as my only source of income. I'm trying to figure out the most tax-advantageous way to handle my retirement contributions and business expenses, and wondering if I have to claim all available deductions on Schedule C. Here's my situation: * About $19,500 in bookkeeping income for the year * Roughly $4,000 in annual QuickBooks and other software expenses * Looking to contribute to my Solo 401k I'm considering two different approaches: Scenario 1: * $19,500 Income from bookkeeping * $4,000 in software expenses deducted on Schedule C * $15,500 net profit * $15,500 Solo 401k contribution * $0 taxable income Scenario 2: * $19,500 Income from bookkeeping * $0 claimed for expenses on Schedule C * $19,500 Solo 401k contribution * $0 taxable income Either way, my tax liability would be zero since I'd be contributing everything to retirement. My income is well below the contribution limits for an individual 401k. Am I required to deduct all my business expenses on Schedule C? I'd rather maximize my retirement contributions and just pay for my business expenses out of pocket. Is this allowed? Thanks for any advice!
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Something nobody's mentioned yet - you also need to consider self-employment tax. If you don't deduct your business expenses, you'll pay more in SE tax (15.3% on the first $160,200 for 2023). By accurately reporting your $4,000 in expenses, you'd save about $612 in SE tax ($4,000 × 15.3%). That's money you could then invest elsewhere or use to cover business costs. Not claiming legitimate business expenses is essentially overpaying your taxes.
That's an excellent point I hadn't considered. So even if I'm able to zero out my income tax through 401k contributions, I'd still be paying unnecessary SE tax if I don't claim my business expenses. Could you explain a bit more about how the SE tax calculation works with Solo 401k contributions?
Exactly! Solo 401k contributions don't reduce your self-employment tax liability - only your regular income tax. SE tax is calculated on your net earnings from self-employment (Schedule C profit) before any retirement plan contributions. So if you have $19,500 in income and don't deduct that $4,000 in expenses, you'd pay SE tax on the full $19,500. But if you properly deduct the $4,000, you'd only pay SE tax on $15,500. At the 15.3% SE tax rate, that's a savings of about $612. That's real money you'd be leaving on the table by not claiming legitimate expenses!
I actually messed this up a few years ago thinking I could choose which expenses to report. My accountant later told me the Schedule C should reflect the true economic reality of your business - you don't get to pick and choose which expenses to report based on what gives you the best tax outcome.
Did you get audited or have any issues with the IRS over it? I've been wondering how they would even know if you didn't report some expenses.
Oliver Zimmermann
Don't forget about qualified charitable donations if you're over 70.5! My father dropped his AGI significantly by having his RMDs sent directly to charities. Doesn't show up on line 11 at all.
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Connor O'Neill
Does that QCD strategy help if you're not taking RMDs yet? I'm only 42 but I do donate about $3,000 a year to my church.
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Oliver Zimmermann
Unfortunately, the QCD strategy only works if you're at least 70.5 years old and are withdrawing from IRAs. At 42, your charitable donations would be itemized deductions rather than AGI reducers, and they go on Schedule A rather than directly reducing line 11. However, there is a strategy that might work for you - if you have a small business or freelance income, you might be able to structure some of your charitable giving as business sponsorships, which could be business expenses that reduce your AGI. This only works if there's a legitimate business purpose though, like advertising or promotion for your business.
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CosmicCommander
Has anyone looked into health insurance premium deductions if you're self-employed? That directly reduces AGI and is pretty substantial.
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Natasha Volkova
Yes! I did this last year. If you're self-employed and not eligible for coverage through an employer (yours or spouse's), you can deduct 100% of your premiums. For me that was about $14,000 for my family plan! It's an adjustment to income on Schedule 1, so it directly reduces AGI.
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