As someone who made the transition from employee to contractor two years ago, I can definitely relate to the sticker shock of paying for your own health insurance! The good news is that you're very likely eligible for significant tax savings. Since you're a contractor, you should qualify for the self-employed health insurance deduction, which is one of the best tax breaks available. Here's what makes it so valuable: **Key Benefits:** - It's an "above-the-line" deduction on Schedule 1, meaning you get it even if you take the standard deduction - You can deduct premiums for medical, dental, and vision coverage - It reduces both your regular income tax AND self-employment tax **What You Can Deduct:** - Your $650/month ($7,800/year) in premiums - Any premiums for your spouse and dependents - Even some long-term care insurance premiums **Important Limitation:** You can only deduct up to your net profit from self-employment (after business expenses and half of your self-employment tax). But unless you're paying more than you earn from contracting, this won't be an issue. **Pro Tips:** 1. Keep detailed records of all premium payments - bank statements plus insurance billing statements work great 2. Remember you can only deduct premiums you actually pay out of pocket (not any subsidized portions if you use marketplace insurance) 3. Consider other contractor deductions like home office, business phone, equipment, etc. to further reduce your tax burden At your income level, this deduction could easily save you $1,500-$2,500 in taxes. Make sure to keep excellent records and consider consulting a tax professional if your situation gets complex. The investment in proper tax planning as a contractor usually pays for itself many times over!

I went through this exact same situation when I transitioned from employee to contractor in 2023! That $650/month definitely stings, but the tax benefits help a lot. Since you're a contractor, you almost certainly qualify for the self-employed health insurance deduction. This is WAY better than the medical expense deduction because: 1. You get it regardless of whether you itemize or take the standard deduction 2. It goes on Schedule 1 as an "adjustment to income" 3. It reduces both your regular income tax AND your self-employment tax **What you need to know:** - You can deduct the full $7,800/year in premiums (assuming your net self-employment income is at least that much) - This includes medical, dental, and vision insurance for you, spouse, and dependents - Keep all your payment records - bank statements showing payments to your insurance company work fine **One important caveat:** You can only deduct up to your net profit from self-employment. So if you made $30,000 from contracting but had $5,000 in business expenses, your limit would be around $22,000 (after factoring in the deductible portion of SE tax). But at $7,800 in premiums, you're probably well within the limit. The math works out to significant savings - at a 22% tax bracket plus 15.3% SE tax, you could save around $2,900 on that $7,800 deduction! Definitely keep detailed records and consider talking to a tax pro if you have any other complications like marketplace subsidies or mixed income sources.

Has anyone else noticed that FreeTaxUSA is actually better at finding deductions than TurboTax? I switched this year and somehow got an extra $720 on my refund with the exact same info.

Thanks for this detailed review! I've been dreading doing my taxes this year because I have my first backdoor Roth conversion to deal with. After reading your experience and the comments here, I'm definitely going to skip TurboTax and go straight to FreeTaxUSA. The price difference alone is compelling - saving $75+ while getting better functionality seems like a no-brainer. Really appreciate you taking the time to share this, especially the specific details about how FreeTaxUSA handles the Form 8606 reporting better than TurboTax. One quick question - did you have to upgrade to any premium features for the backdoor Roth reporting, or was that included in the base federal filing fee?

Just to add another perspective - make sure you're keeping detailed records of any business purchases! I learned this the hard way when I got audited a couple years ago. The IRS wanted receipts, proof of business use, and documentation showing the laptop was used exclusively (or what percentage) for business vs personal use. For IT consulting work like yours, a laptop is usually pretty straightforward to justify, but keep records of when you use it for business, any business software installed, client work done on it, etc. A simple log or even calendar entries can help establish the business use pattern. Also consider whether you might want to finance or lease equipment instead of buying outright - sometimes the monthly payments are easier to manage cash flow wise, and you still get the tax benefits spread over time.

Great question! I think there's a lot of good advice here already, but let me add one more important point about timing and cash flow planning. Since you mentioned you'll owe around $1300 when you file, remember that if you do make qualifying business purchases, you'll still need to pay that $1300 upfront when filing - the tax savings from business deductions come as a reduction in what you owe, not as a separate refund check. Also, as a self-employed person, you might want to look into making quarterly estimated tax payments for 2025 to avoid a big tax bill next year. If your income is growing, you could end up owing even more next April. The IRS generally expects you to pay as you earn, and there can be penalties for underpaying during the year. For the laptop question specifically - if your current one is truly dying and impacting your ability to serve clients, then yes, it's a legitimate business expense that will reduce your taxable income. Just make sure to buy it based on business need first, tax savings second. And definitely keep all the documentation others mentioned!

One important aspect that hasn't been fully addressed is the Spanish tax implications once you establish residency there. Spain has a "Beckham Law" (Ley Beckham) that might be relevant to your situation - it allows new Spanish tax residents to pay tax only on Spanish-sourced income for up to 6 years, rather than on worldwide income. However, this special regime has specific requirements: you must not have been a Spanish tax resident in the 10 years prior to moving, your work must be performed in Spain, and you need to apply within 6 months of becoming a Spanish tax resident. If you qualify, this could significantly simplify your Spanish tax obligations while you're running your US S-Corp. Also, regarding your S-Corp distributions - these will likely be treated as dividends under Spanish tax law and may be subject to different rates than your salary income. Spain generally taxes dividend income at progressive rates (19-28% depending on the amount), but the US-Spain tax treaty should allow you to credit Spanish taxes paid against your US tax liability. Make sure you're aware of Spain's Modelo 720 reporting requirement if you have foreign assets (including your US bank accounts and S-Corp shares) exceeding €50,000. The penalties for non-compliance are severe, so it's crucial to stay on top of this reporting obligation. I'd strongly recommend consulting with a Spanish tax advisor who specializes in US expats to ensure you're taking advantage of all available benefits and meeting all compliance requirements.

One crucial aspect I haven't seen mentioned yet is the potential impact on your S-Corp election itself. The IRS has specific rules about S-Corp shareholders, and extended foreign residency can sometimes complicate things, especially if you end up becoming a non-resident alien for tax purposes (though as a US citizen, this is less likely). More importantly, you'll want to be very careful about how you document your work location for the IRS. Since you're physically in Spain but working for your US S-Corp, make sure you can clearly demonstrate that your business activities and decision-making are still US-based if questioned. This can help support your position that the S-Corp income is US-sourced rather than Spanish-sourced. Also, consider the timing of your S-Corp distributions carefully. Since Spain taxes dividend income progressively and you might be able to use the foreign tax credit, it could be beneficial to time larger distributions in years when your Spanish tax rate is lower or when you have other foreign tax credits available. One last tip: keep meticulous records of your physical presence in each country. This will be essential for both the Foreign Earned Income Exclusion calculations and for Spanish tax residency determinations. I use a simple spreadsheet tracking entry/exit dates, but there are also apps designed specifically for this purpose. The intersection of S-Corp taxation and international living is complex, but definitely manageable with proper planning and documentation!

Has anyone here actually created a retirement account for their kids from S corp earnings? My daughter is 14 and makes about $7k a year in my business and I'm wondering if it's worth setting up a Roth IRA for her or if there's some other tax strategy I should be using.

Great discussion here! I just want to add one thing that's helped me tremendously with S corp payroll for my kids - make sure you're keeping really detailed records of their actual work hours and tasks. The IRS can be pretty strict about "reasonable compensation" even for family members. I created a simple time tracking system where my kids log their hours and what they did each day. For the marketing/photo work, I keep copies of the actual materials they appeared in and notes about which photo shoots they participated in. This documentation has been invaluable when my accountant prepares our quarterly payroll reports. Also, don't forget that you'll need to issue them W-2s at the end of the year just like any other employee. The payroll software I use makes this pretty straightforward, but it's something to plan for if you're doing payroll manually. The Roth IRA suggestion is spot on too - getting them started on retirement savings this early is such a gift you can give them!