Can contributing to my Roth IRA reduce taxes on my 1099 income?

5 Thanks for explaining! So if I understand right, a Traditional IRA would help but not a Roth? What's the difference between a SEP IRA and Solo 401k? My side gig is just freelance design work, not sure if that matters.

12 You've got it right - Traditional IRA contributions directly reduce your taxable income while Roth contributions don't provide an immediate tax benefit (though they grow tax-free and withdrawals in retirement are tax-free). For your freelance design work, both SEP IRA and Solo 401(k) would work well. The main difference is contribution limits. A SEP IRA is simpler to set up but only allows employer contributions (about 20% of your net self-employment income). A Solo 401(k) requires more paperwork but allows both employer and employee contributions, potentially letting you save more. With your 1099 income around $13k, a Traditional IRA might be sufficient unless you want to maximize tax-advantaged savings.

17 How accurate is this service? I've tried other tax calculators before and they always seemed too generic to handle my specific situation with multiple income sources.

22 Does it actually connect to your accounts or do you have to input everything manually? I hate typing in all my info just to get basic advice.

8 It's actually super accurate because it uses the latest tax code and regulations, not just generic calculations. What makes it different is that it handles all the specific interactions between different income types - like how your 1099 income impacts your overall tax bracket and what that means for your retirement choices. You don't have to connect your accounts directly - you just upload your documents (W2s, 1099s, etc.) and it extracts the information automatically. Takes about 5 minutes to get personalized recommendations based on your actual tax situation. No tedious manual entry of every little detail.

14 Wait, how does this actually work? The IRS phone system is notoriously impossible... how can a third party service get you through?

22 This sounds like a scam. Nobody can magically get through the IRS phone queue. They probably just put you on hold themselves and charge you for it.

3 It's actually pretty clever - they use an automated system that navigates the IRS phone tree and waits on hold for you. When they reach a real person, you get a call connecting you directly to the agent. The whole point is you don't have to waste hours listening to hold music. They don't just put you on hold themselves - the technology does the waiting for you, and you only get charged if they successfully connect you to an agent. I was skeptical too until I tried it. Saved me literally hours of frustration, and the tax advice I got from the IRS agent ended up saving me way more than what the service cost.

1 Do I really need to make quarterly payments? My 1099 work is pretty inconsistent throughout the year.

11 Yes, you generally should make quarterly payments even with inconsistent income. The IRS expects you to pay taxes as you earn income, not just at the end of the year. If your income is irregular, you can use the "annualized income installment method" by filing Form 2210 - this allows you to make different payment amounts each quarter based on what you actually earned that quarter, rather than paying equal amounts. Alternatively, if your W2 job withholds enough to cover 90% of your total tax liability or 100% of last year's tax (110% if your income is over $150,000), you can avoid the quarterly requirement. But this usually means increasing your W2 withholding.

6 I used TurboTax Self-Employed last year for my mixed income and it was pretty good. It walks you through all the potential deductions for your 1099 work which was helpful. But I found it missed some of the retirement account optimization others mentioned here. If your situation is relatively simple, it works fine, but if you want to optimize your retirement contributions across different income sources, you might need additional advice.

This is super helpful advice! I had no idea about the health insurance premium deduction - that could save me a lot since I pay for my own coverage. Quick question though - when you mention tracking car mileage for business, does that include driving to coworking spaces or just client meetings? I work from different locations sometimes and wasn't sure if that counts as business travel.

Great question about the mileage! Yes, driving to coworking spaces can definitely count as business mileage, but it depends on your specific situation. The key is whether it's "ordinary and necessary" for your business. If you're driving to a coworking space because you need the professional environment, better internet, or to meet clients there, that's typically deductible business travel. However, if it's just your regular commute to what the IRS considers your "regular workplace," it might not qualify. Here's the trick: if you work from multiple locations and don't have a fixed principal place of business, then travel between these work locations is usually deductible. Keep a simple log noting the business purpose for each trip - "meeting with client," "accessing better wifi for video calls," "using specialized equipment," etc. Also, don't forget you can choose between actual vehicle expenses (gas, maintenance, depreciation) or the standard mileage rate (65.5 cents per mile for 2023). Track both for a month and see which method gives you a bigger deduction!

This is really solid advice! The separate business checking account tip is something I wish I'd known earlier - I'm currently scrambling to sort through my personal expenses to find business ones. Quick question about increasing W-4 withholding vs quarterly payments - is there any advantage to one over the other? I'm thinking the W-4 route might be simpler since my 1099 work is pretty sporadic, but I don't want to miss out on any benefits of doing quarterlies properly. Also, does timing matter for tax purposes, or does the IRS just care that the total amount gets paid by the end of the year?

Great question about W-4 vs quarterly payments! There are actually some key differences to consider: Timing DOES matter to the IRS - they want taxes paid as you earn income throughout the year, not just a lump sum in April. However, W-4 withholding is treated as if it was paid evenly throughout the year, even if you increase it late in the year. This is a huge advantage! With quarterly payments, if you miss a deadline, you can get hit with penalties even if you pay everything by April 15th. So if your 1099 income is sporadic, increasing W-4 withholding is often the better strategy. You avoid the quarterly payment deadlines and the headache of estimating irregular income. The downside is you're essentially giving the government an interest-free loan if you overwithhold, but for many people the peace of mind is worth it. Another benefit of the W-4 approach: if you have a big 1099 project late in the year, you can increase your withholding then and it covers the whole year retroactively. Try to aim for having your total withholding cover at least 90% of this year's tax liability or 100% of last year's (110% if your AGI was over $150k).