Help! I owe a lot in federal taxes this year - is there any way to reduce it?

I'm wondering about the IRA contribution option. Is there a limit to how much you can contribute for the previous year? Also, does it matter if you already have a 401k through work?

Thank you so much for these suggestions! I hadn't thought about the IRA contribution - that's definitely something I could still do. Would that be better than just putting that money toward paying the tax bill directly? I don't think we have enough medical expenses to qualify for that deduction, and we don't have kids yet. The payment plan sounds like it might be necessary. Do you know what the interest rate is for IRS payment plans? I'm worried about making the situation even worse with fees and interest.

For the IRA question, the contribution limit for 2024 taxes is $6,500 if you're under 50 years old ($7,500 if 50+). Yes, you can still contribute to an IRA even if you have a 401k, though your deduction may be limited depending on your income level and whether you're covered by a retirement plan at work. Whether contributing to an IRA is better than paying the tax bill directly depends on your overall financial situation. If you're in the 22% tax bracket, a $6,500 contribution could save you about $1,430 in taxes. Plus, you're building retirement savings instead of just paying taxes. However, if you'd need to withdraw from emergency savings to pay the remaining tax bill, the math might change. The IRS interest rate changes quarterly but is currently around 8%. There's also a failure-to-pay penalty of 0.5% per month (capped at 25%). Setting up a payment plan reduces this to 0.25% per month. The setup fee for payment plans ranges from $31 for online automatic withdrawals to $225 for non-direct debit agreements by phone or mail.

How does it work exactly? Do I need to upload all my tax documents or something? I'm a bit hesitant to share my financial info with random websites.

Sounds too good to be true honestly. You're saying it found deductions that TurboTax or H&R Block missed? What kind of deductions are we talking about that the mainstream software doesn't catch?

You upload your tax documents (W-2s, 1099s, etc.) and it uses AI to analyze them for deduction opportunities. The site uses bank-level encryption and doesn't store your documents after processing, so it's secure. You can also black out personal info like SSNs if you're concerned. The difference is that standard tax software relies on you knowing which questions to answer or which deductions to look for. Taxr.ai actively searches for patterns in your financial data that suggest eligible deductions you might not know about. In my case, it found that my side gig qualified for business expense deductions I wasn't claiming, and identified that my home office met the strict IRS requirements. It also found some charitable contributions I had forgotten about from my bank statements.

Wait, how does this actually work? They somehow jump the queue or something? Seems like it couldn't be legal if they're bypassing the IRS phone system?

Yeah right. Nothing can beat the IRS phone system. I've called HUNDREDS of times and just get the "we're experiencing high call volumes" message and get disconnected. If this actually worked, everyone would be using it. I call BS.

It doesn't jump the queue or do anything sketchy. The system just automates the calling and waiting process. Their technology calls the IRS and navigates the phone tree for you, then holds your place in line. When they detect that a human agent is about to pick up, they instantly call you and connect you to that agent. You still wait the same amount of time everyone else does, but you don't have to sit there listening to hold music for hours. I had the exact same reaction as you - complete skepticism. That's why I was shocked when it actually worked. The IRS has even acknowledged these services exist and hasn't said they're against the rules because they don't actually circumvent any systems - they just automate the tedious parts. Think of it like having someone stand in a physical line for you and then texting you when you're about to reach the front.

That's really interesting, I hadn't heard of this option before. Would this affect my credit score or have any long-term impacts? I'm worried about creating problems for myself down the road.

An Offer in Compromise itself won't directly impact your credit score the way debt settlement with private companies might. However, tax liens used to appear on credit reports (though the credit bureaus removed them from reports in 2018 as part of their National Consumer Assistance Plan). The bigger consideration is that the process is lengthy and there's a filing fee unless you qualify for a low-income exemption. During the review period, collection activities are generally paused, but interest and penalties continue to accrue. If your offer is rejected, you'll owe the original amount plus all accumulated interest and penalties. For most people with a $10k tax bill and regular income, a payment plan is usually more practical. The Offer in Compromise is more suitable for those with very limited income and assets who genuinely cannot pay their tax debt over time.

The HSA tip is gold! I managed to contribute $4,150 to my HSA for the previous year (did it in April before filing) and saved about $900 in taxes. Not enough to fix a $10k problem but every bit helps. For next year, def adjust your W-4 at your new job. When I started my new job I put "0" allowances and had them withhold an extra $100 per paycheck. Made a huge difference.