Do you, as an Employee, Spend Money to Perform Your Job?

Most employees incur expenses to do their jobs.  You might drive for your job or use your cell phone or home internet or maintain a home office.  You, as an employee, have no way to deduct these un-reimbursed expenses on your individual tax return (those deductions go wasted).  Instead, consider asking your employer to replace part of your wage with an expense reimbursement.  Example:  If you earn $50,000 and incur $5,000 of un-reimbursed expenses (driving, cell phone, internet, supplies, home office), then you pay FICA tax and income tax on $50,000.  If you ask your employer to instead pay you $45,000 as a wage and $5,000 of reimbursement, then you now pay FICA tax and income tax on $45,000 even though you are still being paid $50,000…saving you $1,200 of tax/year.

Want to Contribute to a Roth IRA, but you Earn Too Much?

If you earn over $161K (Single filers) $240K (Joint filers), then you cannot directly contribute new money to a Roth IRA. You might be able to “backdoor” the contribution though. If you don’t have pre-tax money in a Traditional IRA, then: 1. Create a Traditional IRA and make “nondeductible” contributions (up to $8,000). 2. Convert the nondeductible Traditional IRA to a Roth IRA.

Do you have a child in college?

There are many tricks (or a combination of tricks) to make sure that the college expense produces tax savings:
• Take the AOC or LLC college credit up to $2,500
• Deduct the tuition and fees
• Don’t claim the child as a dependent and let the child claim himself (best for child to have earned income of at least $10K) and take the AOC credit
• Make a portion of the child’s scholarships taxable on the child’s return to “free up” tuition for the AOC credit
• Withdraw college funds from your Traditional IRA and avoid the 10% early withdrawal penalty
• Contribute $7.5K to the Indiana 529 and then turn around and withdraw it to pay for college and save $1.5K in tax
• Hire the child in your corporation and deduct their tuition