Income Taxes: Done and Over With

Advertiser Disclosure This article/post contains references to products or services from one or more of our advertisers or partners. We may receive compensation when you click on links to those products or services.
Last updated on February 6, 2012 Views: 547 Comments: 20

I decided to bite the bullet and do my income tax return without any professional assistance. I was originally considering working with a tax accountant due to the increased income from my side business. As it turns out, it wasn’t as complicated as I thought it would be. I’m pretty sure I was able to capture all my expenses to offset as much of that income as possible.

I took the standard deduction again this year as I don’t have enough expenses to qualify for itemized deductions. In the end, I owed about $3,000 to the federal government and about $1,000 to New Jersey. That’s quite a tax bill considering I increased my withholding from my day job last year.

I’m investing about $3,000 in a SEP IRA for 2006, the maximum based on my self-employment income, which significantly reduced my tax due. I’m going with Vanguard this time around because I meet the minimum to invest in VTSMX. My other IRAs are held by TIAA-CREF, but Vanguard’s funds are less expensive and TIAA-CREF’s service has not been great the past few years. I will likely invest a few thousand more with Vanguard this year to avoid the $10 annual account maintenance fee.

For 2007, I’ll be making quarterly estimated tax payments so I don’t end up with a big bill next April and to avoid any penalties. This was very easy to set up with the tax software. The payments are scheduled and my savings account will be automatically debited on the due dates.

This was the second year I’ve used TaxACT. The federal return is free to e-file, but there was a small charge to e-file the New Jersey tax return.

If I had worked with a tax accountant, he or she would likely have come to very similar results, as everything was very straightforward, and I keep decent records in Quicken. The benefit of working with a specialist would have been the chance to get some guidance about preparing for next year, now that I formed a corporation for my side business. I am anticipating that next year will be more complicated.

Article comments

20 comments
Anonymous says:

I’m jealous!

I haven’t even gotten around to filing my extension yet.

Anonymous says:

I got my taxes done really early this year. Much better than scrambling to do them last-minute!

Anonymous says:

Sorry to keep asking questions…

I live in NJ too. Do you know of an online calculator for estimated state taxes? Or did you automatically just pay 1/3 of what you paid the feds to the state?

Luke Landes says:

NCN: Thanks!

Anonymous says:

Hey Flex,
Just wanted to comment on the site re-design. It looks great!
NCN

Anonymous says:

Excellent! Thanh VERY much for your help!

Luke Landes says:

That’s right. When you make the SEP contribution, as long as you make it as your employer (your brokerage should let you choose to invest as the employer or as the employee) it does not count towards your Traditional/Roth IRA maximum.

(I am not a financial advisor, and I only know this because I went through the process myself this year and a year ago.)

Anonymous says:

The calculator helps a ton! thanx much!

Just so I’m clear, I can max out my Roth for 2007 ($4000) and still put moolah in the SEP?

thanx again for your help!

Luke Landes says:

Klerg: 25% of your income from your Schedule C can be invested in your SEP IRA up to $44,000 for 2006, above and beyond your regular (Traditional/Roth) IRA limits.

Here’s the handy calculator I use.

Anonymous says:

Hey Flexo. Just curious RE: your SEP-IRA:

I’ve got a VERY small amount of side income that I’m claiming on a Schedule C for 2007 (maybe $3000). How much can I put in the SEP? 15% of what I claim on a Schedule C can go into it? Or can the full wack go in?