Lifestyle

Let’s Have A Low-Stress Tax Season

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April 15th, that dreadful tax day is fast approaching. But it doesn’t have to be stressful. In previous years, I’d be going over our accounts and entering the numbers into H&R Block by now. However, I’m taking a different approach this year. I’m not going to stress about taxes at all. Serenity now! Read on to see how I’ll avoid stress this year.

For 2023, the tax due date is April 18th. You’ll have an extra weekend to deal with your taxes. I won’t need it, though.

Stressful March and April

March and early April used to be very stressful for me. That’s because I file our own taxes. It has gotten more complicated over the years, but I still like to do it. I want to learn all I can about the tax codes and any updates. Also, I can optimize our taxes by plugging in different numbers for next year. For example, I can check how much I should contribute to my solo 401k. If my income is low, it might not be worth it. Why pay more taxes if you can minimize them?

I use the H&R Block tax software. It does all the calculations. I just need to go through the interview and input the numbers. The software will crank the numbers and show the result in an easy-to-read table. That makes it easy to adjust various numbers to see how much taxes you’ll pay.  

First, I have to get all my numbers straight. Our taxes are more complicated than a normal dual-income household. We have many sources of income and deductions.

Income

  • Mrs. RB40’s full-time job. Her W2 is the easiest part of our taxes.
  • My online income. Retire by 40 is an LLC. It’s a real business. We make some income from advertising and have business expenses. This is the most complicated part of our taxes. I have to double-check the accounting to make sure everything is correct. This takes a lot of time. Also, I’m waiting for the 1099-NEC forms. These should come in soon.
  • Rental income. I need to confirm all the numbers here too. At least, I don’t have to wait for anything from outside sources. This one is pretty complicated due to the business deductions and depreciation.
  • My side gigs. I used to do some side gigs, but nothing in 2022. The companies are usually pretty good about sending out the 1099-NEC.
  • Dividends income. This one is easy. Our accounts are consolidated at Vanguard and Fidelity. The 1099-DIV forms are already available online.
  • Interest income. This one is very easy too. The 1099-INT forms are already here.
  • State and local tax refunds. A 1099-G came last year.
  • Stocks. Last year, I sold a few stocks at Vanguard. The 1099-B is available online.
  • Real estate crowdfunding. We are doing quite well with RE crowdfunding. However, the problem is the K-1 forms are usually late. In previous years, a few arrived in April and some arrive in May or June. I used to get stressed out about the K-1s, but I’m not going to worry about it this year.

Deduction and Credit

  • Retirement plan. This is pretty straightforward. Although, I need to make sure I didn’t overcontribute to my solo 401k.
  • Sale of Cryptocurrency. I sold all my crypto at Robinhood and lost about $1000. This should be deductible against the capital gain from stock sales. I’m rebuilding the position slowly at Fidelity.
  • Home mortgage deduction. We already received our 1098, but it won’t matter much. We’ll probably take the standard deduction this year. Although, I can deduct 50% of the interest for business expenses because we live in a duplex. We rent out the upstairs unit.
  • Qualified business income deduction. The QBI deduction allows you to deduct up to 20% of your business expenses.
  • State and local taxes. Oregon has a high state income tax. But I don’t think we can use the deduction because of the SALT cap. I’ll let H&R block figure it out.

No stress tax season

As you can see, our taxes are complicated. In particular, the taxes for Retire by 40 and rental properties can take a long time to complete. Everything else is pretty easy. In previous years, the main source of stress was the late K-1s. They arrive late and I got stressed out waiting for them. However, I’m embracing the lateness this year. I’ll file an extension and not worry about getting taxes 100% right by April 18th. The extension will give me 6 more months to procrastinate. That’s the side benefit of investing with CrowdStreet. 😉

Taxes are still due on April 18th, though. We’ll probably owe some money after the K-1 forms arrive. I’ll send in some estimated taxes to minimize any penalty.

Alright, that’s all I got today. If you’re stressed out about taxes, just file an extension. You’ll have 6 more months to get it right. Serenity now!

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*Passive income is the key to early retirement. These days, I’m investing in commercial properties with CrowdStreet. They have many projects across the United States. Go check them out!

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Image credit: Leonard Cotte

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.

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