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End of Year Financial Planning – 2018

2018 is nearly over, so it’s time for me to do some financial planning in order to optimize taxes and meet any IRS contribution deadlines.

I have a sole proprietor designation which is what I use to base my tax planning decisions. This is an IRS tax designation, mostly used for tax purposes. It’s a simple designation which any physician can easily adopt, though many opt for an S-Corp or LLC.

All my earnings as an independent contractor is gross income paid on a 1099-MISC which I’ll be breaking down on a Schedule C. This is ideal because it will give me a maximum tax break.

The Tax Cuts & Jobs Act will change a few tax rules for the first time in 2018. In my case, it’s to my advantage since I will qualify for the 20% pass-through deduction based on my low income, despite being in the health service field.

My 2018 Income

My total income for 2018 should be <$120,000.

All of the income is 1099 income. No W2 income to worry about.

My income sources will be:

  • Just Answer
  • Teladoc
  • Community college
  • Roman
  • Oscar
  • Spring Health
  • Startup consulting
  • DialCare
  • Blog sales
  • investment income

I didn’t have a particular income goal for 2018.

My main focus over the next couple of years will be to do the kind of work which I enjoy most. If I can earn enough to pay for my household overhead without having to dip into my investments, even better.

My income will dictate my tax brackets and whether I can qualify for a Roth IRA or a tax deductible IRA. These are secondary concerns and fairly insignificant since I don’t have the need to set any more income aside for retirement.

Tax deductions

I will try to maximize tax deductions which I need to identify before the end of 2018.

I can contribute to an HSA, an IRA, and a solo 401k. These are the main ways I can get a tax break. But this also means tying my money up in retirement accounts – I’ll do the math to see if it’s worth doing.

Most tax decisions are based on my AGI and MAGI. You can calculate your AGI here.

Common items which will lower taxes, particularly for a sole proprietor are:

  • retirement plan contributions
  • loan interest
  • moving expenses
  • 50% of self-employment tax
  • self-employed health insurance
  • HSA
  • educator expenses
  • tuition and fees
  • business expenses

Tax planning

To understand your own tax-saving opportunities, it’s important to understand how your particular business designation is taxed. In my case, I’m a sole proprietor, you might be an LLC or an S-Corp.

If there is an investment I want to make into my business then I can make that purchase this year, to lower my AGI enough if necessary in order to qualify for a particular tax break.

Let’s say I anticipate needing a new laptop, if I make that $2,000 purchase this year, it might lower my taxes enough that I could qualify for a Roth IRA, which I would have otherwise not qualified for.

Donation can also reduce my taxable income. I don’t have any donation plans for 2018.

Meeting with financial advisor

Before 2018 ends, I’ll be meeting with my financial advisor, Andrew at Modern Dollar, in order to go over any other tax savings strategies I may have missed.

This is also a good time to go over my investments for 2018 and decide if I want to max out any particular retirement accounts.

Preparing for audits

I get multiple audits every year by the IRS. Though this sounds scary, the IRS is very professional about it, though not always initially proficient.

Most audits are letter audits and rarely require me to complete a phone call. Whenever I’ve talked to the IRS on the phone, they have been helpful.

Having meticulous tax and transaction records is critical and has helped me quite a bit. I keep very detailed tax records and have a detailed tax workflow which I follow. Once my inevitable audit letters arrive, I reply with the necessary documents and I’m done.

It seems that the IRS is about 2 years behind on auditing. This year (2018) I received audit requests for 2016.

Planning for the following year

Financial planning, especially tax planning, is ideally done before the new year starts.

My end of year financial planning also involves anticipating my income for the the following year, 2019. How much income do I expect to earn? Will I qualify for any subsidies? And, in my case, which country will I live in?

If I don’t expect to earn a lot of money then I can convert some of my IRA into Roth IRA which is something I should start sooner rather than later in order to bypass RMD’s.

Having more money in an IRA will also allow me to access my retirement accounts before age 60 without using SEPP.

IRS deadlines

For my end of year financial planning, I pull up all the various deadlines which might relate to me. In my case, it’s mostly IRS deadlines for tax purposes.

  • Employee 401k contributions. December 31st of same year.
  • Solo 401k contributions. Both the employee and employer portion of a solo 401k have an April 15th deadline. But the account must be opened before the end of 2018.
  • IRA contributions. April 15th of following year.
  • HSA contributions. April 15th of following year.
  • Cash balance plan contributions. March 15th of following year.
  • SEP IRA contributions. April 15th of following year.

Updates: my current reading/listening list

  • listening to Thinking in Bets by Annie Duke on Libby
  • reading Stealing Your Life by Frank Abignale on Kindle
  • listening to The Millionaire Fastlane by MJ DeMarco on Audible
  • finished The Butchering Art by Lindsey Fitzharris on Kindle
  • finished The Hard Thing About Hard Things by Ben Horowitz on Libby

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