Tax question

[Sid23]

I'm having my taxes done for 2007 and it appears I'm going to owe the IRS approximately $460 this year and I owe the state of CA $370. I'm a single, W-2 wage earner.

A couple of quick questions:

1) Is it too late to contribute to my 401k or Roth IRA for 2007? (I don't normally contribute anything to my 401k, but my firm puts in $5,000 or so per year). FYI, so this doesn't get tagged as SLOWLANE...my company is made up of 5 real estate developers and our 401k is used as a tax shelter essentially, nothing more.

2) If it is not too late, if I put in $$$ iin either the 401k or Roth or both, would that offset the $830 I owe in taxes? I assume its not a one-to-one ratio and that its based on reducing income, but figured I would ask and maybe someone could assist me.

3) Is there any way to calculate how much I'd need to contribute to offset the taxes? I'd rather pay myself than Uncle Sam.

 

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[Diane Kennedy]

I'm having my taxes done for 2007 and it appears I'm going to owe the IRS approximately $460 this year. I'm a single, W-2 wage earner with very few deductions.

A couple of quick questions:

1) Is it too late to contribute to my 401k for 2007? (I don't normally contribute anything, but my firm puts in $5,000 or so per year). FYI, so this doesn't get tagged as SLOWLANE...my company is made up of 5 real estate developers and our 401k is used as a tax shelter essentially, nothing more.

2) If it is not too late, if I put in $460, would that offset the $460 I owe in taxes? I assume its not a one-to-one ratio and that its based on reducing income, but figured I would ask and maybe someone could assist me.

For (1) - is this your own company? If so, and you have the ability to manipulate payroll reporting (ie, W-2s not done yet), then yes. otherwise no.

I'm going to have to do a rant on "knee jerk" reactions to terms. A 401(k) isn't slow lane!!! It's a tax deferral device. I think JScott and I were taking on a few people a few months ago in a thread on this very subject. It's just like saying real estate is fast lane. It's just a product - could be slow, could be fast, could be a total mess.

(2) The $460 you put in would be deducted from your income, on which the tax is calculated. So, just to keep the numbers easy - say you're in the 50% marginal tax bracket (no such thing, just doing simple math). You would have to get a deduction of $920 to create a $460 tax reduction. (50% * $920 = $460)

 

[Sid23]

Diane, I made some edits to my above post. But the jist of your answer is that unless I can change my W-2, I'm out of luck, right?

And thank you for the deduction explanation, it makes total sense and much appreciated!

 

[Diane Kennedy]

Hi SeanS:

Yep - sorry. You might be able to do an IRA to reduce some tax...but otherwise it's probably better to pay the tax and plan to start a business or do something different this year!

Just an idea - is there any way to become an independent contractor at the company? If you do that you get to pick up a lot more deductions and your employer doesn't have to pay the payroll tax. (Negotiate a higher pay, though, to cover benefits you'll lose)

 

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