Does your spouse make so much that you can’t deduct an IRA?

Anonymous wrote:Do you have a SEP IRA? It’s the easiest way to reduce your tax burden. Also, if you need a housekeeper, then hire one. It’s cheaper than marriage counseling, and if it improves your quality of life, then go for it.

OP here and I appreciate this comment for being news I can use. I have a Roth but not a SEP, but will look into it.

I'm so torn about the house cleaners, it was my big goal for this year and now it feels like a lifestyle overreach. I really want to retire from being out full time housekeeper though, as I get older I resent it more and more. I don't resent DH, specifically (though God knows he could do more, but he dies some and really the issue is I'm cleaning up after DC and the dog all the time), I just resent feeling like the maid in general.

Do you have a SEP IRA? It’s the easiest way to reduce your tax burden. Also, if you need a housekeeper, then hire one. It’s cheaper than marriage counseling, and if it improves your quality of life, then go for it.

Well, when you work you have to lay for childcare and taxes. Yes, if you have the option to NOT work, then you have to decide whether the effort you put into working is worth the childcare and tax and other costs.

Anonymous wrote:The thing that's dumb is that you're presenting this argument in terms of your refunds for the respective years rather than your actual tax liabilities.

This!!!

However, if one spouse is a high earner, yes the other spouse is often working for almost nothing.
I was largely a SAHP. When kids were all in ES+, I took a job working 10-15 hours/week teaching fun classes. Was a contractor. Loved the job and was paid $35+/hour, but after paying my FICA myself and the 48% in fed plus state taxes, I was making very little. Then add in all the "prep work to get ready for the course the first few years I was learning. Add in the times I had to hire a sitter if spouse was traveling, and I'm fairly certain I might have been paying to work, or damn near close to it.

But that holds for anyone who is 2nd income in a high income family. There's no way around it, your extra income will be taxed at 37%+ federal and 10% (or max that your state tax is). Earning an extra $5K means you get $2.5K or less.

How do you pay your payroll taxes separately?

My accountant does mine as a schedule C and it’s one payment to state and one to federal.

The tax refund/payment at the end of the year isn't a good measure of your actual tax burden. Pull your 1040s from this year and last year and compare 1. Adjusted Gross Income, 2. Taxable Income, and 3. Total Tax. Double check that you are getting the same tax credits from year to year as well. There's no situation where you're worse off making more money, but it may be true that the marginal $$ are not worth the effort to your right now.

I'm like you OP as a 1099 with DH receiving benefits on w2.

This is the way the US system is established. You can either earn less total HHI and not have to spend on childcare. You can put even more hours in expand your business by hiring someone but make much more $$ total so that you will in total make more even though you pay more in taxes. Or - you can do what your are doing and most people are which is essentially working the most you can and balancing costs. However, you won't come out too much ahead. I'm not sure what you are expecting?

Another illustration is financial aid. If your are broke, you receive FA. If you're rich you don't need it. But that most popular bracket of making $200-300k - that's the hardest for most families because you can afford tuition but you'd need to sacrifice discretionary spend to do so. In theory however you have the funds so typically FA is rejected. You only have 2 other choices. So this is your position and mine.

You can either try to get to the next level or really fall on your sword and not have funds for anything but not worry as much during tax time or you can realize that most people are in the same situation. I'm not sure what else you are expecting from the numbers however as it is pretty black and white.

My very successful business parents always said that if you need or want more money your only choice is to simply make more. Not save more but make more. If you save you have less so even if you feel like you have more you don't. Make more money baby!!!!

Owing more taxes come tax time does not mean that you are worse off. It just means you made more money and didn't withhold enough.

Look at your total income and total tax liability, not just the amount you owe or are credited on April 15. That's simply a function of flawed withholding calculators. Ie: If you want a big refund every year, just overwithold on your taxes. I don't recommend this, but some people mentally prefer a large refund.

OP here. Some answers:

1) Some people are confused about our childcare costs. To be clear, we have a child in elementary school. So our childcare costs are for summers and after school only. We have access to a very low cost aftercare program through school which helps keep these low, but what I discovered the first two years of freelancing is that not having reliable summer childcare cost me a lot in opportunities because the it turns out summer is a time when many of my clients want to focus on the kind of consulting I do for them, and I really need to be more available. So last year we paid for full time care in the summer and that really helped me push my business forward. But it was expensive and I didn't make enough more for the cost to be negligible.

2) I realize I shouldn't have said "tax" in my thread title as obviously it's both tax and other costs. I just did our taxes so that's why it's top of mind, more than the childcare piece. Though we've already booked childcare for this summer and I'm seriously questioning if I should cancel all or some of it and just accept making less this year, so that'a big part too.

3) I'm definitely trying to figure out how I can maximize deductions for my business because I'm sure there's more I could get. But even with those, there is a cost to me trying to maximize my tax approach (in terms of time and energy, or even money if I consult an expert which I feel like would help me do better) and it's just this constant push pull of how much I'm putting in versus how much I'm getting back. I feel like I work all the time, because I run this business, do all my own marketing/client relations/finances/etc., plus the work itself, plus I'm the primary parent, plus I do a lot more than half around the house because I "work part time" and "have a flexible schedule -- I was honestly hoping that by investing more in my business, I could get to a point where I could hire someone to come clean a couple times a month, and now that looks irresponsible because the income boost just doesn't seem to justify it. I'm just tired and I look at our finances and think "for what???"

4) Also, just to be clear -- my income through my business is entirely based on hourly billings. That's what makes this so start for me. I went from billing about 30 hours a month in 2022 (to be clear, not working 30 hours a month, as I do work for which I can't bill, but billing 30 hours a month) to billing 50 hours a month in 2023. These are both averages, obviously, some months are higher and others lower. Plus I did a lot more non-billable work in 2023 but didn't track it as closely. So when I look at my billings and then look at my actual income, I'm just frustrated. It feels like the raise my DH got was worth way more to our family without the added costs because he is still just doing the same job. And that frustrating when I think about how much harder I worked and how I was initially so proud of the extra income/work/clients.

I feel like I can't win. I've spent the day doing housework and on DCUM instead of focusing on work because I feel like, ugh, why am I even doing this.

Staring/running your own business is really, really hard. I guess that's the moral of the story. I know I need to push through, I'm just demoralized today.

Just increase your retirement contributions to match your income (husbands 401k and your SEP IRA), and you won't pay any income taxes on it now, and you'll be saving for retirement.

OP: are you taking into account self employment taxes? Even if your DH had zero income you’d still be paying more dollar earned than someone whose employer is picking up the cost of employment taxes (FICA, etc). Additionally, if your DH is carrying the health insurance premiums those are being taken out pre-tax, effectively lowering his gross earnings. Same with retirement accounts. You’re not getting any of those benefits.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I thought you were going to say last year you got 9k back (!!!!!) and this year you owed 6pm so you lost 1k. You didn’t. You made thousands more this year pre tax, and still have thousands more post tax. How are you worse off? Explain like I’m 7.

Then issue is that I literally worked TWICE as many hours this year as last year. Plus we spent 4k on summer childcare so that I would have the continuity required to do client work over the summer, which I did not do the previous year (I did some work over the summer, but had to turn down some projects because I was full time parenting much of the summer).

So between the 9k in additional taxes and the 4k in summer childcare, that's 13k. I made 16k more than I did the previous year. So total an extra 3k. To literally work twice as much.

Yes, I understand our increased tax burden is also partly due to my DH's raise. But my DH got a raise for doing the same job. He didn't get a promotion -- our family gets that money without him having to do a single second of extra work. Whereas my increase in income equals hours and hours of extra work, plus added expense (some of which is deductible but the childcare isn't).

So that's the issue. Yes we have more money this year than last. But we'd have a bit more money regardless of how much I worked because of DH's raise. I'm not suggesting I don't want him to get a raise. I'm questioning whether doubling my work efforts makes sense when so much of it gets instantly swallowed up by taxes and childcare costs.

Thars a different question. Look at your total income last year and taxes paid. And at income this year and taxes paid. Did you go into a new bracket so all income ABOVE the bracket threshhold subject to a higher tax rate. You needing childcare to work is not a taxing issue.

I don't see the point in separating the tax and childcare issue -- both are costs associated with working more. The point is whether working twice as much is actually worth the increase in income after taxes and childcare are paid.

Would you work twice as much for an extra 3-5k a year? I'm guessing no.

Then you should have used a different title, not "When making more actually is a real tax disadvantage?"

It's perfectly reasonable to ask yourself, "Is the extra income worth the extra work I have to do?" That's not the question you asked. If you don't understand this, you've got bigger problems.

Anonymous wrote:I'm confused OP. Why would the 9k in additional taxes be considered to come out of your earnings, and not DH's given that his income actually went up? That doesn't seem right.

Now the summer childcare may not be worth it. How much of that extra 16k did you make during the summer? Maybe it's not worth 4k of childcare if it's not that much more.

PS I should say congratulations on your increasingly successful work though!

I'm confused OP. Why would the 9k in additional taxes be considered to come out of your earnings, and not DH's given that his income actually went up? That doesn't seem right.

Now the summer childcare may not be worth it. How much of that extra 16k did you make during the summer? Maybe it's not worth 4k of childcare if it's not that much more.