Working more than one job can help maximize income, but also potentially create a tax surprise. Here are several be aware of:
Social Security Surprise: As a full-time employee, the most you’ll have to pay in Social Security taxes in 2023 is $9,932. The problem is each employer you work for will withhold Social Security taxes up to this threshold.
Example: Jane Smith works two jobs. Employer #1 has withheld $6,000 in Social Security taxes so far in 2023, while Employer #2 has withheld $4,000. Jane has already paid more than the annual limit of $9,932 in Social Security taxes for 2023. Jane will get back the excess Social Security taxes, but she’ll need to wait until she files her 2023 tax return in 2024.
What you can do: Work as a contractor for your second job. You’ll be responsible for paying your own income, Social Security and Medicare taxes, but you’ll be able to manage Social Security taxes to avoid overpayment.
Phaseout Surprise: As your income increases, the number of deductions and tax credits available to you will get smaller as benefit phaseout limits are reached.
Example: The Child Tax Credit provides a $2,000 tax credit for each qualifying child. You don’t qualify for this credit, however, if you file a joint tax return with taxable income above $440,000, or are single and file a return with taxable income above $240,000.
What you can do: Certain deductions and adjustments can help decrease taxable income below a phaseout’s limit. This will potentially allow you to still take advantage of a tax break, such as the Child Tax Credit.
Benefits Surprise: Every retirement and medical account limits how much you can contribute annually. If you exceed these limits, you may have to pay taxes twice on the same income.
Example: The 401(k) contribution limit in 2023 is $22,500. You inadvertently contribute $27,500. The first $22,500 of contributions won’t be taxed until you start making withdrawals after you retire. The excess $5,000 contribution could be taxed twice – you must include the $5,000 as taxable income on your 2023 tax return; you’ll also pay taxes on that $5,000 when you withdraw it from your 401(k) after you retire.
What you can do: Correct any over-contribution before filing that year’s tax return. Up-to-date record keeping throughout the year can alert you to when you’re close to the annual contribution limit.
Estimated Tax Surprise: If your extra job is a contract position, you’ll receive a Form 1099 summarizing how much you billed a particular client in all of 2023. If this is the first time receiving a 1099, you may be surprised to learn that you’re responsible for making all tax payments to the IRS. If you are making a net profit, tax payments for 2023 will need to be made in September and January 2024.
What you can do: Estimated tax payments can sometimes be rather large, especially if you’re making a decent amount of money, so keep good bookkeeping records so you can budget for these payments.
Please call if you have questions about these or any other job-related tax topics.
If you’ve been feeling the pinch of higher auto insurance rates along with other rising costs, you should know some factors that impact these rates are well within your control. Consider these tips to pay less this year and beyond.
Improve your credit score. Many insurance companies consider your credit score and overall creditworthiness when assigning rates, mostly because their research shows credit scores directly correlate with how much risk you pose as a driver. This means that if you want to pay less for auto insurance coverage, you should strive to increase your credit score or move your policy to an insurer that does not use this factor in determining rates. Some easy ways to increase your credit score include using less than 20% of your credit line on your credit cards and by paying all your bills on time.
Ask about discounts. Some auto insurance companies have discounts that are not actively promoted. These are often missed by long-time policy holders that do not specifically ask for them. Examples of discounts include lower rates for being a good student, driving fewer miles, purchasing a car with a lower claim history, or discounts for having air bags, anti-lock brakes, and theft detection devices. There are even discounts for federal employees, military members and for being accident-free for a certain number of years.
Pay premiums in advance. Some auto insurance companies also offer pay-in-full discounts that let you save when you pay for six months or a full year of premiums upfront. This discount can result in 10% to 20% lower premiums right off the bat.
Bundle multiple policies. You may be able to score a discount for having multiple types of coverage with a single insurance company, just as you may get a multi-vehicle discount for having more than one car insured. Typical bundled policies include life insurance, auto insurance, home insurance and umbrella coverage.
Tweak your deductible. Your auto insurance deductible — or the amount you pay for certain claims before coverage kicks in — also plays a role in the cost you pay for auto coverage, and higher deductibles can lead to savings. With that in mind, check how your premiums change if you increase your deductible from $500 to $1,000, from $1,000 to $2,500, and so on.
Take a safe driving course. Finally, taking a safe driving course can help lock in lower auto insurance premiums no matter your age or driving history. The amount of savings you’ll get with this discount can vary, so ask your insurer.
Auto insurance rates may not be going down any time soon, but the steps you take now can help you pay lower rates from this point forward. By improving your credit, checking for discounts and tweaking your policy details, you can get the coverage you need for a price you can afford.
Solving a difficult problem isn’t reserved for only the world’s greatest thinkers. Great creations are simply well-crafted solutions using organized, creative thinking. Here is a four step process so you, too, can become a great creative problem solver!
Step 1 – Define the problem
This step is the most critical. Albert Einstein once said, “If I were given one hour to save the planet, I would spend 59 minutes defining the problem and one minute resolving it.” Think about it – if you get this step wrong, it immediately puts you on the wrong track and all the work that comes after moves you further from the solution. In short, you want to understand as much about the issue as you can. Write down everything you know about the problem and related answers to define what you need to investigate. Summarize your thoughts into a single problem statement.
Step 2 – Ideate
Don’t overthink this step. The time and energy you put into defining the problem will create quite a few ideas, many of them unorganized, bouncing around in your brain. The goal is to take all these thoughts out of your brain and put them into writing. Don’t do any internal filtering – it all needs to come out. Brainstorming is all about quantity with no regard for quality. (Quality control will come later!) Think about it like starting a puzzle by first dumping all the pieces out of the box. If you left any in the box, you have no chance of completing the puzzle. The more out-of-the-box and abstract the idea, the better!
Step 3 – Develop your ideas
Once you have all your idea fragments written down, you’ll notice a few that rise to the top as possible solutions. Identify these top 3 to 5 solutions, then see if the rest of your brainstorming ideas can fit as a supporting detail with any of these main solutions. Now think through why each of these ideas might yield a solution and form a hypothesis as to how this idea will play out. From there, break apart the hypothesis and identify any potential flaws. Revealing possible weak spots is a great starting point to defining the pathway for a solution.
Step 4 – Implement your solution
This final step may seem daunting, but the key is to break the final project into as many bite-size steps as possible. The smaller and easier it is to manage, the better. Identify each step of the implementation process, write down the dependencies for each of these steps and connect them together to work towards the final solution. As you work through them, it’s important to stay flexible as unforeseen obstacles will arise and you need to be able to pivot.
Continue to work through your problem solving process, retesting and refining as you go. Odds are you’ll initially take some steps backwards, but don’t give up! The ability to stay resilient is as important as the process itself to reach your final goal.