My 2 Biggest Tax Wins -- and Failures

Paying taxes is a part of life for just about everyone. And in the course of dealing with taxes, I've made some pretty savvy moves in my day. But I've also fallen victim to some huge blunders recently, as well as in the past. Here are some of my biggest tax-related wins and screw-ups.

Win No. 1: Maxing out my solo 401(k) plan

If you're self-employed, you have different options when it comes to saving for retirement. You could open an IRA at any financial institution that offers one. Or, you could fund a solo 401(k).

What I like about solo 401(k)s is that they come with generous contribution limits. In 2024, the limit is $69,000 if you're under 50, or $76,500 if you're 50 or older. By contrast, with a 401(k) through your employer, the limit is $23,000 if you're under 50, or $30,500 if you're 50 or older.

That said, the amount you're entitled to contribute to a solo 401(k) hinges on your earnings. But for several years now, I've managed to put the maximum amount I'm personally eligible to contribute into my solo 401(k). And every dollar I've put into that account has shielded some of my income from taxes.

Win No. 2: Hiring a great accountant

Filing taxes was something I used to do on my own, even though I was self-employed. But eventually, I realized I was probably missing out on some big tax breaks by tackling my taxes solo.

I asked friends to recommend a great accountant and managed to find one that way. And while his fees aren't inexpensive, what I pay for his services, I more than make up for in tax benefits I wouldn't know to claim myself.

Failure No. 1: Forgetting to sell a bum stock before the end of the year

Last year, a stock I owned tanked, and its future looked murky. I wanted to sell that stock at a loss in my brokerage account to offset some capital gains, only I forgot. That's right -- I could've saved myself a nice amount of money on my 2023 tax bill, but I missed that opportunity due to…a brain fart.

I realized my mistake early this year and went and sold the stock, so I'll still get to benefit from the loss. But now I have to wait until I file this year's taxes to take advantage.

Failure No. 2: Underestimating my quarterly tax payments

Before I started using an accountant to do my taxes, I'd try my best to estimate my quarterly tax payments -- something all self-employed people are required to do. And most years, I'd fail. That meant having to write a sizable check to the IRS each April.

Now to be clear, I happen to think that it's better to owe a little bit of money than to get a refund. When you get a refund, it means you paid too much tax upfront and essentially gave the IRS a free loan.

But the checks I was writing to the IRS due to underestimating my quarterly payments were large. And in some cases, they messed up personal plans. One year, for example, we had to put off a home renovation because I owed the IRS a five-figure sum.

When you're self-employed, it's not so uncommon to have to owe the IRS a bit of money when you file your tax return. But these days, I use an accountant partly to come up with better estimates along the way, and partly to avoid the IRS penalties that can ensue for too large an underpayment.

The U.S. tax code is extremely complex, so if you feel you're not an expert in it, don't worry. But at the very least, read up on tax-advantaged retirement plans like IRAs and 401(k)s so you're able to not only set money aside for your future, but also, shield some income from taxes.

Additionally, don't hesitate to hire an accountant or tax professional if you're nervous about filing a return on your own. You may find that what you lose in the form of their fee, you gain in the form of additional tax breaks you wouldn't have thought to claim.