Wife has a side hustle that almost pays for the boys private school tuition. So we cash flow it each year without issue.
Though the job has zero flexibility and no room for pay increases or more hours because her main job takes priority. It is a good paying, zero benefits, W2 position, that she enjoys for the most part minus the lack flexibility. But it is just a side hustle to pay for private school and nothing more.

She has been offered a new side hustle that is extremely flexible and completely work from home. With this flexibility she should easily be able to cover one years tuition for all 3 boys and likely half of the total for a 2nd year.

This is a zero benefit position and on a 1099.

Being that we just cash flow for the year I have not bothered doing a 529 as college will mostly be covered by other investments.

Would it be advantageous to start a 529 and use it for the school tuition since after a year we should be a bit ahead. Or since it only grows tax free and we do spend the majority of the money that would be going in each year is it not really worth it?
Currently the youngest is still considered preschool (for 2 more years) so we do utilize a dependent case FSA to save a little tax burden but that will go away in 2 years.

Also what is the best way to handle 1099 taxes? Never had one of those jobs before? Just set a aside like 30% and pay at the end of the year?

Will she be able to write off her computer, internet access, and phone bill somehow for the 1099 position?

This message has been edited. Last edited by: Black92LX,

Are there any other write-offs that would work for you by her working at home? Perhaps you can write off office space, computer and/or internet costs?

quote:

Also what is the best way to handle 1099 taxes? Never had one of those jobs before? Just set a aside like 30% and pay at the end of the year?

^^^^^^^^^^^^^^^^^^^^^^
Those of us who are self employed have to provide quarterly estimates to the IRS. I just wrote a hefty check. If you do not pay quarterly you will owe interest and penalties. See below:

The IRS says you need to pay estimated quarterly taxes if you expect: You'll owe at least $1,000 in federal income taxes this year, even after accounting for your withholding and refundable credits (such as the earned income tax credit),

Yep, if you're getting 1099(s) you pay quarterly taxes. Did it for around 25 years.

Real PIA but there's no way around it that I ever found.

quote:

Originally posted by Flash-LB:
Yep, if you're getting 1099(s) you pay quarterly taxes. Did it for around 25 years.

Real PIA but there's no way around it that I ever found.

Good to know but sounds like a pain.
Guess I’ll talk to our tax guy next month when I go to do our taxes for last year.

quote:

Originally posted by Black92LX:

....Guess I’ll talk to our tax guy next month when I go to do our taxes for last year.

This is the right course of action.

A 529 may not be to your advantage if your boys would be eligible for any kind of grant or scholarship, since the 529 will count against you for "need".

quote:

Originally posted by Flash-LB:
Yep, if you're getting 1099(s) you pay quarterly taxes. Did it for around 25 years.

Real PIA but there's no way around it that I ever found.

One way "around" it is to just suck it up and pay the penalty and interest when filing your annual. Quarterly filing soon breaks down if income is significantly variable from quarter to quarter. You spend the time and effort to file quarterly, and then still get hit with P&I in the end. The annual P&I is much less than what I'd have to charge at my billable rate for the time spent filing a quarterly return. If your time is worth anything at all, this may work for you too.

quote:

Originally posted by Nuclear:
A 529 may not be to your advantage if your boys would be eligible for any kind of grant or scholarship, since the 529 will count against you for "need".

Just to be clear, a 529 plan should not affect merit based scholarships like academic or athletic scholarships. For example, we're planning on at least one of our kids qualifiying for the Florida Bright Futures Scholarship. It only covers tuition and fees, but she can use money out of her 529 plan for room and board as well as for postgrad studies.

A 529 plan will count against finacial aid and need based grants or scholarships; which is how it should be. The whole point of a 529 plan is to encourage people to save money for their kids' educations.

@Black:

I'm not sure I understand your question. If you are asking should you be putting money into a 529 plan to pay for their current private school tuituon, then no.

However, you mention "other investments" will be used to pay for college, which leads me to believe you are asking about the long term. The answer depends on if you are paying tax on these other investments.

quote:

Originally posted by architect:

quote:

Originally posted by Flash-LB:
Yep, if you're getting 1099(s) you pay quarterly taxes. Did it for around 25 years.

Real PIA but there's no way around it that I ever found.

One way "around" it is to just suck it up and pay the penalty and interest when filing your annual. Quarterly filing soon breaks down if income is significantly variable from quarter to quarter. You spend the time and effort to file quarterly, and then still get hit with P&I in the end. The annual P&I is much less than what I'd have to charge at my billable rate for the time spent filing a quarterly return. If your time is worth anything at all, this may work for you too.

Did exactly that in 2020 and I'll see what happens in a couple of months when I do taxes.

1099 also means she will need to pay the full social security tax.

I will start by telling you that I am biased against 529 plans. They are sold as a great way to save for college. I generally do not agree for the following reasons:

1. Generally poor investment options that are expensive and offered by one investment company.
2. Most 529s lack a safe investment option for when you need to take risk off the table because the kid is getting close to needing the money. Yes there is a Money Market fund, but many of those are currently experiencing negative returns today.
3. Realistically, you need those safe options for a significant amount of the balance for a significant amount of time. This negates the "tax free growth" benefit of the 529. In my opinion you really want to have limited stock exposure after the child is 12ish. Not enough time for a market downturn to not impact your nest egg when it is needed.
4. Many parents put money into the 529 before they fully fund their IRAs and 401ks. Your retirement nest egg is more important than your kids potential tuition expenses.
5. If you and your spouse fully fund your IRAs, you invest 12k annually. Most people do not have much more than that to save to the 529.
6. IRA withdrawals receive a waiver of the 10% early withdrawal penalty if the funds are used for educational expenses.
7. If you are eligible, Roth IRAs grow tax free...
8. If you have funds left over in the 529, those funds do not receive the tax benefits and get a 10% penalty.
9. If your kid does not go to college, the 529 is a really bad choice.

I personally believe that the kid needs to have some skin in the game when college expenses are considered. I told both of my sons I would pay for the cost of an instate school in NC. If they chose to go somewhere else, it was on their dime. The older one went out of state and has student loans. The younger one is going to graduate in a year completely debt free. I also told them that if they move out, they need to pay to live, not borrow to live. The older one worked his way through school to afford dorms and apartments. The younger one is staying home and still working to pay for the stuff he wants.

The kids graduating today with hundreds of thousands of dollars of student loan debt need a really strong earning potential for that education to pay off in the long run. Most degrees do not result in those kind of earnings soon after graduation. I am 50 and in my entire career, no once has Ohio State been the reason I got a job or an opportunity. It may be different if your kid is going to an Ivy League school, but generally not the private liberal arts college that they fell in love with with tuition of 60k per year.

I was told that 529s are worth it, if only to wash the payments to the school through to get the state tax write off (may vary by state I guess). So you deposit $xx,xxx, then you make that withdraw and pay the tuition. In PA you can write off the state tax.

The 529 would not be for college. Fortunately most of college will be taken care of by a very generous gift by a family member. Won’t take care of it all but like armedprof I think they will need to have skin in the game so they will be responsible for what is left.
Since we have opted to pay for private school from preK all the way through High School.
I worked all through college and paid a large chunk of my college so I take no issue having them do the same.

I was just trying to figure out a way to skim off a little tax burden since we will be running a slight excess to the yearly tuitions for K—12.
Not much but anything helps so was looking at options since the wife’s soon to be 1099 job is what funds K-12.

quote:

Originally posted by architect:

quote:

Originally posted by Flash-LB:
Yep, if you're getting 1099(s) you pay quarterly taxes. Did it for around 25 years.

Real PIA but there's no way around it that I ever found.

One way "around" it is to just suck it up and pay the penalty and interest when filing your annual. Quarterly filing soon breaks down if income is significantly variable from quarter to quarter. You spend the time and effort to file quarterly, and then still get hit with P&I in the end. The annual P&I is much less than what I'd have to charge at my billable rate for the time spent filing a quarterly return. If your time is worth anything at all, this may work for you too.

Architect, there’s a form you can file to show you matched up your quarterly filings with your income. You don’t have to pay any penalties if more of your income came later in the year.

Also, any tax credits for children or otherwise are considered prepaid. And, if you also have access to a W-2 job, any withholdings are considered prepaid, so you could have the full amount of taxes due on the 1099s withheld during Dec by altering your W-4 with your employer for a few weeks.

Filing quarterlies isn’t that hard. It’s a half page form. Also, penalties & interest are calculated from the date of underpayment. Waiting until the end of the year is terrible advice if you don’t want to pay a bunch extra. Even if you took 30 seconds and guessed and wrote a check, that would greatly reduce any penalties at the end of the year.

quote:

Originally posted by Black92LX:

I was just trying to figure out a way to skim off a little tax burden since we will be running a slight excess to the yearly tuitions for K—12.
Not much but anything helps so was looking at options since the wife’s soon to be 1099 job is what funds K-12.

The biggest benefit of the 529 is allowing the assets in the plan to grow tax free and take the money out tax free for education expenses. If you are just putting money in through out the year to pull it out at the end of the year for the next year's tuition, then your time frame is too short to invest in any growth oriented investments and the tax savings on what little income you earn will be offset the plans fees or worse.

A simple example:

You put $10,000 in a 529 plan that allows investing in an FDIC insured account that pays .6%. At the end of the year, you will have earned $60. Assuming you are in a 24% bracket and don't have state income tax, you would save $14.40 in tax by using a 529 plan they way you described. The fees the 529 plans charges could be $2 per $1,000 or more. That's $20 on $10,000 to save $14.40 in tax.

So went to the tax man today and he said there is no reason to pay quarterly.
He says since this is just a side job and our other W2 jobs get us a small refund each year this job will not make enough money to need to file quarterly since our required payments will already be paid with our W2 jobs.
He says just set aside 30% and he’ll do the 1099 with what we normally do each year.

Sound right???

The United States income tax system is a pay-as-you-go tax system, which means that you must pay income tax as you earn or receive your income during the year. You can do this either through withholding or by making estimated tax payments. If you didn't pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and refundable credits, or if they paid withholding and estimated tax of at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.

https://www.irs.gov/taxtopics/tc306

quote:

Originally posted by Black92LX:
So went to the tax man today and he said there is no reason to pay quarterly.
He says since this is just a side job and our other W2 jobs get us a small refund each year this job will not make enough money to need to file quarterly since our required payments will already be paid with our W2 jobs.
He says just set aside 30% and he’ll do the 1099 with what we normally do each year.

Sound right???

If you expect to owe more than $1,000 in taxes at the end of the year, then you are required to either increase your withholdings at your other job(s) or make quarterly estimated tax payments. If you pay the entire balance with your return/timely and it does not get assessed as a balance due, you won't get the ES tax penalty. Form 1040 ES will help you calculate what the estimated taxes would be. https://www.irs.gov/forms-pubs/about-form-1040-es

quote:

Originally posted by Black92LX:
Sound right???

Since he looked at your actual numbers, I'd go with what he said.

BigWhup laid out the safe harbor provisions for avoiding penalty, which your tax guy should have explained to you. The 90% of this year's amount owed or 100% of last year's amount owed changes to 90% and 110% if your adjusted gross income on last year's return was over $150,000 assuming you filed married, filing joint.

Setting aside 30% of the 1099 income is wise as you'll be paying both the employee and employer share of social security and medicare taxes, 15.3%, on it as well as whatever your incremental ordinary income tax rate is. I'm sure your tax guy explained that as well and told you what deductible expenses your wife should keep track of.