question

[rwhitfield]

Is this a live video call or just an option to chat? 

[AmyC]

This is a written chat event. You can reply with any questions you have.

[rwhitfield]

We have owed over $10,000 every year for the past 3 years. We both work, own our home, 2 kids and both have our deductions at 0. We are at a loss on how this keeps happening. We have used the IRS tax estimator yet still owe. What else can we do to ensure we don't owe? Is there a better way to estimate our tax burden? 

[RogerD1]

If your tax situation remains consistent year over year (similar income, kids are still under the age 17 for the Child Tax Credit, etc.), you could try making estimated payments on your taxes.  The payments can be made directly to the IRS online at IRS Direct Pay .  Estimated payments are typically made quarterly on April 15, June 15, September 15 and January 15 of the following year.  If you think that you will owe $10,000 again for 2026, you can pay $2500 on each of those dates.

Another possibility would be raising your Federal tax withholdings through your employer.  For instance, you could have your employer increase this withholding amount by $200/week to get to roughly an extra $10,000 of tax withholdings - if you do that soon!

It's possible that some aspects of the One Big Beautiful Bill in 2025 may ease your tax burden for 2025.  For instance, if you itemized deductions prior to 2025 and had met the $10,000 deduction cap for State and Local Taxes, realize that for 2025 the State and Local Tax cap was increased to $40,000 - this could be helpful.  Also, the child tax credit limit increased from a maximum of $2,000 to up to $2,200 for 2025.  More information about how the One Big Beautiful Bill impacts taxes can be found at:  One Big Beautiful Bill

[rwhitfield]

What are good ways to lower taxable income? 

[RogerD1]

Great question!

Do your employers offer 401(k) plans?  If so, traditional 401(k) plans allow you to contribute up to $24,000 if under age 50.  These contributions are "pre-tax" meaning that they will reduce your taxable income.  If over age 50, there is an additional "Catch-up" contribution amount of $8,000 you could claim, however, if you earned more than $150,000 in 2025, those catch-up contributions have to be made to a Roth 401(k), which does not reduce taxable income.

Another way to reduce taxable income is by contributing to a Health Savings Account.  If your employer offers a High Deductible Health Plan, you can make contributions to a Health Savings Account up to $4,400 per year for individual plans or $8,750 for family plans.  There is also a "catch up" contribution with these plans:  An additional $1,000 per year may be contributed if aged 55 or older.  Health Savings Accounts have what is called the "triple tax advantage":

• Contributions to the Health Savings Account have no tax assessed on them at contribution
• Money in an HSA can be invested and the growth on the investments is tax deferred
• Withdrawals from the HSA are also tax-free, provided that they are used to pay for medical expenses

The HSA is also another good vehicle for retirement savings as the funds are yours even if you no longer have HDHP insurance.

[rwhitfield]

I'm not sure if you can see the previous thread but I asked about ways to estimate our tax burden because we have owed a lot. One of the suggestions was making quarterly payments to the IRS or increasing our federal withholdings. Could we put the amounts into the HRA account and increase our 401K contributions dollar per dollar to not owe? So instead of paying $2500 each quarter could I split that quarterly $2500 between our 401K's and HRA accounts? 

[AmyC]

Yes, the thread is visible. You have great questions and clever ideas. 

• The HRA- funded by employer. HSA funded by you would be an effective way to reduce income.
• The 401k with pre-tax dollars is a great place to tuck money away and lower your tax bill.

These are not a dollar for dollar swap so you will want to check your liability throughout the year (bonuses, stock options, etc) and verify your withholding is on pace. I recommend checking 4 times a year.  That way you can make estimated payments or change withholding. The IRS expects payment the same quarter as the income earned.

 @RogerD1  is correct about saving money and making estimated payments or changing your w4 at work where it has the withhold additional $ per pay period. 

Use the Tax bracket calculator to find out what percent should be withheld to zero out or at least get below owing $5k and the extra penalties. 

Start with

1. Determine taxable income to date
2. Determine federal tax withheld / paid and divide it by taxable income.
3. See if you will owe money and make payment or adjust w4. It can adjusted at work daily if you want.

Example: Marginal tax rate 10%  Take tax and divide by income

1. Ex. $500/ $5000 = 10% on track to zero out.
2. Ex. $500/10,000 = 5% is less than 10% so you will owe money.
3. Ex. $500/ $4000 = 12.5% is greater than 10% so refund time.

[rwhitfield]

My husband recently started working contract roles where he is paid through a 1099 (I don't know if I am stating that correctly but it's basically a job where he does work for a company as a contractor and is not technically employed by that company and they don't withhold taxes). We are withholding 30% of that income just to be on the safe side. It has been suggested by multiple people that we start either an LLC or S-Corp for those jobs instead of contracting the work through him directly. When it comes to taxes is there a benefit to opening an LLC vs S-Corp?

[RobertB4444]

There is.  Income from a partnership or an S-Corp can be passed through to your husband at a much lower tax rate than just entering the income onto your tax return.  The S-Corp or partnership can also pay your husband a salary that is less than the total amount that is received on the 1099 and you can save some money on the self-employment taxes.  

An LLC can be taxed as a partnership or an S-Corp.

[rwhitfield]

Do you recommend an S-Corp over an LLC for this situation? 

[RobertB4444]

An LLC is a type of corporation.  An S-Corp is just how the taxes are done.  You can have both.  I don't know what type of business your husband is in but you will need to create the corporation however you do it and the legal professional that you hire to hep with creating it may have some advice on the best type of corporation to create.

[rwhitfield]

This has been so helpful thank you!!