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Ask R. Greg Paszkiewicz Your Own Question
R. Greg Paszkiewicz
R. Greg Paszkiewicz, Enrolled Agent
Category: Tax
Satisfied Customers: 357
Experience:  9 years preparing tax returns - Marietta, GA
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Reducing taxable income

Customer Question

We owe over $10,000 in taxes because my wife (a
freelance writer) under estimating quarterly withholding
taxes. What can I do to reduce wither of our table
income to reduce amount of tax owed?

Can a teacher open a traditional IRA if I already
contribute to a 403b?
Submitted: 11 years ago.
Category: Tax
Expert:  R. Greg Paszkiewicz replied 11 years ago.
Based on the amount of tax you owe and the fact that you are eligible for an employer retirement plan it sounds like any contribution to a traditional IRA would be non-deductible. However, if your wife's income is self-employment income she could set up a SEP-IRA and contribute to that as the "employer", the contribution limits for SEPs are much higher than for traditional IRA's and you can set up a plan and make contributions for a tax year as late as the filing deadline (including extensions) for that tax year.
Customer: replied 11 years ago.
Reply to R. Greg Paszkiewicz's Post: My wife does have a roth ira for $3,000. Can she still
add to a sep in addition?
Expert:  R. Greg Paszkiewicz replied 11 years ago.
Yes but unless you recharacterize the Roth IRA contribution or take it back out you will pay a 6% excise tax on the excess contribution every year until the contribution can be taken or it is distributed. A recharacterization can be a hassle. I would open the SEP, make a contribution for 2004, having done that the Roth IRA contribution will then become an excess contribution so I would pull out the $3000 contribution plus whatever earnings have accrued to the 3k since it was deposited. You will get a 1099R next year showing the distribution but the only taxable amount should be the extra earnings portion earned by the 3k since it was deposited.

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