Personal finance tips you may not know, including tax hints

by yes_its_him

A lot of personal finance advice is straightforward applications of math: Keep expenses less than income. Pay off highest interest rate debts first. Compound growth is your friend.

Then there are legal requirements and benefits: Use tax-preferred retirement / HSA accounts. Keep insurance in force. Know how self-employment taxes work.

This post is about less-obvious ways to use existing US laws to your advantage. (Our friends in other countries are welcome to lobby for local versions in their associated personal finance subs.)

Provisions you may not know, though your tax software should be able to help with these if you tell them you qualify:

Taxes / tax planning:

  • Take advantage of “adjustments” like IRA/HSA contributions, student loan interest, self-employment taxes/health insurance paid, etc., to reduce taxable income if you are eligible. You can take these even if you do not itemize. There is a special $300 charitable contribution adjustment for non-itemizers for the 2020 tax year.
  • If you are not a full-time student and earn less than 33K single / 66k jointly, you can use the Saver’s Credit to get a tax credit (better than a deduction!) for a portion of your IRA or 401k contributions, even for Roth contributions. You can even deduct a contribution to get your income to qualify.
  • if you are a full-time student, you can take advantage of tax breaks such as the American Opportunity Tax Credit if you meet the requirements. Note also that scholarship money for tuition is not taxable income.
  • If you have children who will be full-time students in the future, you can often get a current break on state taxes with a 529 plan. Growth on this money is untaxed if used for educational expenses, but taxed and penalized if used for something else.
  • Gifts and inheritances are generally not taxable to the recipient, even if over $15,000. Other untaxed “income” includes most insurance payouts and damage awards; child support; rebates and credit card spending bonuses. Remember that loans are not income, though forgiven loans typically are.
  • You don’t owe any capital gains taxes on appreciated investments until you realize them by selling. If you do have a taxable gain, you can’t eliminate it just by buying something else. You can deduct same-year realized losses from realized gains. If you have more losses than gains, you can deduct $3000/year from other income and keep taking that loss against gains in future years until it is used up.
  • You pay no federal income taxes at all on long-term capital gains if your taxable income (including those gains) is less than the top of the 12% tax bracket. That could be $105,000 gross income for a married couple filing jointly, $52,000 single. You can can do this at any age, unless you are someone’s dependent.
  • Sales of a personal residence often have no capital gains tax as well. You have to have lived in the house as your primary residence two of the past five years; you get $250,000 per sale ($500,000 for a married couple). This is often enough to make selling a house better financially than keeping it to rent.
  • If you rent a room in your house, part of all of your housing expenses (including insurance and utilities) can be Schedule E expense deductions against your rental income (but you need to declare the rental income.) You don’t have taxable income / deductions if your roommates who share the lease give you money to send to your landlord.
  • You might get a 1099K for things you sold online; this is not necessarily taxable income to you, since you can reduce that income by the cost of the items you sold. If you received a 1099K reporting income that wasn’t really yours , e.g. for selling something on behalf of someone else, use a nominee distribution declaration to avoid being taxed on it.
  • If your spouse owes money to the federal government from before you were married, use an injured spouse form to keep the IRS from withholding your share of a joint tax refund. This is different than an innocent spouse situation, where your spouse tried to evade taxes without your knowledge.


  • Think you make too much money to contribute to a Roth IRA? Think again! The Backdoor Roth IRA may work for you. There’s even a mega-backdoor Roth for high-income people with certain 401k plans.
  • Always take the 401k match if you have it. Employer contributions to your 401k don’t count against the 19.5k limit.
  • If you change you mind about making an IRA contribution, e.g. your income becomes too high for it to be deductible / allowable, or you just contributed too much, you can remove the money or recharacterize / convert the money to another type of IRA before the tax filing deadline without penalty.
  • Self-employed people have lots of options for retirement accounts, including a solo-401k and a SEP IRA. This can apply even if you have employment retirement savings. The solo-401k allows more contributions but has to be set up in advance.

Health insurance:

  • If you change jobs and don’t have insurance coverage for a time, you have 60 days to elect continuing (COBRA) coverage, during which time you are eligible to be covered even if you haven’t and won’t pay for it. This works retroactively; you can decide to take COBRA at day 59 if you do have major expenses, pay for it, and be covered for the previous 59 days.
  • You have to have an HSA-eligible HDHP to contribute to an HSA. You can keep prior contributions even after you give up an HDHP, you just can’t contribute more to it. If you change plans mid-year, it might change how much you can contribute to your HSA that year.
  • The penalty for lack of health care coverage is gone at the federal level, but check if your state has a penalty now. There are five states including California with a penalty, as well as DC.



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