Hello friends,
Ready for a tricky question today?
I recently got hooked up with a sweet freelance gig, thanks to my sister's postdoc advisor, who is writing a book and needs some copyediting help. He is paying me $75/hour and there are at least 40 hours of work in this project. (Plus the possibility of more in the future if I do a good job, which is awesome.)
Most of my prior freelance work has either been for my dad, who pays me by personal check, or in annual amounts that add up to no more than $600. This job is clearly going to pay more than that.
I filled out paperwork for the author to allow him to pay me, including a contractor agreement and a W-9. Obviously this income will be reported to the IRS and I'll need to pay taxes on it for 2013. It's not a huge deal - but I'd like to reduce the tax hit as much as I can.
I have both a Roth IRA for my husband (that's been fully funded for 2013, thanks to cashing in a bad, old life insurance policy) and a traditional IRA for myself, to which I have contributed $2,640 year-to-date.
We also adjust our withholding so that we receive little to no refund - last year, we owed the state of PA because I cashed in a savings bond, but the federal government owed us only $11.
Would it reduce my tax burden if I were to contribute most of this freelance income to my traditional IRA, up to the annual limit? If the job is 40 hours at $75/hour, I would end up with $3,000, and could contribute $2,360 more to my IRA.
I told the husband we should ask our accountant - and we probably will - but I'm also asking all of you.
If you need more information, like information about our incomes or anything, just let me know.