{"id":19309,"date":"2025-01-09T15:34:59","date_gmt":"2025-01-09T15:34:59","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/finance\/all-the-things-i-messed-up-and-didnt-optimize-this-year\/"},"modified":"2025-01-09T15:34:59","modified_gmt":"2025-01-09T15:34:59","slug":"all-the-things-i-messed-up-and-didnt-optimize-this-year","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=19309","title":{"rendered":"All The Things I Messed Up And Didn’t Optimize This Year"},"content":{"rendered":"


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The other day, I finally got around to finalizing my taxes for 2023. If you\u2019re wondering why I\u2019m filing my taxes so late, it\u2019s because I got a tax extension back in April. I always file for an extension since I never get a tax refund anymore (so there\u2019s no urgency for me to file) and I like giving myself more time to organize my stuff.<\/p>\n

I\u2019ve been writing about money and financial independence for 8 years now, and during that time, I\u2019ve spent an inordinate amount of time trying to optimize my finances. Unfortunately, even with the extra time I gave myself to file my taxes, a combination of being overwhelmed with family duties<\/a>, some disorganization, and a little bit of laziness meant that I messed up fairly badly this year, forgetting to do a bunch of stuff I usually do and leaving money on the table as a result.<\/p>\n

It happens though. So if you\u2019re ever feeling bad about not doing everything perfectly, you can look at all the stuff I didn\u2019t do this year and maybe feel a bit better about what you may not have done.<\/p>\n

Forgot To Do A Backdoor Roth IRA<\/h2>\n

This was definitely my worst mistake for the year.<\/p>\n

My wife and I have been taking advantage of the Backdoor Roth IRA for many years now since our income is too high to contribute to a regular Roth IRA. If you aren\u2019t familiar with the Backdoor Roth IRA, it\u2019s a way you can contribute to a Roth IRA even if your income is too high for a normal Roth IRA. There\u2019s more that goes into a Backdoor Roth IRA than I can go into with this post, but essentially, what you do is make a nondeductible contribution to a traditional IRA, then immediately roll over your contribution to a Roth IRA. By doing this, you\u2019re able to contribute to a Roth IRA, even if your income is too high to directly contribute to one.<\/p>\n

Taking advantage of the Backdoor Roth IRA is important because it allows me to put thousands of dollars each year into a tax-advantaged account. That money can grow tax-free and I can withdraw the money tax-free as well. For last year, the contribution limit was $6,500 per person (if under 50). That means my wife and I could have contributed $13,000 total to our Roth IRAs as a Backdoor Roth IRA contribution.<\/p>\n

The deadline for making this contribution, however, was the regular tax filing deadline and not the tax extension deadline. That means I needed to make this contribution back in April 2024, which I completely forgot to do.<\/p>\n

It\u2019s a fairly expensive mistake to make too. $13,000 invested in a Roth IRA could grow to around $50,000 in 20 years and to $98,000 in 30 years. As you can see, that\u2019s a lot of tax-free income I left on the table due to my forgetfulness. It won\u2019t ruin me by any means, but it does hurt to lose out on that much potential money.<\/p>\n

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Over 30 years, $13,000 invested in a Roth IRA could grow to over $98,000. That\u2019s That\u2019s potentially $85,000 of tax-free growth I can never get back.<\/figcaption><\/figure>\n

Didn\u2019t Max Out My 529 Tax Deduction<\/h2>\n

Another minor thing I forgot to do was max out my state 529 plan tax deduction. As a quick background, a 529 plan<\/a> is a tax-advantaged account that provides tax-free growth if used for qualified educational expenses \u2013 usually college tuition for most people. In many ways, a 529 Plan is like a Roth IRA where you contribute to it using after-tax money and can then withdraw the money tax-free later.<\/p>\n

Depending on which state you live in, contributing to a 529 plan could also qualify you for a state tax deduction. I live in Minnesota, which gives households up to a $3,000 state tax deduction for 529 plan contributions to any state\u2019s 529 plan (i.e. I don\u2019t have to contribute to the Minnesota 529 plan to qualify for the state tax deduction). In this case, I contribute to the New York 529 plan since I find that plan easy to use, it uses Vanguard funds, and most importantly, it has low fees (just 0.12% expense ratio as of when I write this).<\/p>\n

For some reason, I only ended up contributing $2,800 to my 529 plan last year, which really makes no sense. It\u2019s not a huge deal that I didn\u2019t get to that max of $3,000, but as someone who likes to optimize everything, seeing that I randomly forgot to contribute an extra $200 for no particular reason hurts. At a minimum, I should always be contributing at least $250 per month to a 529 plan so I can maximize that state tax deduction (I\u2019ve since gone ahead and updated my auto-contributions to be $250 per month).<\/p>\n

Did A Terrible Job Keeping Track Of My Expenses<\/h2>\n

A big advantage of being a business owner is that a lot of your everyday expenses can qualify as business expenses, allowing you to reduce your taxable income and essentially pay for things using pre-tax income. There are a lot of things I already pay for that can qualify as a business expense. Things like my phone and internet or the bike maintenance I do on my bikes are good examples of things I\u2019m already paying for that can qualify as business expenses. Even going out to eat can qualify as a business expense since I\u2019m usually going out to lunch with my business partner.<\/p>\n

The catch, of course, is that you need to actually track these expenses. And this is where I\u2019ve been really bad lately because I\u2019ve been doing an awful job of tracking my potential business expenses. As a result, at the end of the year, I\u2019m always underreporting my expenses because I\u2019ve simply forgotten what I spent money on.\u00a0<\/p>\n

This is something I need to work on improving because by not reporting all of my expenses, I\u2019m for sure leaving money on the table. Even if I\u2019m worried about stretching what is a business expense, I can\u2019t even consider whether to include it if I never tracked it in the first place.<\/p>\n

Final Thoughts<\/h2>\n

We\u2019re still in October as I write this, which means I have plenty of time to optimize things this year. For contributions to tax-advantaged accounts, it\u2019s important to think about when the contributions need to be made. It\u2019ll either be by the end of the calendar year or by the tax filing deadline. But you have to pay attention because even if you get an extension, the deadline might still be with the original tax filing deadline and not the extension deadline.\u00a0<\/p>\n

As we head into these last two months of the year, I have time to at least make sure I don\u2019t miss out on some of these easy things I missed last year. With my 529 Plan, I noticed I was coming up short again on the contributions, so I changed it so it\u2019ll at least hit $3,000 in contributions by the end of the year.<\/p>\n

For the Backdoor Roth IRA contributions, I\u2019m planning to make my contribution soon after I write this. I\u2019ve always been 1 year behind, where I make my contribution for the previous year in the current year (i.e. I\u2019d normally make my 2024 Backdoor Roth IRA contribution at the beginning of 2025). I\u2019m planning to get on track and make my contribution for the current year in the same year, just to simplify my thinking a bit.<\/p>\n

So yeah, as much as I\u2019d like to optimize everything, I don\u2019t always do it. And this past year was probably my worst year when it came to optimizing things because I was so busy and forgetful.<\/p>\n

It\u2019s not the end of the world, but if I can optimize my finances, I\u2019d rather do that.<\/p>\n

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