I've been following this discussion and want to add one more perspective that might help. I'm a CPA who specializes in individual tax issues, and I see situations like yours regularly. The advice everyone has given about amending within the 3-year window is absolutely correct. What I'd emphasize is that your situation is actually pretty straightforward - missing 1099 income is one of the most common amendments we process. A few technical points that might help: - The $3,500 unreported income will trigger about $536 in self-employment tax (15.3%) regardless of your income bracket - Your regular income tax on that amount depends on your marginal rate, but likely another $350-525 - Penalties for voluntary disclosure are typically much lower - often just the failure-to-pay penalty at 0.5% per month One thing I always tell clients: the IRS computer systems are getting better at catching these discrepancies, so it's really in your best interest to address this proactively. When they find it through their matching program (which they often do within 2-3 years), the letters can be more intimidating and the penalty calculation less favorable. File that 1040-X with confidence - you're doing exactly what responsible taxpayers should do when they discover an error.

I'm going through the exact same anxiety spiral right now with my 2022 taxes! I missed reporting some freelance graphic design income (about $2,900) and have been putting off dealing with it for months. Reading through everyone's experiences here is honestly the first time I've felt like this might actually be manageable instead of catastrophic. The consistent message that voluntary amendments get better treatment really resonates - I keep imagining getting some scary IRS letter out of the blue versus handling this proactively. And hearing that people in similar situations ended up owing $500-800 plus reasonable penalties makes this feel like a problem I can actually solve rather than some insurmountable disaster. I think what's been paralyzing me most is not knowing what the "worst case" actually looks like. Having real numbers and experiences from people who've been through this exact situation is incredibly helpful. Time to stop letting fear make this decision for me and just get the 1040-X filed!

14 Also worth mentioning - gambling winnings are subject to different withholding requirements. If you win over certain thresholds (like $5,000 in a lottery), taxes should be withheld immediately. But for most online betting apps, they don't withhold taxes automatically, which is probably why you're in this situation.

Don't forget about state taxes too! Each state handles gambling income differently. Some states don't tax gambling winnings at all, while others treat them as regular income. A few states even have different rules for online vs. in-person gambling. You'll want to check your state's specific requirements because you might owe state taxes on that $30k in winnings even if your federal situation gets sorted out with itemizing. Some states also don't allow gambling loss deductions even if you can take them federally, which could really impact your overall tax bill. If you're in a state that recently legalized sports betting, the tax rules might still be evolving too. Definitely worth researching or asking a tax pro about your specific state's treatment of online gambling income.

23 Has anyone tried just putting like $1 of income instead of $0? My accountant friend suggested this makes it less likely to trigger a flag in the system while still giving you essentially the same loss deduction.

I just went through this exact situation last year with my Etsy shop! Started in late 2023 with about $3,800 in startup costs but no sales until 2024. The key thing I learned is that you absolutely CAN claim these expenses even with zero income. In TurboTax, go to the Business section and select "I'll enter my business info myself" when it asks about 1099s. Then just enter $0 for income but add all your legitimate business expenses - tools, materials, website costs, home office, etc. One important tip: make sure you can justify that this is a real business and not a hobby. Keep records of your business activities, any marketing you did, your business plan (even informal), and evidence you intended to make a profit. The IRS gets suspicious of businesses that show losses year after year with no income. Your Schedule C loss will flow through to your main tax return and reduce your W-2 income, which could give you a nice refund! Just be prepared to explain your business activities if questioned.

Just a heads up on the marketplace HDHP option - make sure you check the deductible amounts carefully! Not all "high deductible" plans on healthcare.gov actually qualify as HDHPs for HSA purposes. For 2024, a qualifying HDHP needs to have a minimum deductible of $1,650 for self-only coverage and a maximum out-of-pocket limit of $8,050. I nearly messed this up when I was shopping for plans.

Great question about the HSA last-month rule and job transitions! I went through something similar a few years ago and learned a lot about maintaining eligibility during the testing period. One thing I'd add to the excellent advice already given is to consider the network differences between your current plan and potential new coverage. If you have any ongoing medical needs or preferred providers, COBRA might be worth the extra cost to maintain your existing network relationships through the end of the year. Also, when comparing marketplace HDHPs, pay close attention to the HSA contribution limits if the plan comes with an HSA from a different provider. Some HSA administrators have higher fees or limited investment options compared to others. Since you're only looking at a few months of coverage, the fees might not matter much, but it's worth checking. The timing advice others have shared is spot-on - you have until October 31st to remain HSA-eligible after your coverage ends on the 10th, and you'll want new HDHP coverage starting November 1st. This gives you a comfortable window to shop and compare options without rushing into a decision.

As someone who just went through my first year of S Corp 1099 filings, I can confirm your accountant is right but there are some nuances that might help reduce your stress. The good news is you don't need 1099s for EVERYONE on that list. If your hairstylist works at a salon that's incorporated, or if you paid any of these vendors via credit card or business payment platforms like Square, those don't require 1099s from you. Here's what saved me time: I created a simple spreadsheet tracking each vendor, how I paid them (cash/check vs credit card), their business structure (got this from W-9s), and total annual payments. This helped me quickly identify who actually needed 1099s versus who didn't. Your friend who's never done this might be flying under the radar, but the penalties for missing 1099s can be substantial ($50-$280 per form depending on how late). Better to be compliant from the start. One tip: for vendors you'll work with regularly, get their W-9 forms upfront when you first hire them. Makes tax season way less stressful than scrambling to collect everything in January.

I went through this exact same confusion when I started my S Corp two years ago! Your accountant is absolutely correct - S Corps do need to issue 1099-NECs to qualifying service providers, but the key word is "qualifying." Here's what helped me sort through the maze: Start by understanding that you DON'T need to issue 1099s to corporations, LLCs taxed as corporations, or for payments made via credit card/third-party processors. This eliminates a lot of vendors right off the bat. For your entertainment industry expenses like hair/makeup, these can absolutely be legitimate business deductions if they're specifically for performances, auditions, or professional appearances. Just make sure you can document the business purpose - I keep notes linking each service to specific gigs or professional events. The W-9 collection process gets easier once you establish it as standard practice. I now require W-9s before making any payments over $100 to new vendors. Most professionals understand this is normal business procedure, though some personal service providers might need a gentle explanation about why you need their tax info. Don't feel bad about not knowing this initially - the entertainment industry is notorious for informal payment practices, but as an S Corp you need to follow corporate tax rules. It's a learning curve but you'll get the hang of it!