I'm jumping in late to this conversation, but wanted to share that I just went through this exact scenario last month. Small partnership investment, tiny loss (mine was -$23), and TurboTax throwing the Form 8990 warning at me. After reading through all the helpful advice here, I followed the steps everyone outlined: checked Box 20 (no Code AH), contacted my partnership to confirm their small business election status, and then confidently overrode TurboTax's warning. My return was e-filed and accepted without any issues. What really struck me is how this thread demonstrates the value of community knowledge over just blindly following tax software warnings. The software is designed to be cautious, but sometimes that caution creates unnecessary stress for situations that clearly don't warrant it. A $16.50 loss triggering business interest expense limitation forms is the perfect example of when human judgment needs to override algorithmic warnings. Thanks to everyone who shared their experiences - it's exactly this kind of practical advice that helps newcomers navigate tax season without losing their minds over software glitches!

I'm a tax preparer and see this Form 8990 confusion constantly with small partnership investors. Your situation is textbook exempt - with only a $16.50 loss and no Code AH in Box 20 of your K-1, you absolutely do not need to file Form 8990. The business interest expense limitation (Section 163(j)) was enacted to prevent large corporations from over-leveraging, not to catch small investors with minimal losses. Think about it logically - what business interest expense could possibly be limited on a $16.50 loss? Here's my professional advice: Override TurboTax's warning and e-file. The software is being overly cautious because it sees a K-1 and defaults to assuming complex forms might be needed. But the IRS instructions are clear - without Code AH checked and with such a minimal amount, you're exempt. If you're still nervous, print out the Form 8990 instructions and read the exemptions section. You'll see that your situation clearly falls under multiple exemptions. Don't let tax software create stress over something that's a complete non-issue for your tax situation.

17 Does anyone know if the FreeTaxUSA Deluxe package includes state filing too? Or do you have to pay extra for state returns even with Deluxe? TurboTax always gets me with those extra fees!

I switched from TurboTax to FreeTaxUSA last year and can share my experience with their audit protection. The $7.99 Deluxe package does include "Audit Assist" but it's important to understand what you're getting - it's more like having a knowledgeable guide rather than someone who will handle everything for you. When I got a notice from the IRS about a discrepancy (turned out to be their error), FreeTaxUSA's support walked me through exactly what documents to gather and how to respond. They provided templates and reviewed my response letter before I sent it. While they don't represent you directly to the IRS, their guidance was thorough and gave me confidence in handling the situation. The key difference from TurboTax's audit defense is that you're still doing the legwork - but honestly, for most audit situations, that's perfectly adequate. Plus at $8 vs TurboTax's much higher fees, it's hard to beat the value. Just make sure you understand you'll be the one communicating with the IRS, not FreeTaxUSA.

Lots of good advice here already, but I'll add one thing nobody's mentioned: If you decide to go the Schedule C route this year (which seems smart for a partial year), you should still open a separate business checking account immediately for your 1099 income. Keep all business income and expenses separate from your personal finances. This will make your tax prep WAY easier and give you a clean start if you decide to form an S-Corp next year. Plus, maintaining this "business separation" is good practice regardless of your legal structure. Also, start making quarterly estimated tax payments! As a 1099 contractor, you don't have withholding anymore. Set aside roughly 30-35% of your contractor income for taxes (federal, state, and self-employment) and make payments through the IRS Direct Pay system. First-year contractors often get hit with a shocking tax bill plus underpayment penalties if they don't do this.

I'm confused about something - does forming an S-Corp mean you automatically get taxed as an S-Corp? I thought you could have an LLC but elect S-Corp taxation? Is that the same thing or different?

Your best bet is to do a 1040X amendment ASAP. Don't wait for them to catch it - shows good faith effort to correct the mistake. Plus you'll avoid some of the penalties they might hit you with if they find it first.

I'd definitely file the 1040X amendment sooner rather than later. When I missed a W-2 a couple years ago, I waited for the IRS to catch it and ended up paying interest on the additional tax owed. If you amend now, you might avoid some of those extra fees. The process isn't too complicated - just need to fill out Form 1040X with the corrected information and mail it in. Keep copies of everything for your records!

Another option is to report this on Line 8z (Other Income) on Schedule 1 and just write "misc income" or "gig work" next to it. That's what my accountant told me to do for my $175 in dog walking money. He said for very small amounts that aren't your primary business, this is acceptable.

I was in almost the exact same situation last year - made $238 from some freelance graphic design work and was totally confused about the reporting requirements. After doing a lot of research and talking to a tax preparer, here's what I learned: You absolutely need to file Schedule C for that $215, even though it seems like overkill for such a small amount. The IRS considers any income from services you provide to be self-employment income, and Schedule C is the only proper way to report it. You can't just lump it in with "other income" elsewhere on your return. The good news is that your Schedule C will be super simple - basically just reporting the $215 as income with maybe a line or two for any related expenses you might have had (gas, supplies, etc.). And as others mentioned, since you're under $400 in net earnings, you won't owe any self-employment tax on it. I know it feels annoying to fill out a whole form for such a small amount, but it's really not that complicated and it's the right way to do it. Better to spend 10 minutes filling it out correctly than potentially having issues with the IRS later!