But what if I don't have any business expenses like in my situation? Is QBI just 20% of the gross 1099-NEC amount then?

If you truly have zero business expenses, then yes, your QBI would be 20% of your gross 1099-NEC amount. That's pretty unusual though - most freelancers have at least some expenses like home office, supplies, software subscriptions, or mileage. Even small deductions can add up. Many freelancers miss legitimate deductions because they don't realize what qualifies. Even a portion of your cell phone bill or internet could be deductible if you use them for work. That said, if your situation genuinely involves no expenses whatsoever, then the full 1099 amount would be your qualified business income.

What are the current thresholds where it phases out? I'm starting to do more freelance work and wondering if I need to worry about this.

For 2024, the QBI deduction starts phasing out at $191,050 for single filers and $382,100 for married filing jointly. The phaseout is complete at $241,050 (single) and $482,100 (joint). So you've got quite a bit of runway before you need to worry about it! The phaseout rules get more complex too - certain service businesses face additional restrictions during the phaseout range, but most freelancers don't hit these thresholds unless they're doing really well.

Tenants generally can't deduct regular household utilities, even if they work from home. The home office deduction works differently - they could potentially deduct a PORTION of utilities based on the percentage of the home used exclusively for business. But that's true regardless of whether they pay utilities directly or if utilities are bundled into rent. The tenant doesn't get any special tax treatment just because they pay utilities directly vs having them included in rent. The only real difference is that with direct payment, they have more control over usage and can potentially save money by being more energy-conscious.

Thanks for explaining that! Makes sense about the home office deduction being based on percentage of space rather than how the utilities are paid. Guess it doesn't really matter tax-wise after all. I was just wondering if there was some hidden benefit I was missing. Appreciate the clarification!

That's a great point about the advantages of having tenants pay utilities directly! I never thought about it from the cash flow perspective. I'm actually considering switching my rental arrangement to have tenants pay utilities directly for exactly those reasons - no more worrying about them blasting the AC all summer on my dime. Quick question though - when you made that switch, did you adjust the rent at all to account for the tenant now being responsible for utilities? I'm trying to figure out if I should lower the rent slightly since they're taking on that additional expense, or if the market rent should stay the same regardless of the utility arrangement.

Was your accountant able to point to any specific IRS publications or guidance on this? I'm trying to find the official rules so I can feel confident when I file.

Yes, she referenced IRS Publication 4345 which covers settlements and specifically talks about the tax treatment of different types of payments. She also pointed to IRS Publication 525 which discusses taxable and nontaxable income. The key principle she explained is that if you're being reimbursed for something you paid for (and didn't previously deduct on your taxes), it's generally not taxable income because you're just being made whole. You'll want documentation showing the original expenses that the settlement was replacing.

The settlement letter does mention reimbursement for "documented repair expenses" and then separately mentions an additional amount for "inconvenience and safety concerns." It doesn't list specific dollar amounts for each category though. I do have all my repair receipts which total about $3,800, and the settlement was for $6,500 total, so the difference was roughly $2,700.

dont forget checking at 3am thinking it updated 😭

This makes the most sense! I bet the letter is for a different tax year or was already in the mail before my return hit their system. Thanks for the clear explanation - I'll check what year the letter mentions and give it a few more days before calling. Really appreciate the help navigating this confusing process!

I had something similar happen! I think it's because the foreign tax credit reduces your tax liability, which can cascade into affecting other calculations like the QBI deduction. I ended up having to redo that section of my return after adding the foreign tax credit.