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One other tip from another F1 student: for state residency in FreeTaxUSA, after selecting "non-resident," make sure you're only reporting income that was earned in that specific state. The software should limit taxation to state-source income, but sometimes you need to verify this manually. In my case, I had a summer internship in a different state from where my university is located. Had to file as a non-resident in both states, but only report the income earned in each respective state.
That's helpful - I did have a paid campus job at my university in Massachusetts, but I also did some freelance work online for a company based in California. Should I be filing in both states then?
Yes, you'll likely need to file in both Massachusetts and California. For Massachusetts, report only your campus job income. For California, you'll need to determine if your freelance work counts as California-source income (it often does if the company is based there, even if you performed the work in Massachusetts). FreeTaxUSA can handle multi-state returns, but you'll need to be careful about allocating the income correctly. And select "non-resident" for both states since you're an F1 student in your first five years in the US.
As someone who went through this exact same confusion last year, I completely understand your frustration! The lack of clear guidance for international students in tax software is really frustrating. Based on what others have shared and my own experience, you should definitely select "non-resident" for Massachusetts. Since you're on an F1 visa and have only been in the US for 15 months, you're considered a non-resident alien for federal tax purposes, and Massachusetts generally follows that determination. One thing I learned the hard way is to double-check that FreeTaxUSA is only taxing your Massachusetts-source income (like your campus job) and not trying to tax any income from other sources. The software should handle this automatically when you select non-resident, but it's worth verifying. Also, don't forget about Form 8843 that someone mentioned - it's required for F1 students even if you don't owe any taxes. FreeTaxUSA can help you prepare it, but you have to look for it specifically in the foreign income section. Good luck with your filing! The first year is definitely the most confusing, but it gets easier once you understand your status.
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Are you writing off all your business expenses correctly? I'm self employed too and was shocked at my tax bill until I learned what I could deduct. Car mileage, home office, cell phone, internet, laptop, software subscriptions, health insurance premiums, business travel, professional development... the list goes on. My tax guy found over $20k in legit deductions I was missing.
This! I wasn't tracking my mileage for years and missed out on thousands in deductions. I now use MileIQ app and it's a game changer. Also, if you have a separate room used exclusively for business, that home office deduction is significant.
I feel your pain! I went through something similar my first year hitting six figures as a freelancer. That 45-50k total tax bill is unfortunately pretty normal for self-employment income at your level. A few things that might help reduce the sting: 1. **Quarterly payments for next year** - Since you now know your income level, increase those quarterly payments to avoid another big surprise. Aim for about 35% of your gross income. 2. **Business structure** - At your income level, it might be worth exploring an S-Corp election. You'd pay yourself a reasonable salary (subject to payroll taxes) and take the rest as distributions (no SE tax). Could save you several thousand annually. 3. **Maximize retirement contributions** - A Solo 401k lets you contribute as both employer and employee, potentially up to $69,000 for 2024. Even a $20k contribution could save you $5-7k in taxes. 4. **Track EVERYTHING** - Business meals (50% deductible), equipment, software, professional memberships, continuing education. I use QuickBooks Self-Employed to categorize expenses automatically. The good news? You made $160k! That's amazing. The tax bite hurts but it means your business is thriving. Just plan better for next year so there are no surprises.
This is incredibly helpful, thank you! I'm actually in a very similar situation - first year breaking into six figures with my consulting business and feeling overwhelmed by the tax implications. The S-Corp election sounds intriguing but also complicated. Do you have any recommendations for resources to learn more about whether it makes sense for my situation? I'm worried about the additional paperwork and compliance requirements, but if it could save me thousands in SE tax, it might be worth exploring. Also, when you mention "reasonable salary" for S-Corp - how do they determine what's reasonable? I've heard the IRS scrutinizes this pretty closely.
Great question about S-Corp elections! I went through this analysis last year when I hit similar income levels. For "reasonable salary," the IRS looks at what you'd pay someone else to do your job. Check salary.com, glassdoor, or industry surveys for your field. Generally, aim for 40-60% of your net business income as salary. So if you net $160k, a $70-90k salary would likely pass scrutiny. The S-Corp paperwork isn't too bad if you use payroll software like Gusto or ADP. You'll need to run payroll for yourself, file quarterly 941s, and an annual 1120S, but most tax software handles the 1120S easily. Quick math: At $160k net, if you paid yourself $75k salary, you'd save SE tax on the remaining $85k. That's about $6,500 in tax savings (85k × 15.3% × 0.5). Minus payroll service costs (~$1,200/year), you're still ahead by $5k+. I'd recommend talking to a CPA who works with small businesses. Many offer free consultations to discuss whether S-Corp makes sense for your specific situation. The savings really start to make sense around $60-80k+ in net business income.
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Quick tax tip: If you do get a 1099-K for personal item sales, make sure you document everything as best you can. Take screenshots of listings showing these were personal items, note approximate purchase dates/prices of original items, etc. The burden of proof is on you to show these were personal and not business sales if questioned.
This is super helpful! What happens if you get a 1099-K but sold different kinds of items - some personal stuff like I mentioned, but also a few things that might count as business inventory? Do I need to split those up somehow?
Yes, you would need to separate the two types of transactions. The items that were business inventory would go on Schedule C as part of your business reporting. The personal items sold would be handled as personal property sales (no reporting if sold at a loss, or capital gains if sold at a profit). I recommend creating a simple spreadsheet that lists each item sold, whether it was personal or business, approximate original cost, and selling price. This documentation is crucial if you're ever questioned about the mixed transactions on your 1099-K. Keep your business and personal selling activities clearly delineated - this will save you tremendous headaches if you face an audit.
I got a 1099k for $2800 last year for selling personal stuff and just ignored it because I didn't make a profit. Got a nasty letter from the IRS 6 months later. Don't make my mistake! Even if you don't owe taxes, you need to account for the 1099k on your return!!
What ended up happening? Did you have to pay penalties or anything? This is literally my situation right now and im freaking out!
I had to file an amended return to properly report the 1099-K. No penalties since I didn't actually owe any additional taxes, but it was a huge hassle and took months to resolve. The IRS computer system just saw the 1099-K and no matching income on my return, so it automatically generated the notice assuming I owed taxes on the full amount. Don't panic though! You can still fix this. File an amended return (Form 1040-X) showing the gross receipts from your 1099-K as "Other Income" on Schedule 1, then subtract your cost basis (what you originally paid for the items) right below it. As long as you sold everything for less than you paid, your net income will be zero and you won't owe anything. Just make sure to keep documentation of your original costs in case they ask for proof.
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Anyone else notice that TurboTax has gotten worse over the years? I used to be fine paying for it back when it was like $50 all-in, but now with all the upsells and add-ons it was gonna be over $150 for me this year!! Absolutely crazy. Just made the switch to FreeTaxUSA after seeing this post. Thanks for the recommendation.
Yep, they've been using "dark patterns" in their design for years. They deliberately make it confusing which version you need and hide the truly free options. There have been investigations into their practices. FreeTaxUSA and others are definitely more transparent with pricing.
Made the switch from TurboTax to FreeTaxUSA this year too and I'm honestly shocked at how much better the experience was. No constant pop-ups trying to sell me "audit protection" or "maximum refund guarantees" that I never needed anyway. The thing that really got me was when TurboTax tried to charge me extra just to download a PDF copy of my own tax return! FreeTaxUSA gives you everything upfront with clear pricing. Federal was free, state was $15, done. No surprises at checkout. I've been telling everyone I know about it - maybe I'll be someone's "7th mention" that finally gets them to switch too!
Javier Gomez
Same thing happened to me last year. Made $81k freelancing and owed about $16k. Self-employment taxes are brutal! You should 100% open a SEP IRA or Solo 401k to reduce your taxable income. You can contribute way more than a regular IRA - like up to 25% of your net earnings or around $61k for 2023 (whichever is less). I put $15k into my Solo 401k last year and it saved me about $3300 in taxes. Plus you're saving for retirement! Also look into the Qualified Business Income deduction - you might qualify for a 20% deduction on your business income.
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Riya Sharma
Wow, this is exactly what I went through when I first started freelancing! That $15k bill is definitely in the normal range unfortunately. The self-employment tax alone on $78k is brutal - you're looking at around $11k just for that 15.3% SE tax, plus your regular income tax on top. A few things that might help for next year: definitely start making quarterly payments (I learned this the hard way too), track every single business expense you can think of, and consider opening a Solo 401k or SEP-IRA to reduce your taxable income. Even something like a dedicated phone line for clients or a portion of your internet bill can add up to real savings. For this year's bill, you can set up a payment plan with the IRS if you can't pay it all at once. The interest rate isn't great but it's better than scrambling to find $15k immediately. Good luck - it gets easier once you get the hang of the quarterly payment system!
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