It's because the tax code itself is super complicated with different rules for different situations. W-2s are for regular employment, 1099s are for contract work, Schedule C is for self-employment, etc. The more complex your financial life gets, the more forms you need.

Oh shoot, I didn't even think about that! I'm still living at home while I work this job. Do I need to coordinate with my parents on this? How do I know if they're claiming me?

Yes, absolutely coordinate with your parents! Just ask them directly if they're planning to claim you as a dependent on their taxes for this year. If you're 18, living at home, and they're providing more than half of your support (housing, food, etc.), they likely can and should claim you. If they do claim you, you can still file your own return to get back any income tax withheld from your paychecks, but you'll need to check a box indicating someone else can claim you as a dependent. This affects some credits and deductions you might otherwise qualify for.

Thanks for the advice! I didn't realize we needed an EIN - I thought we could just use her SSN since it's such a small operation. Is there any downside to getting an EIN? And does having one make us more likely to be audited?

You actually can use her SSN instead of an EIN for this type of small sole proprietorship - I misspoke there! Using her SSN is completely fine for reporting the income on Schedule C when she's the only person involved in the business. Getting an EIN doesn't increase audit risk at all. The IRS is mainly concerned that you're reporting all income and taking legitimate deductions, not whether you have an EIN or use an SSN. An EIN can be helpful if you ever expand the childcare business or don't want to share her SSN with the parents for the childcare tax credit, but for your current situation, using the SSN is perfectly acceptable and common for small sole proprietorships.

I've done both. The regular method usually gives a bigger deduction but requires more record keeping. You have to track all home expenses (mortgage/rent, utilities, insurance, repairs, etc.) and calculate the percentage used for business based on square footage and time used. The simplified method is just $5 per square foot up to 300 sq ft. Much easier but usually results in a smaller deduction, especially if you live in a high-cost area. For childcare specifically, the regular method tends to be better because you can deduct based on time-space percentage.

I hadn't even considered this angle! My situation might actually fall into this gray area - I'm still expected to work set hours and use company equipment. Do you know what the specific tests are that the IRS uses? And if I pursue this, would I likely get fired or face other repercussions?

The IRS primarily looks at three categories: Behavioral Control (do they control how you work?), Financial Control (do they control the business aspects of your work?), and Relationship Type (written contracts, benefits, permanency of relationship). If they control when, where, and how you work, provide your equipment, don't let you work for others, pay you by time rather than project, and the relationship is ongoing rather than project-based, you're likely an employee regardless of what they call you. As for repercussions, legally they can't fire you for questioning your classification - that would be retaliation. But practically speaking, it could create tension. Some people start by having an informal conversation with HR or management before filing anything with the IRS. Documentation is key throughout this process.

Has anyone used Schwab for their solo 401(k)? Their regular investment accounts are great but wondering specifically about their solo 401(k) options compared to Fidelity.

I actually did research Schwab before settling on Fidelity. Their solo 401(k) is solid with no setup or maintenance fees similar to Fidelity. The main differences I found were that Schwab's plan doesn't allow for Roth contributions within the solo 401(k), while Fidelity does. Schwab also requires a bit more paperwork for the initial setup. Investment options are comparable between the two, with both offering good access to low-cost index funds. Schwab's customer service for small business retirement accounts was excellent in my experience during the research phase. If the Roth option isn't important to you, Schwab is definitely worth considering.

That's an interesting idea I hadn't considered. Do both properties need to be investment/rental properties for a 1031 exchange to work? One of our homes has been purely a primary residence, while the other we rented out for about 18 months a few years back.

Yes, this is an important distinction - 1031 exchanges only work for investment or business properties, not primary residences. If the home you rented out for 18 months has since been your primary residence, you'd need to convert it back to a rental before attempting a 1031 exchange. For a mixed-use property (part rental, part primary residence), the exchange can get complicated. You might be able to do a partial 1031 exchange on the portion used for business/investment, but you'd need a tax professional to help structure this correctly. The primary residence exclusion is usually simpler for homes that have been your main home for 2+ years.

I used this when I had to relocate for a job after only living in my house for 14 months. You get a prorated portion of the exclusion based on how long you lived there divided by 24 months. So in my case, I got 14/24 of the $250k exclusion (about $146k). But you need legitimate unforeseen circumstances - not just wanting to sell two houses close together.

Wait, I thought the Tax Cuts and Jobs Act eliminated employee business expenses deductions? My tax preparer told me we can't deduct any of that stuff anymore, even with receipts.

You're absolutely right, and I should have been clearer. The Tax Cuts and Jobs Act suspended most unreimbursed employee business expense deductions for W-2 employees through 2025. Self-employed individuals, independent contractors, and business owners can still deduct these types of expenses. Also, some states still allow these deductions on state returns even though they're suspended at the federal level. Always best to check with a tax professional for your specific situation.

Your roommate is playing audit roulette. The IRS has a 3-year window to audit returns, and some returns are randomly selected regardless of what's claimed. Just because she hasn't been caught doesn't mean what she's doing is legal or that she won't eventually get caught.