That's a really good point I hadn't considered. Looking back at our contract, it specifically describes the fee as "payment for client acquisition services" rather than a revenue share. Would that language definitely make it a service requiring a 1099?

Based on that contract language, yes, it would most likely be considered a payment for services that requires a 1099. When the contract specifically calls it "payment for client acquisition services," the IRS would typically view that as you purchasing a service from them. If it were structured as a revenue split or commission arrangement, the contract would usually contain language about "shared revenue" or "commission splits" and might include different terms about the business relationship. The specific language in contracts really matters when determining tax reporting requirements, so you're on the right track focusing on those exact terms.

Not everyone can afford a CPA, especially small businesses just starting out. I do my own taxes to save money and questions like this are really important for DIY tax filers.

That's a fair point. I didn't mean to sound dismissive. I started doing my own taxes too but switched to a CPA once these business relationships got complicated. For DIY filers, I think the main thing is documenting everything clearly - get those W-9s from anyone you pay, track all payments meticulously, and maybe consider investing in good accounting software that flags when you need to issue 1099s. The peace of mind is worth it, even if you're handling tax filing yourself.

Thanks for this breakdown - super helpful! Quick question: If I sell a rental after owning for the full 27.5 years, would I still have depreciation recapture? Or would it be fully depreciated at that point?

If you sell after the full 27.5 years, you would still have depreciation recapture, but it would be on the entire depreciable amount of the building. After 27.5 years, your basis in the building portion would be $0 (assuming no improvements were made along the way). So if you sold, all of the building portion of your sale price would be subject to depreciation recapture at the 25% rate. The land portion would be calculated separately as a capital gain. Many investors avoid this recapture tax by doing 1031 exchanges into new properties, which allows you to defer both the capital gains tax and the depreciation recapture tax. However, this is just deferring the tax - not eliminating it completely.

Unfortunately, converting to a primary residence doesn't help with depreciation recapture. You'll still have to pay recapture tax on ALL depreciation taken while it was a rental. The primary residence conversion can help with capital gains (you might qualify for the $250k/$500k exclusion), but the IRS specifically requires recapture of depreciation regardless of the property's status when you sell. The only way to avoid recapture is with a 1031 exchange into another investment property, but that just defers it - you'll face recapture eventually when you finally sell without exchanging.

Thank you so much for this step-by-step breakdown! I tried again following your exact instructions and found the mileage section. You were totally right - I had selected "Other services" instead of specifically "Delivery services" which is why I couldn't find the mileage entry screen. Got all 12,500 miles entered now and seeing a nice reduction in what I owe. You just saved me a ton of money!

I've been using Stride for 2 years with my delivery gigs and it's been super reliable. The automatic tracking works really well and you can edit trips if needed. The best part is it generates a tax-ready summary at the end of the year that you can just input directly into TurboTax. Saves so much time compared to manual logging.

What exactly counts as "reasonable" interest? My parents want to charge me 1% interest on a house loan which is obviously way below market rate. Is that going to be a problem?

The IRS publishes what's called the Applicable Federal Rate (AFR) each month, which is the minimum interest rate they consider legitimate for loans. These rates are typically lower than commercial rates. For example, as of last month, the long-term AFR (for loans over 9 years) was around 3-4%. If your loan charges less than the applicable AFR, the IRS might "impute" interest, meaning they treat the loan as if it charged the minimum rate even if it doesn't.

Without proper documentation, the IRS could potentially reclassify that $200k as a gift rather than a loan, which could have significant consequences. The annual gift tax exclusion is only $17,000 per person (as of 2023), so amounts beyond that would count against your grandparents' lifetime gift/estate tax exemption.

What about the psychological factor though? I know financially it makes sense, but I LOVE getting a big refund. It feels like a forced savings account and I usually use it for something fun or a big purchase I've been putting off.

That's actually a really good point! Personal finance isn't just about the math - psychology plays a huge role too. If getting a refund works as a "forced savings" mechanism for you and you enjoy that annual windfall, there's definite value in that approach for many people. I always tell clients to do what works best for their lifestyle and habits. For some people, the discipline of keeping that extra money each paycheck and investing it is tough. If you know you'd just spend that extra $50-100 per paycheck on random things, but would use a $1,200-2,400 refund for something meaningful, then by all means, set your withholding accordingly!

You're definitely not alone! I do the same thing. With interest rates on savings accounts being so low for so many years, I didn't feel like I was missing out on much. And there's something really satisfying about getting that big deposit all at once.