Thanks so much for mentioning this! My wife's business is actually still in the investment phase and will probably show a small loss for 2024. I didn't even think about how that might offset my W2 income if we file jointly. Do you know if there are any limits to how much business loss can offset regular income? And yes, we'll definitely claim the Child Tax Credit!

There are some limits, but they probably won't affect you. The business loss can generally offset your other income, but if the loss is very large (over $270,000 for married filing jointly in 2024), it might be subject to the excess business loss limitation. For most small businesses with moderate losses, you can use the full amount of the loss to offset your W2 income. This is a huge advantage of filing jointly - if you filed separately, your wife's business loss could only offset her income, not yours.

Yeah but S-Corps come with their own headaches. You have to run payroll, file more complicated returns, etc. I wouldn't recommend it until the business is making at least $40k in profit.

Thanks for the reminder about the 1099-NEC! I did get her W-9 information, but I wasn't 100% sure about the $600 threshold. Do I need to issue the 1099 for payments made just for labor, or does it also apply if some of her invoices included materials she purchased?

The $600 threshold applies to the total payments to that contractor during the year, regardless of whether it's for labor, materials, or a combination. If your seamstress includes materials in her invoices and you pay her directly for everything as a lump sum, the entire amount counts toward the $600 threshold. Some contractors will separately itemize materials and labor on their invoices, but for 1099 purposes, you're reporting the total amount paid to that person or business during the tax year.

This is actually a common misunderstanding. While it seems logical to put seamstress costs in COGS since they're making your products, the IRS is very specific about this distinction. Contract labor (like independent seamstresses) goes on line 11, while Cost of Goods Sold is primarily for materials and inventory-related costs.

What app do you use to track your travel days? I've been using a spreadsheet but it's getting messy, especially with some quick weekend trips back to the US to visit family.

I use an app called "Travel Days Tracker" - it lets you log entries/exits by country and calculates your total days for tax purposes. Some people also use the Stride Tax app which has a location tracking feature that can automatically log when you cross borders. The spreadsheet works too, but I found having the app on my phone made it easier to log immediately when crossing borders. Whatever system you use, just be consistent. The IRS can request proof of your physical presence, and border crossing records can sometimes be incomplete.

This is a really good point. New York is just as bad as California. I moved to Toronto but kept an apartment in NYC that I use occasionally. NY claimed I was still a full-year resident even though I was physically in NY less than 90 days that year.

This is great advice but in my experience these temp agencies are super stingy with reimbursements. Did you have to show them proof of what you were deducting before to convince them?

I didn't have to show previous tax returns, but I did prepare a simple spreadsheet showing my effective income before and after deductions when I was 1099 versus the proposed W2 rate. Made it clear I needed either reimbursement for specific expenses or a higher rate to maintain the same effective income. Most employers understand this math once you lay it out clearly. The key is bringing it up during the initial negotiation phase, not after you've already accepted the rate. I've found being direct but professional works best - "My standard rate accounts for business expenses I previously deducted as a 1099 contractor, including software licenses and equipment. How does your company typically handle these expenses for W2 contractors?

The provision is technically set to expire after 2025, but nobody knows for sure if Congress will extend it or let it revert. Election years make tax planning extra fun lol. Might be worth having a conversation with your clients about whether they'd be open to 1099 arrangements with proper contracts that address their misclassification concerns.

That's a great suggestion! I hadn't thought about involving my representative. Did you just call their local office? And how long did it take them to get back to you with information?

I called their district office, and they had me fill out a privacy release form so they could inquire on my behalf. The whole process took about 2 weeks before they got back to me with confirmation. Most congressional offices have staff dedicated to helping constituents navigate federal agencies. They won't necessarily get the IRS to change their mind on anything, but they can often get status updates and confirmations that regular citizens struggle to obtain directly.

That's really helpful insider info! Do you know if most industry associations allow individual members to contribute to their formal comments? I'm part of the National Association of Tax Professionals but never thought to check if they were commenting on the same rules.