Oh crap, I did have some freelance income last year. Not a ton, maybe $8,000 or so, but I definitely didn't make any quarterly payments. Would I get hit with all those penalties even though it wasn't my main source of income?

Yes, unfortunately the IRS doesn't distinguish between "main income" and "side income" - if you have self-employment earnings over $400, you're supposed to make estimated quarterly payments on that income. Your total penalty will depend on how much tax you owe on that $8,000. At that income level, you're looking at about 15.3% for self-employment tax plus your regular income tax rate. The good news is if this is your first time missing filing deadlines or estimated payments, you might qualify for first-time penalty abatement. Definitely mention that when you file or if you call the IRS.

Good point! My state (California) hit me with penalties that were almost as much as the federal ones when I missed filing a couple years ago. I had no idea states could be so strict.

Would this work even if I've already paid the penalty? I just went ahead and paid the $220 penalty because I didn't want it to accrue more interest, but now I'm thinking I actually qualified for safe harbor.

Yes, it absolutely works even if you've already paid. The Form 843 can be used to request a refund of penalties you've already paid, not just an abatement of unpaid penalties. Just make sure to check the "Interest" box in Item 5a and explain in detail that you're requesting a refund of underpayment interest because you qualified for the safe harbor provision. Include copies of both tax years' returns to prove you met the requirements. Also enter the date you paid the penalty in section 2, and they'll refund it if your request is approved.

Yes, the IRS does have a "reasonable cause" provision where they can waive penalties for hardship situations. Medical emergencies can absolutely qualify. You'll need to submit a letter explaining the situation with documentation of your medical issues and how they impacted your ability to pay.

Thanks for the insight! I just checked and my Robinhood account does have about 3 crypto trades (just some dabbling in Bitcoin and Ethereum) along with the 5 regular stock trades. Would that really justify doubling my tax prep fee though? Did your firm have a set price for crypto transactions?

Yes, crypto trades absolutely can justify a significant price increase. Cryptocurrency reporting is complicated because the IRS treats them as property, not currency, which means each transaction requires determining cost basis and holding period, plus special wash sale considerations. We typically charged 50-100% more for returns with crypto because of the extra work and risk involved. Many tax professionals are also wary of crypto because the reporting requirements are still evolving, and they take on additional liability. If you only have 3 basic crypto trades, you might be able to negotiate, but the extra $200 for a combination of stock and crypto transactions isn't outrageous by industry standards.

This is good advice. My tax guy breaks down all his fees upfront - basic return is X amount, Schedule C adds Y, investment forms add Z, etc. Makes it easy to know what you're paying for.

Exactly this. My company literally has a policy against converting employees to contractors. They told me it creates too much liability for worker misclassification issues. Plus they mentioned something about the "Microsoft case" from years ago where contractors successfully sued claiming they were really employees entitled to benefits. Now companies are super careful about this stuff.

You're right about the Microsoft case (Vizcaino v. Microsoft) - it was a huge wake-up call for many large companies. Microsoft had to pay $97 million to settle claims from workers who were classified as contractors but functioned as employees. After that case, corporate legal departments became extremely cautious about worker classification. Many companies now have strict policies about who can be a contractor vs. employee precisely to avoid similar lawsuits. Some even have mandatory "cooling off" periods where a former employee must wait 6-12 months before they can return as a contractor. The tax advantages for individuals are completely outweighed by the legal risk for companies in many cases.

This is SO true. I tried the contractor route for 2 years and went back to W2 employment even though I made more on paper as a contractor. The stress of inconsistent income, constantly chasing new clients, and never being able to truly disconnect was killing me. Plus I underestimated how much it would cost to replace my employer benefits. Health insurance alone for my family was over $1800/month with a terrible deductible! Sometimes the "tax savings" just aren't worth the quality of life sacrifice.

8 That's so confusing! Why do they make this stuff so complicated? Is there any easy way to verify all my deductions were actually treated as pre-tax without doing a bunch of math?

5 The easiest way to verify is to look at your final paystub for the year. It should have a year-to-date summary that lists all pre-tax deductions separately. Compare your gross wages on the paystub to Box 1 on your W-2. The difference should equal the sum of all your pre-tax deductions. If you're still unsure, most payroll systems provide detailed earnings statements you can access online. These typically break down exactly how your wages were calculated and what deductions were taken pre-tax vs. post-tax.

2 My Box 14 just says "Union Dues" and some amount. Nothing about health insurance. 😕 Why can't they standardize this stuff?