I didn't think about checking for other income! I did some babysitting for my neighbor a few times that probably paid about $350-400 total. They didn't give me any tax forms but I guess I should still report that? Would that count toward the $2,500? Also we definitely can't file jointly this year due to some complicated financial stuff with my husband's business. We've already worked out who's claiming which kid, just trying to figure out if I should stick with claiming my daughter or let her dad take her this year.

Yes, that babysitting income absolutely counts toward the earned income threshold! You should report it as self-employment income on Schedule C, even without formal paperwork. That additional $350-400 would put you over the $2,500 threshold and likely qualify you for the refundable portion of the Child Tax Credit. If filing jointly isn't an option due to your husband's business situation, then adding this self-employment income could be your best solution. In that case, you should definitely claim your daughter as planned since you'd now qualify for the benefits. Don't give up your year in the rotation with her father unless absolutely necessary.

This is super important! The child tax credit threshold is based on earned income while many other tax benefits are based on AGI. The tax code is so confusing sometimes.

What about the 20% limitation? Isn't QBI supposed to be the lesser of 20% of qualified business income or 20% of taxable income minus capital gains?

You're mixing up the QBI itself with the QBI deduction. The QBI is just your qualified business income figure - essentially your business profit with certain adjustments. The QBI deduction is generally 20% of your QBI, but is subject to limitations based on your overall taxable income, whether you're in a specified service business, and W-2 wages/business property factors. Cash App should calculate the actual deduction correctly once you give it the right QBI figure.

I contacted them last month about this exact issue. They acknowledged it's a known bug but didn't have an immediate fix. Their suggestion was to completely finish entering all your income and expenses first, then go back to the QBI section last. Apparently, sometimes it will recalculate correctly if you do it in that order. If not, they suggested calculating QBI manually and overriding their number.

10 Yeah, it's weird. I called Square support about this and they explained that if you use certain Square features like "Close Drawer" or if you process multiple payments at once through their system, it might count as fewer transactions. Also, their count is based on payment transactions, not individual customers or services provided. If you process a day's worth of cuts as a single batch, that's just one transaction in their system.

8 Thanks for this info! That explains a lot. I close my drawer once a day usually, which would mean all those individual haircuts are being counted as a single transaction. No wonder I'm not hitting 200 transactions despite having way more customers.

17 Do you know if they've announced when that $600 threshold will actually take effect? I keep hearing different things. Is it for 2023 tax year (filing in 2024) or pushed back again?

So would I put "Head of Household" on the W4 and then just "1" for my son on Step 3? Does the Head of Household selection automatically adjust things for me?

Yes, you would check "Head of Household" in Step 1(c) and then put "1" for your son in Step 3. The Head of Household selection automatically adjusts your withholding calculations to account for the higher standard deduction and more favorable tax brackets that come with that filing status. This combination (HOH status + claiming your qualifying child) should help ensure your withholding is more accurate. If you want a slightly larger refund, you can add a small additional amount in Step 4(c) - maybe $25-50 per paycheck depending on your comfort level.

It's still $2,000 per qualifying child for 2024 (for 2025 filing season). Congress didn't extend the temporary increase that was in place during 2021. Children must be under 17 at the end of the year to qualify for the full credit.

That's a good point I hadn't considered. Do you know if California has state inheritance taxes? That's where my uncle's house was located.

California doesn't have a separate inheritance tax, so you don't need to worry about that specific issue. California generally follows the federal approach regarding the step-up basis for inherited property. However, if you're not a California resident but the property was located there, you might need to file a non-resident California return to report the sale. California can tax non-residents on income derived from California sources, which could include capital gains from property located within the state.

I did! I received about $75k from my mother's estate in 2023 and had to make an estimated payment. The key is whether there was a capital gain between the date of death and the sale date. In my case, the house appreciated about $30k between her death and when it sold 8 months later. My share of that gain was enough that I needed to make an estimated payment to avoid underwithholding penalties.