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One thing to watch out for with Schedule C that nobody mentioned yet - if your net earnings are $400 or more, you'll also need to pay self-employment tax (Schedule SE). The tax software handles this, but it's an extra 15.3% tax that catches many first-time business owners by surprise. Also, don't forget about making estimated quarterly tax payments for 2025! With $6.5k in profit, you might need to make quarterly payments to avoid an underpayment penalty next year.
Thanks for bringing that up! Does the self-employment tax apply even if my W2 job already has Social Security and Medicare taxes taken out? And how do you figure out how much to pay for those quarterly payments?
Yes, self-employment tax applies regardless of your W2 job's withholdings. Your W2 job only covers the taxes on that specific income, not on your self-employment income. The 15.3% consists of both the employer and employee portions of Social Security and Medicare taxes. For quarterly payments, you need to estimate your total tax liability for the year (including income tax and self-employment tax on your business profits) and make four equal payments. The tax software should provide you with estimated payment vouchers for the next year based on your current return. Alternatively, you can increase your W2 withholding to cover the additional tax instead of making separate quarterly payments.
Has anyone used Credit Karma for filing Schedule C? Their free version supposedly includes business income but I'm wondering if it's as good as FreeTaxUSA for small business owners.
I used Credit Karma last year for my small woodworking business. It worked ok for basic Schedule C but was missing some of the more detailed expense categories I needed. Switched to FreeTaxUSA this year and found it much more comprehensive for business stuff while still being affordable.
10 Just want to add that an important detail is when your father passed away. If it was recent (within a year or so), then what others said about stepped-up basis is correct. But if it's been a long time since he passed and the house appreciated in value while you technically owned your share, you might owe some capital gains on the difference. For example, if he passed 5 years ago when the house was worth $180k (your share $60k) and now you sold your share for $70k, you'd owe capital gains on that $10k difference.
3 Does it matter if the house was going through probate during that time? My situation is similar but the property was in probate for 2 years before we got the inheritance officially. Would the stepped-up basis be from date of death or date when probate closed?
10 The stepped-up basis is almost always determined as of the date of death, regardless of when probate closes. So if your relative died 2 years ago, but probate just finished recently, the property's value for calculating your basis would still be what it was worth 2 years ago at the date of death. This can work in your favor or against you depending on the housing market in your area during that time. If property values went up during probate, you might owe taxes on that increase. If they went down, you might actually have a deductible loss.
5 Did your brother get a mortgage to buy you out or did he pay cash? Just wondering because when I went through this with my family, my sister needed a mortgage and the bank required a formal appraisal, which then really helped with documenting the stepped-up basis for tax purposes.
14 Not OP but when we had a similar situation, getting that bank appraisal was super helpful for our taxes. The IRS never questioned anything because we had the official appraisal document. If your brother didn't get a mortgage, it might be worth splitting the cost of a formal appraisal between all siblings just for documentation.
Don't forget to consider state taxes too! My husband and I found that while federal taxes were better filing jointly, our state (California) had some weird quirks that made filing separately slightly better. You should calculate both ways for both federal and state. Also, if either of you has income-based student loans, remember that filing jointly means both incomes count for calculating the payment, which can drastically increase the monthly amount due.
Do you have to file the same status for both state and federal? Like if we file jointly for federal can we still file separately for state? This is so confusing!
Most states require you to use the same filing status that you use on your federal return. However, a few states have exceptions. In general, if you file jointly for federal, you'll need to file jointly for state as well. The confusion is understandable! Tax rules vary by state, which is why it's important to check your specific state's requirements. For example, in my case with California, we had to calculate both scenarios completely since the state calculations can differ significantly from federal ones, but we had to use the same status for both.
One thing nobody has mentioned yet - if you file separately and your husband itemizes deductions, you MUST also itemize even if your standard deduction would be higher. My wife and I learned this the hard way. We filed separately to help her student loan payment, but then I had to itemize with barely any deductions because she itemized her medical expenses. Cost us about $2k extra in taxes!
Wait, seriously? I had no idea about this rule. I was planning to have my wife itemize her business expenses while I take the standard deduction. This might change our whole strategy.
The mortgage interest deduction is totally broken. It's supposed to help the middle class achieve homeownership but primarily benefits wealthy people with million-dollar mortgages. Regular people take the standard deduction anyway so they get zero benefit from this supposedly "middle class" tax break. Meanwhile the rich get to deduct interest on enormous loans for vacation homes. I'd cap it at $500k loans max and only for primary residences.
I disagree completely. The mortgage interest deduction is one of the few tax breaks that helps the middle class. Not everyone who itemizes is "rich" - in high cost areas like California or New York, even modest homes can cost $750k+. Taking this away would crush homeowners in those regions.
The data doesn't support that position. About 80% of taxpayers now take the standard deduction after the 2017 tax changes, meaning they get zero benefit from the mortgage interest deduction regardless of whether they're homeowners. The primary beneficiaries are households making over $200k. In high-cost areas, I'd support adjusting the cap based on local median home prices rather than having a flat national cap. But the current system primarily benefits the wealthy while doing very little to expand homeownership rates for middle-income families, which was supposedly its purpose.
Anyone want to talk about the "qualified business income" deduction? 20% tax break just for owning certain kinds of businesses while employees get nothing? My brother-in-law restructured his consulting work as an LLC and suddenly gets to deduct 20% of his income... meanwhile I do THE EXACT SAME JOB as an employee and get nothing. And don't get me started on the arbitrary rules about which businesses qualify!
Yes! This is so messed up. My neighbor is a doctor who works at a hospital (doesn't qualify for the deduction) but her husband is a lawyer who set up his own practice and gets the full 20% QBI deduction. They make similar incomes but he pays way less in taxes. Makes no sense.
Mikayla Brown
Quick tip from someone who's been juggling multiple 1099 incomes for years: use accounting software that lets you set up different "companies" or "classes" within the same account. I use QuickBooks Self-Employed and have everything separated by business activity. This makes it super simple at tax time because you can generate separate profit/loss reports for each business activity that map directly to different Schedule Cs. You're doing the right thing by tracking everything separately! Another thing - if you're reporting a loss on one business while showing profit on another, make sure you can demonstrate that the loss-generating activity is an actual business attempt and not just a hobby. The IRS looks at that.
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Sean Matthews
β’Do you need to get separate EINs for each business activity? I'm doing web design 1099 work but also selling digital products, and I'm not sure if I need two tax IDs or can use my SSN for both.
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Mikayla Brown
β’You don't need separate EINs for different business activities as a sole proprietor. You can use your SSN for both businesses on your Schedule Cs. Many sole proprietors don't have EINs at all and just use their SSN, though you can get an EIN if you prefer not to use your SSN for business purposes. If you did get an EIN for one business activity, you could still use your SSN for the other, or get separate EINs, but it's not required. The important part is keeping the income and expenses separate for accurate reporting on different Schedule Cs.
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Ali Anderson
Don't overlook self-employment tax! Both your 1099 admin work and your personal training income will be subject to SE tax (15.3% for Medicare and Social Security). Make sure you're calculating your quarterly payments to cover both income and SE tax. I made this mistake my first year with multiple income sources and was hit with a nasty surprise at tax time. Your SE tax is calculated on the combined net profit from all your Schedule Cs together.
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Zadie Patel
β’Is there any way to reduce the self-employment tax hit? It seems so much higher than when I was a W-2 employee.
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