That's scary! What app or method do you recommend for tracking mileage properly now? And did they go after previous tax years too or just the one where you took the big deduction?

I now use MileIQ which automatically tracks all my drives and lets me categorize them as business or personal. It creates IRS-compliant reports that show all the details they want. Some other good ones are Everlance and Stride. They only examined the year I took the big deduction, thankfully. But the audit was still a nightmare that lasted 8 months. The agent explained that these large vehicle deductions are a "red flag" that often trigger extra scrutiny. If you do claim the deduction, just make absolutely sure your documentation is bulletproof from day one. Start the mileage log the very first day you put the vehicle in service.

What about insurance costs? My business insurance agent told me rates would be MUCH higher if I register a luxury SUV as a business vehicle versus personal use. Did you see a big insurance premium increase?

The insurance cost increase was definitely significant. My commercial auto policy for the Mercedes GLS is about 40% higher than it would be as a personal vehicle. However, the business portion of the insurance is also tax-deductible as a business expense. One thing my accountant pointed out is to look at the total cost of ownership compared to the tax benefits. In my case, even with higher insurance costs, the tax savings from the Section 179 deduction still made it worthwhile. But it's something you should definitely factor into your calculations before making a decision. The other consideration is that I had to make sure my business entity owned the vehicle (LLC in my case) rather than owning it personally to maximize the benefits.

This is actually incorrect. The 2-year rule starts from when you paid the tax, not from when you filed the return. So if OP paid their 2018 taxes through withholding during 2018, then the 2-year period would have started then and already expired.

No, I haven't received any 1099 forms for the settlement, which made me even more confused about how to handle it. I'll definitely check out that publication! Do you remember if your settlement involved any compensation for things besides the potential health stuff? Like did you also get money for having to relocate or for any damaged property? I'm wondering if I need to somehow split up my settlement amount.

I did get money for both health concerns and for relocation expenses. My settlement agreement actually broke it down - about 75% was designated as compensation for "exposure to harmful substances and potential bodily harm" and 25% was explicitly for "temporary housing and related expenses." I only paid taxes on that 25% portion. Since you haven't received a 1099, that's actually good news - it suggests the payer doesn't consider it taxable income. But yeah, if your agreement lumps everything together, you might need to make a reasonable allocation yourself. The publication I mentioned should help, but I think the correct number is actually Publication 525 (in the section about settlements).

You generally report settlement money in the year you receive it, not when the settlement was reached. If your settlement is being paid out over multiple years, you'll report each payment in the tax year you receive it. Just make sure you're consistent about how you're characterizing the income (taxable vs. non-taxable) across all years.

Do you know if there are any states that are particularly good or bad for remote workers tax-wise? I'm fully remote now and thinking about moving.

New Hampshire is generally considered very tax-friendly for remote workers since it has no income tax. Tennessee and Texas are also good options. On the flip side, New York and a few other states with "convenience of employer" rules can be problematic - they may tax you based on where your employer is located even if you never set foot in the state. Always research specific state tax implications before making a move.

TurboTax handles this okay but not great. You'll need to do some manual calculations since most city tax forms aren't fully integrated. I ended up using their deluxe version but still had to fill out a separate city form manually.

Wait, so not only do I pay income tax on my side gig money, I also have to pay this additional self-employment tax? Is there a minimum amount I need to make before this kicks in? And what's this about deducting half of it?

You need to pay self-employment tax if your net earnings from self-employment are $400 or more. So yes, it kicks in pretty quickly. This tax is basically covering the Social Security and Medicare taxes that an employer would normally withhold from your paycheck (plus the employer portion too, which is why it's 15.3%). The silver lining is that you can deduct half of your self-employment tax on your 1040 as an adjustment to income. This is because if you were an employee, your employer would pay half of these taxes. So the IRS allows you to deduct that "employer portion" to make things more equitable. It's automatically calculated when you file Schedule SE.

Totally agree! I use FreeTaxUSA and while I love it for the price, the explanations about business deductions vs itemized personal ones were super confusing. I nearly mixed them up completely until I found a YouTube video explaining the difference.