Does the QBI deduction apply even for side gig income? I thought that was only for like full businesses with employees and stuff.

The QBI deduction absolutely applies to side gig income! It's available for most self-employed individuals, regardless of whether you have employees or not. Even if you just drive for DoorDash or Uber on weekends, that income generally qualifies. There are some limitations and phase-outs at higher income levels (above $170,050 for single filers in 2024), but for most side-giggers, you can take the deduction without complications. It's essentially a free 20% deduction on your net business profit, which can significantly reduce your taxable income.

Yes, the IRS does sometimes grant a waiver for the underpayment penalty for first-time filers who weren't aware of the requirement to make estimated payments. This falls under their "first-time penalty abatement" policy. You generally need to have a clean compliance history for the past three years with no penalties. When you file, you can request this waiver by calling the IRS after you receive a penalty notice, or your tax preparation software might have an option to include a statement requesting the waiver due to reasonable cause. Just be honest about being new to self-employment and not understanding the estimated tax requirements previously.

Thank you everyone for such helpful advice! I've learned so much from all of your comments. I'll check out those resources mentioned and definitely start tracking my expenses better. I'm feeling way less panicked about tax season now!

I went through an audit three years ago for my cake decorating business, and they did look at my software deductions. They wanted to see: 1. The receipt/invoice showing the purchase date and amount 2. Proof it was paid from my business account or, if paid personally, documented as a business expense 3. A description of how the software is used specifically for my business 4. Documentation showing I was actually using it for business purposes (I showed them designs I created for clients using the software) Keep all your receipts, maybe take screenshots of business projects you complete using the software, and maintain a clear connection between the software capabilities and your business services. They were actually pretty reasonable about the whole thing.

This is good advice. I use QuickBooks Self-Employed and it categorizes my subscription software automatically as regular business expenses. Makes tax time so much easier when everything is already sorted correctly throughout the year.

Is there a minimum amount of 1099 income before you need to do quarterly payments? Like if it's just a side gig making a few thousand?

You generally need to make quarterly estimated tax payments if you expect to owe at least $1,000 in taxes when you file your return. Even for side gigs, this can happen quicker than you'd think when you factor in both income tax and self-employment tax (which is about 15.3%). A good rule of thumb is to set aside around 25-30% of your 1099 income for taxes, depending on your tax bracket. The IRS has a form called 1040-ES that helps you calculate what you should pay quarterly.

I switched to FreeTaxUSA and it handles both W-2 and 1099 income really well. Federal filing is free and state is like $15. Way cheaper than what TurboTax charged me for self-employment.

Thanks for this advice! Do you know if the IRS is more likely to audit returns with EITC claims from self-employed people versus regular employees? I'm keeping all my delivery app summaries and expense receipts, but wondering if I should be doing anything else to protect myself.

Yes, unfortunately self-employed EITC claims do face higher audit rates than W-2 employee claims. The IRS has historically focused more attention on self-employment income because it's self-reported rather than verified by an employer. For additional protection, I recommend keeping a simple business journal that notes your work days and hours alongside your app summaries. Also maintain separate bank accounts for business versus personal use if possible. Having a consistent pattern of deposits that match your reported income is very helpful during an audit. Finally, consider using accounting software specifically for self-employed workers that can categorize your expenses properly - this organization makes a huge difference if you're ever questioned.

I've had good luck with Cash App Taxes (formerly Credit Karma Tax). It's completely free even with self-employment and handles EITC well. The questions about Schedule C income for EITC purposes were pretty clear and it walked me through everything.

Would this be complicated for companies to implement in their payroll systems? Seems like it would require significant software updates to track regular hours vs overtime hours differently for income tax purposes but the same for FICA.

It would definitely require payroll software updates, but it's not insurmountably difficult. Most payroll systems already track regular hours vs. overtime hours separately (for wage calculation purposes), so the capability to distinguish between them already exists. The tricky part would be updating the tax calculation logic to apply income tax to only regular hours while still applying FICA to all hours. Most major payroll providers would issue software updates to handle this, but there would certainly be an adjustment period. Smaller companies using more basic payroll systems might face bigger challenges implementing the change correctly.

Great question! Based on current tax law structure, even if overtime became exempt from income tax, it would still count toward the earnings threshold for the Additional Medicare Tax. This is because the Additional Medicare Tax is part of the FICA tax structure, not the income tax system. Since we've established that overtime would still be subject to FICA taxes even if exempt from income tax, the overtime earnings would still count toward that $200k threshold (or $250k for married filing jointly).