Thanks for the explanation and tips! I've actually started tracking my expenses already - I bought some special non-slip shoes just for work and my own grooming scissors. Should I be saving receipts for everything? And do I need to formally register as a business or anything since I'm technically "self-employed"?

Yes, absolutely save receipts for everything work-related! Digital copies work too - I take photos of receipts with my phone and organize them in a folder. For larger purchases like equipment, keep the original receipt if possible. You don't necessarily need to formally register as a business for tax purposes - filing Schedule C with your personal tax return is sufficient for a sole proprietorship, which is what you are by default. However, some localities require business licenses even for independent contractors, so check your city/county requirements. It's usually a simple form and small fee if needed. Some groomers also get liability insurance to protect themselves - might be worth considering as your work increases.

Did you end up owing more taxes when you had to amend? I'm worried because I think I might have answered this wrong too on my last return for my pet sitting business.

Thank you so much for this breakdown! This is exactly my situation - I provide the furnished space, basic amenities, and occasionally coordinate cleanings between guests, but nothing like daily housekeeping or meal service. If I decide to push back with my current CPA or find a new one, are there specific tax code sections or IRS publications I should reference to support the Schedule E position?

The primary reference you want is IRC Section 469 and the related regulations that define "rental activity" versus "business activity." Also useful is IRS Publication 527 (Residential Rental Property) which discusses this distinction. For your specific situation, Revenue Procedure 2019-38 is particularly relevant as it provides a safe harbor for treating certain rental real estate enterprises as a business for the qualified business income deduction - but notably, this doesn't automatically make it subject to self-employment tax. The Tax Court has consistently held that providing basic amenities like furniture, utilities, and occasional cleaning between tenants doesn't rise to the level of "substantial services" that would trigger Schedule C treatment. The case Curphey v. Commissioner is often cited in these situations.

This is actually a really smart approach I hadn't considered. How exactly did you determine what percentage goes where? Is it based on time spent on services vs. just providing the property?

I filed through a CPA but want to check their work before asking them to amend. Does the interest paid on a home equity loan also count as mortgage interest for tax purposes? I know there used to be some difference.

Home equity loan interest is deductible only if the loan was used to buy, build, or substantially improve the home that secures the loan. If you used the money for other purposes (like paying off credit cards or student loans), the interest isn't deductible anymore. This changed with the 2017 tax law. Also, there's a limit on total mortgage debt for interest deductions - you can only deduct interest on the first $750,000 of mortgage debt ($375,000 if married filing separately) for loans taken out after December 15, 2017. For older mortgages, the limit is $1 million.

The IRS Tax Withholding Estimator is just for calculating paycheck withholding, not for figuring out amended returns. It's really confusing how few official calculators the IRS actually offers! I ended up just using FreeTaxUSA to recalculate - you can enter all your info there for free and it shows you the result without paying unless you actually file.

14 What if I didn't officially claim the car for business use but I did use it sometimes for side gig deliveries? Do I still need to worry about this depreciation thing?

7 If you never claimed the car as a business expense on your tax returns, then you don't have to worry about depreciation recapture. The concern only applies if you took actual tax deductions for business use of the vehicle in prior years. However, if you did use it for your side gig but never claimed the deductions you were entitled to, that's a different issue - you missed out on potential tax savings in previous years, but it won't affect how you report the sale now. You'd simply use your original purchase price as your basis (minus any depreciation you actually claimed on tax returns, which in your case sounds like zero).

11 Technically, all capital gains should be reported regardless of size. But in reality, the IRS has bigger fish to fry than a $250 gain on a personal vehicle. Most people don't even report personal vehicle sales unless they're significant gains.

I hadn't even thought about state taxes! I'm in California - do you know if their rules are similar to the federal ones for discharge?

California generally follows similar rules to the federal discharge rules for income taxes, but there are some important differences. California has its own timing requirements, and certain types of California tax debts (like sales tax if you had a business) are never dischargeable. The key with California is making sure all required tax returns have been filed with the state before bankruptcy. California can be particularly aggressive with tax collection after bankruptcy if they determine any taxes weren't properly discharged. I'd definitely recommend discussing your specific California tax situation with your bankruptcy attorney, as state-specific issues can sometimes be overlooked.

How did you handle filing taxes after that? Did you have to file separately or could you still file jointly? We're in a similar situation.