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Don't forget about state taxes for your LLC! Federal is only part of the picture. Depending on your state, you might have: - Annual LLC fees (in California they're $800/year - ouch!) - State income tax on your LLC profits - Possible sales tax collection requirements for your jewelry I learned this the hard way with my consulting LLC last year. Got hit with penalties because I didn't realize my state had different filing requirements than federal.
OMG thank you for mentioning this! I completely forgot about state requirements. I'm in Michigan - do you know if they have any special LLC fees I should know about? Also, do I need to collect sales tax on online sales to other states?
Michigan is much more reasonable than California! They have an annual LLC filing fee of just $25 (due February 15th each year). You'll need to file an annual statement to maintain your LLC status. For sales tax, Michigan requires you to collect sales tax on in-state sales. For out-of-state sales, it depends on your sales volume in each state and their specific economic nexus laws. If you're selling through platforms like Etsy or Amazon, they might handle this for you in many states. But if you're selling through your own website, you'll need to research each state's requirements. Generally, if you have less than $100,000 in sales or fewer than 200 transactions in a state, you might be exempt from collecting sales tax there.
Quick tip on tracking expenses for your single member LLC: get a separate business credit card NOW! I mixed personal and business expenses my first year and tax time was a nightmare. Also, if you use your personal vehicle for business (like delivering jewelry or going to craft shows), keep a detailed mileage log. You can deduct 67 cents per mile for 2025 which adds up fast!
Is there a good app you recommend for tracking mileage? I always forget to log my trips for my business.
Just want to add another option - check with your state tax department too! In my case, my employer had submitted my W2 to the state but somehow messed up the federal submission. My state's department of revenue was able to provide me with the information I needed much faster than the IRS.
That's a great idea I hadn't considered! Do you know if I need to request this in person at a state tax office or can I do it online? My state's government websites are notoriously difficult to navigate.
In my state (Washington), I was able to request it online through their Department of Revenue portal. Most states have some kind of taxpayer access portal now where you can view your tax documents. Try searching "[your state] view tax documents online" or "[your state] tax transcript." If the online option doesn't work out, most states have a taxpayer assistance phone line that's usually much less busy than the IRS line. They can direct you to the right department or form to request your wage information.
If nothing else works, you can try filing Form 8822, Change of Address with the IRS. Sometimes when companies send W2s, they go to old addresses. Could be sitting in someone else's mailbox or returned to sender.
Would this help for last year's W2 though? Seems like the time for mail forwarding would have expired by now. Plus the OP already talked to the employer who seems to be avoiding helping them.
Have you considered specializing in bookkeeping for a specific industry? I made this transition a few years ago - went from general bookkeeping/taxes to focusing exclusively on bookkeeping for restaurants. By becoming an expert in one industry, I was able to charge premium rates for bookkeeping because I understand the specific challenges and opportunities in the restaurant business. I created standardized processes that work specifically for restaurants, which made my services much more valuable. The industry focus gave me a clear marketing message too. Instead of being another generic bookkeeper, I became "the restaurant bookkeeping specialist" in my area. Started hosting workshops for restaurant owners about financial management, which brought in tons of new clients who never even asked about tax prep.
That's a really interesting approach! Did you have previous experience in the restaurant industry, or did you just decide to focus there? I'm wondering what industry I should target if I go this route.
I had worked as a server and bartender through college, so I had some familiarity, but I wasn't an expert when I started. I chose restaurants because there were many in my area and I noticed they had specific bookkeeping challenges (inventory, tips, high turnover, etc.) that general bookkeepers often handled poorly. For choosing your industry, look at your existing client base and see if you already have a concentration in one area. Otherwise, consider industries that: 1) have many businesses in your location, 2) typically struggle with financial management, and 3) you find personally interesting. Healthcare practices, construction companies, e-commerce businesses, and professional services firms are all good options with specialized bookkeeping needs.
My two cents as someone who did exactly what you're trying to do: Offer "bookkeeping plus" instead of tax prep. I created quarterly financial review packages that include bookkeeping plus business advisory services - profit analysis, cash flow forecasting, tax planning (not prep), and strategic recommendations. Clients actually value this MORE than tax prep because it helps them make better decisions year-round. When tax season approaches, I have reliable tax partners I refer clients to. I still coordinate with the tax preparers, providing clean books and documentation, but I don't do any actual tax filing. This arrangement works beautifully - clients get better service overall, I focus on what I enjoy, and the tax pros get pre-organized clients.
10 Just a practical tip from someone who's been through grad school tax filings: make sure you keep ALL your education expense receipts, not just tuition. For the Lifetime Learning Credit, you can include required books, supplies, and equipment even if not purchased directly from the school. Also, if you have a teaching assistantship or research position, the rules get more complicated about what portion of your tuition waiver might be taxable. My university's financial aid office actually offered free tax consultations for grad students - see if yours does too!
8 Do student loan interest payments count as qualified expenses for either credit? I'm getting confused about what expenses go where on my tax forms.
10 Student loan interest payments are handled separately from education tax credits. You can potentially deduct up to $2,500 in student loan interest payments using the Student Loan Interest Deduction, but this is completely different from the education credits. For the Lifetime Learning Credit, qualified expenses include tuition, required course materials (books, supplies, equipment), and required activity fees paid directly to the institution. Keep receipts for required textbooks and lab supplies even if purchased from off-campus bookstores or online retailers, as these can qualify if they're required for enrollment.
2 I'm a tax preparer and see confusion about these education credits all the time. Here's a quick breakdown: AOTC: Max $2,500, 100% of first $2,000 + 25% of next $2,000 in expenses, partially refundable, first 4 years of undergrad only Lifetime Learning: Max $2,000, 20% of first $10,000 in expenses, non-refundable, any post-secondary education including grad school The key thing most people miss: these are per tax return, not per student. So if you're married filing jointly with both spouses in grad school, you're still limited to one $2,000 maximum Lifetime Learning Credit.
Sophie Duck
One thing to consider - are you suing just for the unpaid compensation or also for damages like breach of contract, etc.? The IRS looks at the "origin of the claim" to determine deductibility. In my experience as a freelance consultant, I had to split my legal fees between Schedule C (for recovering unpaid invoices) and Schedule A (for the portion related to punitive damages). This was pre-2018 though, and the rules for miscellaneous itemized deductions have changed with the Tax Cuts and Jobs Act.
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Austin Leonard
ā¢Wait, can you still deduct legal fees on Schedule A at all? I thought those miscellaneous deductions were completely eliminated with the 2017 tax law.
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Sophie Duck
ā¢You're right about the changes. Prior to 2018, you could deduct certain legal fees as miscellaneous itemized deductions on Schedule A, subject to the 2% AGI limitation. After the Tax Cuts and Jobs Act, most miscellaneous itemized deductions were suspended through 2025. For legal fees now, the best approach is to tie them directly to business income whenever possible so they can be deducted on Schedule C. For a 1099 contractor like the original poster, this should be straightforward since they're suing to collect business income. The key is making sure you can substantiate that the legal expenses are ordinary and necessary business expenses directly related to your self-employment activities.
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Anita George
Don't forget that if you win your case, you'll need to report the entire amount as income (including any portion that goes to your attorney as fees). The Supreme Court decided this in Commissioner v. Banks. But then you deduct the legal fees on Schedule C, effectively only paying tax on what you actually receive.
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Abigail Spencer
ā¢Is this still true even with contingency fees? My attorney takes 30% if we win. Do I really have to report the whole amount including what goes directly to the lawyer?
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