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Something important to consider that nobody has mentioned yet: make sure that loan was actually made with the expectation of repayment. The IRS looks at whether you had a reasonable expectation of being paid back when you made the loan. If they determine you never really expected to get paid back (like if your friend had terrible credit or no income), they might classify it as a gift rather than a loan that went bad. Also, keep in mind that nonbusiness bad debts are treated as short-term capital losses even if the loan was for more than a year. This means you're limited to offsetting capital gains plus up to $3,000 of ordinary income per year. If your loss is bigger than that, you'll carry the remainder forward to future tax years.

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Ava Johnson

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Does having a written loan contract automatically prove it wasn't a gift? Or does the IRS look for other evidence too? Like what if the friend never made any payments at all?

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A written loan contract is definitely helpful but doesn't automatically prove it wasn't a gift. The IRS looks at the entire situation. They consider factors like: Was there a reasonable expectation of repayment? Did you charge interest? Were there regular payment schedules? Did you make efforts to collect when payments weren't made? If your friend never made any payments at all, that might raise more red flags with the IRS. However, if you can show you took reasonable steps to collect (demand letters, texts/emails requesting payment, etc.), that helps demonstrate you genuinely intended it as a loan. Documentation is key - the more evidence you have showing you treated this as a serious financial transaction, the stronger your case.

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Miguel Diaz

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I went through almost the identical situation last year with a cousin. Loaned $6,500, got back $2,000, and then nothing despite dozens of texts and calls. I claimed the bad debt deduction and it did work, but here's a tip: document EVERYTHING. I made a simple timeline of all attempts to collect (with screenshots of texts and emails). Also, I did send a certified demand letter as a final step which helped prove I made reasonable collection efforts. The tax software I was using (TurboTax) actually had a specific section for bad debts under capital losses. My refund went through without any issues, but I've heard these deductions can sometimes trigger additional review, so having good documentation ready is important.

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Zainab Ahmed

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Did you have to provide all that documentation when you filed or just keep it in case of an audit? My tax software doesn't seem to have any place to upload proof.

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For your first year with Uber income, make sure you're keeping all your receipts and tracking expenses properly going forward. I started driving last year and wish someone had told me this sooner. The Uber tax summary doesn't include a lot of deductions you're entitled to. Track EVERYTHING - car washes, portion of phone bill, mileage between passengers (not just with passengers), snacks/water for riders, car repairs, etc. I use a separate credit card just for Uber-related expenses to make it easier to track.

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Chloe Green

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Thank you for this! I haven't been great about tracking so far... is there any way to reconstruct expenses from earlier in the year or am I just out of luck on those deductions?

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You can definitely reconstruct some expenses! Go through your credit card and bank statements to find business-related purchases. For mileage, the Uber app keeps a record of your trips that you can use as a starting point, though it won't have the miles driven to pickup locations. Many drivers who don't have complete records use a reasonable estimate based on the data they do have. Just make sure you start keeping detailed records going forward. I recommend apps like Stride or Hurdlr that can track mileage automatically and categorize expenses. Much easier than trying to sort it all out at tax time!

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Don't forget about quarterly estimated taxes! This was my big mistake my first year as an Uber driver. Since there's no withholding on your Uber income like there is with your W-2 job, you might need to make quarterly payments to avoid penalties.

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Natalie Wang

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But if your W-2 job withholds enough to cover your additional Uber income, you might not need to make quarterly payments, right? How do you know if you need to do this?

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If you have a Traditional or Roth IRA, you can sometimes make tax payments through the same investment firm for free. I use Fidelity and they let me make federal and state estimated tax payments with no fees.

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Owen Jenkins

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Wait seriously??? I have Fidelity and had no idea they offered this. How do you access this feature?

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Lilah Brooks

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Don't forget to account for the safe harbor rules when making estimated tax payments! As long as you pay either 100% of last year's tax liability (110% if your AGI was over $150,000) or 90% of your current year's liability, you won't face underpayment penalties even if you end up owing more. This was a lifesaver for me because my income fluctuates a lot month to month as a contractor, so calculating exact quarterly estimates was driving me crazy.

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That's really helpful! So if I made $80k last year and paid $12k in taxes, as long as I pay $3k per quarter this year ($12k/4), I won't get hit with penalties even if I end up making more? That makes planning so much easier.

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Lilah Brooks

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Exactly right! For your situation with $80k income and $12k tax last year, paying $3k per quarter will definitely keep you safe from underpayment penalties, even if your income jumps to $100k or more this year. It's one of the few tax rules that actually makes life easier for freelancers and contractors. Just remember if your income does increase dramatically, you'll still owe the additional tax when you file your return - you just won't have the extra penalty on top of it.

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Caleb Stone

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Quick tip about Form 8863 that helped me: keep ALL your receipts for education expenses, not just tuition. Things like required books, supplies, and equipment can count as qualified education expenses even if they don't show up on your 1098-T. For my nursing program, I was able to claim about $1,200 in additional expenses for required clinical supplies that weren't billed through my school. This significantly increased my education credit! Just make sure they're required for enrollment or attendance in your courses.

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Wow, that's super helpful! My program requires us to buy specific software that costs like $600 per year and it's not included in the tuition. Does that count too? And do I need to get some kind of proof from my school that it's required?

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Caleb Stone

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Yes, required software for your program absolutely counts as a qualified education expense! Since it's required for your coursework, that $600 can be added to your total qualified expenses on Form 8863. For documentation, keep the receipt for the software purchase and ideally something showing it was required - like the course syllabus, program requirements list, or an email from your professor. The IRS doesn't require you to submit this documentation with your return, but you should keep it in case you're ever audited. Having the syllabus or program requirements that specifically mentions the software is the best proof.

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Daniel Price

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I'm late to this thread but wanted to add that the timing of when you claim education credits can make a huge difference financially. If your income is going to change significantly between tax years, you might want to try to bunch your education payments. For example, if you expect to make a lot less money next year, try to defer paying for spring classes until January if possible. Education credits are more valuable in years when your income is lower (but still high enough to have tax liability).

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Olivia Evans

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This is a good point! But doesn't the school usually require payment before the semester starts? My university always wants payment in December for spring classes.

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23 Just FYI - I was in almost this exact situation last year. My accountant had me file Form 1040 with a Form 8833 (Treaty-Based Return Position Disclosure) attached since the tax treaty with my home country had specific provisions for students transitioning to work visas. Might be worth checking if there's a tax treaty between the US and your country that could apply to your situation.

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12 That's interesting! What country are you from? I'm wondering if this would apply to me too.

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23 I'm from India, which has a comprehensive tax treaty with the US. Many countries have specific provisions for students and researchers in their tax treaties. The treaty provisions can sometimes override the general tax rules and provide more favorable treatment. You should definitely check if your country has a tax treaty with the US. If it does, read the specific articles that deal with students, teachers, and researchers. Form 8833 is used to disclose when you're taking a position on your tax return that's based on a tax treaty rather than regular tax law.

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19 Not sure if this helps, but I think the key issue is whether you've been in the US for 5 calendar years while on F1. If 2022 was your 5th or later calendar year on F1, then those F1 days start counting toward substantial presence. Otherwise, only your H1B days count.

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10 That's not completely accurate. For F-1 students, the exemption is for 5 calendar years, so days in the US don't count toward the substantial presence test for the first 5 calendar years. After that, F-1 days DO count. But for J-1 visa holders, it's only 2 years.

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