Has anyone formed an LLC just for the prototype phase? I'm wondering if I should form an LLC now to start getting these deductions, or if I can just track my expenses and form the LLC later when I'm closer to having a sellable product?

Great question about startup costs! One thing I haven't seen mentioned is the timing aspect of when you can actually claim these deductions. You can't just spend money on prototype development and immediately deduct it - the IRS requires that your business has "begun operations" to claim startup cost deductions. For your prototype situation, here's what I learned when I went through something similar: The expenses you incur before your business begins operations are considered "startup costs" under Section 195. However, you can only deduct them in the tax year when your business actually starts operating (even if you don't have sales yet). The good news is that "beginning operations" doesn't require sales - it just means you're actively engaged in the business activity you intend to pursue. So if you're seriously developing prototypes with the intent to launch a business, that could qualify. My advice: Start keeping detailed records NOW of all prototype expenses, even if you haven't formed a business entity yet. Include invoices, receipts, and documentation of your business plan/intent. When you do officially start operations, you'll be able to claim up to $5,000 of those pre-operational costs as a current year deduction, with any excess amortized over 15 years. Also consider consulting with a tax professional about whether some of your prototype costs might qualify for R&D credits instead of (or in addition to) startup cost treatment - sometimes that can be more valuable depending on your situation.

Just a heads up - when you get your new LLC EIN, don't forget to update it with ALL your payment processors (PayPal, Stripe, Square, etc) and any platforms where you sell your services. I forgot to update mine with one platform and it caused a huge mismatch when they issued my 1099-K. Took months to sort out with the IRS!

Just went through this exact same situation last month! One thing I learned that wasn't immediately obvious - when you apply for your new LLC EIN, make sure you have your LLC's Articles of Organization handy. The IRS online application will ask for specific details like your LLC's formation date and the state where it was formed. Also, don't stress too much about the timing. You can continue operating under your sole prop EIN while you're waiting for the new LLC EIN to come through, as long as you make the switch before filing your next tax return. Just keep good records of which income/expenses belong to which entity during any overlap period. The whole process is actually pretty straightforward once you get started - much less scary than it seems when you're reading about it online!

I've been in a similar situation and want to share what I learned from my tax professional. The key thing is that the IRS distinguishes between "negligence" and "fraud." Missing a small 1099 accidentally falls under negligence at worst, which typically just results in the additional tax owed plus minimal interest. For amounts under $100, the IRS often won't even pursue it unless it's part of a larger pattern. They have cost-benefit calculations too - it's not worth their resources to chase down $7 in additional tax from a $30 interest payment. One pro tip: if you're really worried, you can request transcripts from the IRS that show what 1099s they have on file for you. You can do this online through their website or by calling. This way you can double-check if you missed anything before they catch it through their matching system. The anxiety is worse than the actual consequences for honest mistakes with small amounts. Don't lose sleep over it!

I was in almost the exact same situation last year - total financial chaos and constantly worried I was missing something. Here's what I learned from experience: The IRS wage and income transcript request is a game-changer. You can get it online instantly through their website (irs.gov) if you can verify your identity, or by mail which takes about 10 days. It's completely free and shows you exactly what 1099s, W-2s, and other income documents they have on file for you for any given tax year. I discovered I was missing a tiny 1099-INT for $18 from an old savings account I'd forgotten about. Filed an amended return voluntarily and the whole thing cost me maybe $4 in additional tax. No penalties, no drama. The transcript request saved me months of anxiety. Now I do it every year before filing just for peace of mind. Highly recommend this approach if you're a fellow worrier like me!

Great question! I went through this exact same confusion when I started doing gig work. Here's the key thing to understand: there are two different thresholds that matter, and they serve different purposes. The $600 threshold is when Doordash is *required* to send you a 1099-NEC form. But just because they don't send you a form doesn't mean you're off the hook for taxes. The $400 threshold is for self-employment tax obligations. If you make $400 or more from self-employment (which includes gig work), you're required to file a tax return and pay self-employment taxes, even without receiving any 1099 forms. Since you're at $342.50, you're currently under both thresholds. However, if you continue working and cross $400 total for the year, you'll need to report that income and pay self-employment taxes (which covers Social Security and Medicare contributions). My advice: keep detailed records of your earnings and expenses now, even though you're under the threshold. Track your mileage using an app like Stride - those deductions can really add up if you do end up needing to file. And remember, if you make money from multiple gig apps, you need to add them all together when considering the $400 threshold. The IRS expects you to report all income, regardless of whether you receive forms. It's always better to be proactive about tax compliance!

As someone who's been doing gig work for a couple years now, I want to emphasize something that might not be obvious - even though you're currently under the $400 threshold at $342.50, it's really easy to accidentally cross that line without realizing it. Summer break isn't over yet, and those earnings can add up faster than you think, especially during busy periods like weekends or bad weather when demand spikes. I'd recommend setting up a simple tracking system now, even if you think you'll stay under $400. Use a spreadsheet or even just notes on your phone to track your daily earnings, and consider downloading a mileage tracking app like Stride or MileIQ. If you do cross the $400 threshold later, you'll be glad you have those records from day one. Also, don't forget that if you work for multiple gig apps (Uber Eats, Grubhub, etc.), you have to combine ALL your self-employment income when considering the $400 threshold. I learned this the hard way when I thought I was safe staying under $400 with each individual app, but together they put me over the limit. The good news is that with proper mileage tracking, you might actually get money back instead of owing taxes, even if you do go over $400. Last year I drove about 1,200 miles for gig work and the mileage deduction more than covered my tax liability from the earnings.

Another tip for your eBay 1099-K: download your Annual Financial Summary from eBay (under Seller Hub > Payments > Reports). It breaks down your total sales, sales tax collected, refunds issued, and all fees. Super helpful for calculating your actual profit and having documentation ready if you ever get audited. My eBay 1099-K showed $27,600 but my actual profit after COGS, fees, shipping and sales tax was only about $4,200. Huge difference!

One thing that helped me with my eBay 1099-K was creating a simple spreadsheet to track everything. I made columns for: Item Sold, Sale Price, Original Cost (if I could remember/find receipts), eBay Fees, Shipping Cost, and whether it was a personal item or business inventory. The key insight I learned is that the IRS doesn't expect you to have perfect records for personal items you bought years ago. If you sold old clothes, electronics, or household items at a garage sale price, you can reasonably estimate the original cost. For example, if you sold a jacket for $25 that you originally bought for $80, that's clearly a non-taxable personal loss. Just make sure your estimates are reasonable and conservative. The IRS is more concerned with people not reporting obvious business income than they are with someone who sold their old iPhone for less than they paid for it. Document your reasoning and keep any receipts you do have - even credit card statements showing when you bought something can help establish the original cost.