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Something else to consider is how this affects your state taxes. Depending on your state, you might need to report the recaptured depreciation there too. In my state, I had to include it on a separate business property schedule.
Good point! I hadn't even thought about the state tax implications. My business is in California - would you happen to know if California handles depreciation recapture the same way as federal?
California generally follows the federal treatment for depreciation recapture, so you'll likely report it the same way on your state return. The amount recaptured will flow through to your California Schedule CA. Different states have different rules though. Some states didn't conform to the federal 100% bonus depreciation rules, which can create some complexity. If you used different depreciation methods for federal vs. state in the year you purchased it, the recapture calculation might differ.
Don't forget to consider how this impacts your Qualified Business Income (QBI) deduction if you take that. The recaptured depreciation counts as business income for QBI purposes, so it could actually help increase your deduction.
Something nobody's mentioned yet - if you never actually took any money out of your HSA during the tax year, you won't get a 1099-SA form at all. That form is only for reporting distributions (money taken out of the account). If you just had money going in through your employer but never used it, there's no 1099-SA needed.
Wait, that might be my situation! I had the HSA through work but I don't think I ever actually used any of the money from it. Does that mean I don't need this form after all?
If you never withdrew any money from your HSA during the tax year, then you won't receive a 1099-SA and don't need to worry about reporting distributions. The only thing you'd need to report is the contributions that went into the account, which should already be reflected on your W-2 in Box 12 with code W. Just make sure you truly didn't use the HSA funds. Some people have HSA debit cards and might have used them for medical expenses without realizing they were accessing their HSA.
Just an FYI - if you did receive distributions from your HSA, you'll need to fill out Form 8889 with your tax return. This is where you reconcile your contributions and distributions. Don't skip this form or you might trigger an audit!
Don't forget about quarterly estimated tax payments for 2023! This was my biggest mistake my first year as a contractor. Since taxes aren't withheld from your payments, you need to make quarterly payments if you expect to owe more than $1,000 in taxes. The due dates are April 15, June 15, September 15, and January 15 (of the following year). You can use Form 1040-ES to calculate and pay these. If you don't make these payments on time, you'll get hit with penalties even if you pay everything by April 15th next year.
This is super helpful! How do I figure out how much to pay each quarter though? My income isn't consistent at all - some months I make a lot more than others depending on projects.
You have a couple of options. The safest approach is to estimate your annual income and divide your expected tax liability by four. But since your income fluctuates, you can also use the "annualized income" method (Form 2210, Schedule AI), which lets you make payments based on what you've actually earned by each quarterly due date. A simpler approach many freelancers use is to set aside 25-30% of each payment you receive, then use that money for your quarterly payments. This usually covers both income tax and self-employment tax for most people. Adjust the percentage if you find you're consistently over or underpaying.
Has anyone used TurboTax for filing with contractor income? I'm wondering if it's worth paying for the Self-Employed version or if I should just hire an accountant this first year to make sure everything's done right?
I used TurboTax Self-Employed last year for my design business and it worked pretty well. It walks you through all the deductions and explains what qualifies. The only tricky part was figuring out the home office deduction but they have a calculator for that too. Definitely cheaper than an accountant if your situation isn't super complicated.
Has anyone noticed the refund tracker is totally inaccurate sometimes? My status was stuck on "received" for 3 weeks, then suddenly the money just appeared in my account without the tracker ever updating to "approved" or "sent"! Only updated to show "sent" two days AFTER I already had the money.
I filed on Feb 4th and got my refund on Feb 18th, so exactly 2 weeks. But my brother filed on the same day and he's still waiting (almost 4 weeks now). The difference? He claimed the Earned Income Credit and I didn't. They definitely prioritize simpler returns.
Mateo Gonzalez
Make sure you're also aware of state filing requirements, not just federal! Each state has different rules for foreign-owned LLCs. I almost got hit with penalties in California because I didn't realize I had to file a separate state form even though my Nevada LLC had no physical presence in California. Where is your LLC registered? Some states are much more tax-friendly than others for foreign owners. Delaware and Wyoming are popular for Canadian owners because they have simpler requirements.
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AstroAlpha
β’My LLC is registered in Delaware. I think that's why the company I worked with only mentioned federal forms... Do you know if Delaware has any special requirements for foreign-owned LLCs with no physical presence in the state?
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Mateo Gonzalez
β’Delaware is actually one of the better states for your situation. They don't require a separate state income tax return for LLCs that don't have physical operations in Delaware. You'll still need to pay the annual Delaware franchise tax ($300 for most small LLCs) to maintain your business registration, but that's separate from income tax filing. Just make sure you've paid that annual franchise tax - Delaware will revoke your LLC status if you miss payments. They send the notice to your registered agent, so sometimes foreign owners miss these notifications if they're not in regular contact with their agent.
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Aisha Ali
Don't forget the bank account filing requirements! If your US LLC has bank accounts, and the aggregate value exceeded $10,000 at any point during the year, you need to file an FBAR (FinCEN Form 114) as a foreign owner. This is separate from your tax filing but the penalties for not filing are extreme.
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Ethan Moore
β’This is super important. My friend got hit with a $10,000 penalty for not filing FBAR even though he didn't owe any taxes. The IRS and Treasury Department don't mess around with foreign account reporting.
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