Thanks for bringing this up! So if I paid them through PayPal Business, do I still need to issue a 1099-NEC? I thought the threshold for 1099-K was really high, like $20,000? Or did that change recently?

The 1099-K threshold has been a moving target the past few years. Originally it was dropping to $600 for 2023, but then they delayed it. For 2025 taxes, the threshold is $5,000 - so if your contractor received more than that through PayPal Business, then PayPal should issue them a 1099-K. You still have the option to issue a 1099-NEC if you want to be extra cautious, but technically you're not required to if the payment was made through a payment processor that will issue a 1099-K. Just make sure you keep good records of how each contractor was paid, in case of questions later.

Oh no, that sounds stressful! Did you end up owing more after the audit? I'm terrified of audits because my bookkeeping is... let's say "creative" lol.

Thanks for the suggestion! I actually did check my spam folder already, but no luck there. I also looked through all my Robinhood emails from January through now and don't see anything about tax documents being ready. I'm starting to think I might just need to manually report it based on my monthly statements.

That's not accurate. The threshold is $10 - if you receive LESS than $10 in dividends, they don't have to send a 1099-DIV. The OP received $54, so Robinhood should definitely have sent one.

Wait seriously? I thought if my parents choose not to claim me, then I can claim myself as independent even if I meet the Qualifying Relative test? That's really confusing...

That's a common misunderstanding. The tax form doesn't ask if someone WILL claim you; it asks if someone CAN claim you. If you meet all the tests to be a Qualifying Relative, you must check the box saying you can be claimed - regardless of whether your parents actually do claim you or not. This is why coordinating with your parents is so important. If they're not going to claim you even though they could, you still need to mark that you can be claimed as a dependent. This may affect your eligibility for certain credits even if they don't actually claim you.

I used TurboTax last year for a similar situation. The trick is to answer the dependent questions very carefully. When it asks "Did someone provide more than half your support?" make sure you're calculating TOTAL support correctly. Housing, food, utilities, medical expenses, education, etc. all count as support, not just direct cash they gave you.

Thanks for the podcast suggestions! Do the podcasts you mentioned stay current with tax law changes? Also, does Kohler's book cover anything specifically about online businesses?

The podcasts do regular update episodes whenever significant tax law changes happen, which is super helpful. They did comprehensive episodes on all the Tax Cuts and Jobs Act changes and more recently on the Inflation Reduction Act impacts on businesses. Kohler's book has a whole chapter dedicated to online and digital businesses, covering things like sales tax nexus issues for selling across state lines, deducting website expenses, and tax implications of digital products versus physical goods. The newer editions have expanded this section significantly.

Tax software is great for filing but terrible for planning. You need to understand the concepts BEFORE you make business decisions. I learned this the hard way when I structured my business poorly and ended up paying thousands more in taxes than necessary. Software just processes what already happened, it doesn't help you make strategic decisions.

Thanks for the tip about saving for taxes! Do you think I should open a separate savings account just for setting aside tax money? Also, do you know if I need to make quarterly payments or can I just pay everything when I file next year?

Opening a separate savings account for taxes is honestly one of the smartest moves you can make! I wish I had done that when I first started freelancing. It helps you mentally separate that money so you're not tempted to spend it. For quarterly payments, it depends on how much you'll earn this year. If you expect to owe more than $1,000 in taxes for the year, you should make quarterly estimated payments. Otherwise, you might get hit with an underpayment penalty. The IRS has a form called 1040-ES that helps you calculate these payments. As a new freelancer, it's definitely worth looking into since you don't have an employer withholding taxes from each paycheck.

They're totally different forms for different work relationships. A W-4 is for employees (people who get a regular paycheck with taxes already taken out). A W-9 is for independent contractors (people who get paid the full amount and have to handle their own taxes). If the company is asking for a W-9, that means they're treating you as an independent contractor, not an employee. This affects your taxes a lot - you'll pay more in self-employment taxes, but you can also deduct business expenses. Make sure this classification is correct for the type of work you're doing!