Is it the same for Social Security tax? I notice that's taken out too. And what about if you're self-employed? Do you still pay Medicare tax?

Yes, Social Security works similarly - it's a mandatory tax that funds retirement benefits you'll receive later in life. Both are part of what's called FICA (Federal Insurance Contributions Act). For self-employed individuals, you actually pay both the employee and employer portions of Medicare and Social Security taxes, which is called Self-Employment Tax. That's why self-employed people pay 2.9% for Medicare (instead of 1.45%) and 12.4% for Social Security (instead of 6.2%). It's one of the downsides of self-employment, but there are other tax advantages that can help offset this.

There is an Additional Medicare Tax of 0.9% that kicks in when your income exceeds $200,000 ($250,000 for married filing jointly). So for most people it's just the flat 1.45%, but higher earners pay 2.35% on the portion of income above those thresholds.

That's a fantastic idea! I hadn't thought about checking public records. Would the Secretary of State site definitely have the EIN though? I was under the impression that EINs aren't always public information.

The Secretary of State site won't always have the EIN directly listed, you're right about that. But it will have the company's official registered name, address, and usually the name of the registered agent or owner. Having the full legal entity name is often helpful when reporting on your taxes. With that information, you can also try searching the EDGAR database on the SEC website if it's a larger company, or sometimes even a Google search for "[Company Name] EIN" works because companies often put their EIN on various public documents. Local business licenses sometimes include this info too.

This is terrible advice. If your estimate is significantly lower than what the company reports, you'll get a CP2000 notice and potentially owe penalties and interest. Better to overestimate slightly than underreport.

Couldn't you deduct the amount you paid to your friend as a business expense though? Like as a contractor payment or something?

That's what I thought too, but it's not that simple. Unless you have a formal agreement and you're paying them as a contractor with proper documentation (including a W-8BEN form for foreign contractors), those payments aren't automatically deductible. The IRS wanted to see proof that these were legitimate business expenses and not just me moving money around. Without the right paperwork established beforehand, they considered all the income as mine. Plus, there are strict reporting requirements for payments to foreign persons that I wasn't aware of. The whole thing turned into an audit nightmare.

This happened to my brother! His "friend" imported some electronics that turned out to be counterfeit. Customs seized the shipment and my brother got hit with a $15,000 fine since the business was in his name. The "friend" disappeared and my brother was stuck with the bill.

This is super helpful! I just checked my draft 2024 return and found Schedule C was there even though I'm purely W2. When I dug deeper, turns out I had checked a box about "online selling" because I sold some old furniture on Facebook Marketplace. TurboTax was treating that as self-employment and letting me allocate home office space to that "business." Would this tiny amount of selling stuff online actually qualify for home office?

For casual selling of personal items like furniture on Facebook Marketplace, that's typically not considered self-employment and wouldn't qualify for home office deduction. The IRS generally views that as selling personal items at a loss (since you're selling used items for less than you paid). For a home office deduction to be valid for self-employment, you need regular and exclusive use of the space for business purposes, and the activity needs to have a profit motive with regular, ongoing activity. Occasional selling of personal items doesn't meet those criteria. You should uncheck that box if you're not actually running a business with intent to make profit.

Same thing happened to me! The home office change affected my total itemized deductions which made them less than the standard deduction, so TurboTax switched me to standard. But then that made some of my state deductions invalid. It was a whole domino effect. Ended up owing about $2450 more than my original calculation.

This is super helpful! I had no idea you could get audit protection through insurance policies. Do you know roughly how much that costs per year? Is it similar to the $7 that Free Tax USA charges?

Usually it's around $20-30 per year through insurance, but it covers every tax return you've filed, not just the current year. So if you get audited for a return from 3 years ago, you're still covered. Free Tax USA's $7 only covers the current year you're filing. The insurance version typically includes representation by a tax professional during the audit process, which is more comprehensive than what Free Tax USA offers. Their "audit assistance" is mostly guidance on how to respond to audit notices, not actual representation. For simple returns, either option is probably fine since audits are rare, but I prefer the insurance coverage for my more complex situation.

Did you notice any major differences in the refund amount between TurboTax and Free Tax USA? I've heard some people say they got different numbers from different software.