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Something that hasn't been mentioned yet - if you're self-employed or a business owner, these rules apply differently than if you're an employee trying to deduct unreimbursed expenses. For self-employed people, these business travel deductions go on your Schedule C. If you're an employee, the Tax Cuts and Jobs Act eliminated miscellaneous itemized deductions for unreimbursed employee expenses for tax years 2018-2025, so you might not be able to deduct these expenses at all on your federal return (though some states still allow them). Are you self-employed or an employee? That makes a huge difference here.
I'm self-employed, running my own consulting business. The conference is directly related to my field and I'm presenting at one of the sessions. Does that strengthen my case for the airfare deduction even with the extended vacation time?
That definitely strengthens your case! The fact that you're presenting at the conference creates an even clearer business purpose for the trip. The IRS would have a hard time arguing that your primary purpose wasn't business when you're actually a presenter. Since you're self-employed, you'll report these deductions on your Schedule C, which is much more straightforward than the old unreimbursed employee expense deductions. Just make sure to maintain documentation of your presentation, the conference agenda showing your name, and all receipts for the business portion. The extended vacation doesn't affect your airfare deduction as long as the primary purpose was clearly business, which in your case is very well established by being a presenter.
Don't forget about the 50% limitation on meals during the business portion of your trip! Even during the conference days, your meals are only 50% deductible (unless it's 2021/2022 when temporary 100% deductibility for business meals was allowed). Also, if you're taking this trip internationally, there are some additional special rules that might apply depending on the country. Generally the same primary purpose test applies, but there can be allocation requirements for certain countries.
I thought the rules were different for meals included as part of a conference registration fee? Aren't those fully deductible rather than subject to the 50% limit?
10 Don't forget about quarterly estimated tax payments if you go the sole proprietorship route! I made that mistake my first year as a 1099 contractor and got hit with nasty underpayment penalties. You'll need to make payments on April 15, June 15, September 15, and January 15 (for the previous year).
15 How do you calculate how much to pay for estimated taxes? Is there some formula or percentage I should be setting aside from each payment I receive?
10 The safe harbor method is to pay either 90% of your current year's tax liability or 100% of last year's tax liability (110% if your income is above $150,000), whichever is lower. For a quick practical approach, I set aside about 30% of all my 1099 income - roughly 15% for self-employment tax and 15% for income tax. This has worked well for me, but your tax bracket might differ. The IRS has Form 1040-ES with a worksheet to calculate more precisely, or you can use tax software that offers quarterly tax calculators.
17 Just a heads up about Washington state - while we don't have state income tax (yay!), if your business grosses over $12,000 annually, you'll need to register with the Department of Revenue and pay Business & Occupation (B&O) tax. The rate is pretty low for service businesses though - around 1.5% of gross revenue.
4 Does that apply even if you're just a freelancer/contractor working for one company? I thought B&O tax was just for actual businesses with multiple clients.
The IRS almost certainly has a copy of your 1099-NEC since the employer would have submitted it. In most cases with small amounts like this, they might just send you a letter with the adjusted amount you owe plus interest. I had this happen with a forgotten $1200 1099-NEC from 2019. They just sent me a notice, I paid the extra tax (was like $150 plus some interest), and that was it. No audit, no major penalties.
Thanks for sharing your experience! That makes me feel better about the situation. Do you remember how long it took for them to send you the letter after you filed your original return?
I think it took about 14 months after I filed my original return. The IRS has been super backlogged the last few years, so it takes them longer to match up 1099s with tax returns. If you're worried, filing an amended return is definitely the safest option. But in my case, the adjustment they made was accurate and the process was pretty painless overall.
The real question is if the place that paid you $800 actually filed a 1099-NEC with the IRS. If they didn't, the IRS won't know about it. Some smaller places aren't great about their paperwork obligations.
Have you checked if you qualify for first-time penalty abatement? If you haven't had tax issues in the past three years, you might be able to get the penalties removed (though you'd still owe the actual tax). Call the IRS and specifically ask about "first-time penalty abatement" - saved me about $80 when I was in a similar situation.
I had no idea this was even a thing! Do you know if there's a specific form I need to fill out to request this? And does it matter if I've already set up a payment plan?
You don't need a specific form - you can request it by phone when you call the IRS. Just specifically ask for "first-time penalty abatement" and explain that you've had a good compliance history. They'll check if you qualify right on the call. It doesn't matter if you've already set up a payment plan - you can still request the abatement. The payment plan is for the total amount, but if they approve your abatement request, they'll reduce the total and adjust your payments accordingly. Be aware this only removes penalties, not interest or the actual tax owed, but it can still save you a decent amount.
For next year, make sure you do a "paycheck checkup" mid-year! I put a reminder in my calendar for June to review my withholding. I grab a recent paystub, use the IRS withholding calculator, and adjust if needed. Helped me avoid surprises for the past few years.
Connor Gallagher
I think I can explain what's happening with line 17 in simpler terms. The confusion comes from the circular calculation problem. When you make retirement contributions as self-employed, those contributions are themselves a deduction that lowers your SE income. But your maximum contribution is based on that income! So there's a chicken-and-egg problem. The worksheet solves this by using an adjusted percentage. Instead of the straightforward 25% that most people expect, line 17 uses a reduced percentage (about 20%) that accounts for this circular relationship. That's why the number seems "wrong" but is actually correct.
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Yara Sayegh
ā¢Thanks for that explanation! Quick question - does this same circular calculation issue apply to both SEP IRAs and Solo 401ks? I'm trying to decide which one to open this year.
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Connor Gallagher
ā¢Yes, the circular calculation applies to both SEP IRAs and Solo 401k employer contributions. For both plans, the employer contribution limit is 25% of your net self-employment earnings, but the actual calculation works out to roughly 20% of your net profit. The big difference is that with a Solo 401k, you can also make employee contributions up to $22,500 for 2023 ($23,000 for 2024) that aren't affected by this calculation. That's why Solo 401ks often allow for higher total contributions, especially for people with moderate self-employment income.
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Keisha Johnson
has anyone looked at the latest version of this publication? i heard they actually fixed this in the 2024 version of publication 560, but i cant find the most recent pdf on irs.gov. the site keeps giving me last years version when i search.
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Paolo Longo
ā¢I just checked and found the updated version. They didn't actually change the calculation, but they did add a clearer explanation of why line 17 uses that specific percentage. It's still the same formula, just better explained in the instructions section.
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Keisha Johnson
ā¢thx for checking! typical irs to keep the confusing calculation but just explain it better lol. at least now people might understand whats happening with that weird percentage. gonna look for the new version again.
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