1 I hadn't even considered the self-employment tax! That's a really good point. If I go the self-employed route, I'd be paying 15.3% on the profit after expenses. But if I go the hobby route, I'd pay regular income tax on the full $160 without being able to deduct the $125 developer fee. Let me see... If I file as self-employed, my profit would be $160 - $125 = $35, and I'd pay 15.3% on that plus my regular income tax rate. If I file as a hobby, I'd pay just my regular income tax on the full $160. Hmm, this actually makes the hobby route seem better financially in my case. I need to calculate this more precisely. Thanks for pointing this out!

14 You're welcome! That's exactly the kind of calculation you should be doing. Just to add one more thing: remember that with self-employment, you can deduct half of the self-employment tax from your income. That helps a little. Also, if you think your app income might grow in the future, establishing it as a business now could be beneficial long-term, especially for building retirement savings through a SEP IRA or solo 401(k) once the income justifies it. Just something to keep in mind if you see potential for this to grow beyond covering just the developer fee.

19 I used TurboTax for my Etsy shop income last year (about $500). It handled both options fine, but I found the questions for the Schedule C to be easier to follow than trying to figure out where to put hobby income. They walk you through the business vs. hobby test and help you choose which approach makes sense.

7 Thanks for sharing your experience! That's helpful to know. I'll probably stick with TurboTax then since I'm already familiar with it. Did you end up classifying your Etsy income as business or hobby?

Thank you for breaking this down so clearly! My photography losses weren't huge (between $800-1500 each year), but it sounds like I should still file the amended returns. Do you think I should include some kind of explanation letter with my amendments to explain why I'm filing them now? And how do I document "intent to profit" for past years?

Yes, I would definitely include a brief explanation letter with your amendments explaining that you recently learned about the requirement to file Schedule C even with losses. The IRS appreciates transparency, and this shows good faith. For documenting intent to profit for past years, gather any evidence showing you were serious about the business - things like business cards you had printed, websites or social media accounts promoting your services, photography equipment purchases, workshops or classes you took to improve your skills, client communications, or advertising efforts. Even a basic business plan or rate sheet from those years would help. The key is showing you were genuinely trying to make the business profitable, not just pursuing a hobby.

I used TurboTax to amend my 2020 return to add a Schedule C for my candle business. It was pretty straightforward - you just indicate it's an amendment, enter your original return info, then make the changes. The software recalculates everything and generates the forms. Just make sure you have good records of your income and expenses from that year.

Do the sites tell you upfront how they'll classify the payments? I just started doing surveys and never thought about checking the tax implications. Now I'm worried because I've earned about $1,700 across multiple platforms this year.

Most sites don't make it obvious how they'll classify payments. You usually have to dig through their terms of service or tax information pages to find out. Some will mention it during signup, but it's often buried in the fine print. With $1,700 across multiple platforms, you should definitely report the income regardless of whether you receive any forms. A good practice is to check each site's help center or support for their tax classification policies. You can also reach out to their support teams directly to ask how they report payments to the IRS.

Does anyone actually get audited for survey income though? It seems like small potatoes compared to what the IRS usually goes after.

I did check that actually! I have health insurance through my job that takes about $85 per paycheck, and I'm contributing 4% to my 401k. But I was specifically looking at just the tax withholding line items when I calculated the 22%. Good thought though!

Ah, gotcha. Then yeah, it sounds like what others have said is right - the 22% is a combination of federal income tax, state income tax, and FICA taxes. The tax bracket percentages on the IRS site are just for federal income tax, which is only a portion of your total tax burden. Just to break it down for clarity, on your ~$43k income: - Federal income tax: probably around 9-10% effective rate - State income tax: around 4-5% depending on your state - Social Security: 6.2% - Medicare: 1.45% That adds up to about 21-23% total for taxes, which matches what you're seeing on your paystubs.

You're forgetting the standard deduction though. In 2023 it was $13,850 for single filers, so you don't pay any federal income tax on that amount. So someone making $43k would only pay taxes on $29,150 of income, which would be $3,306 in federal tax (about 7.7% effective rate).

You're absolutely right, I forgot about the standard deduction! That makes the effective federal tax rate even lower, which explains why the withholding seems high compared to the tax bracket. With the standard deduction, someone making $43k would have a taxable income of about $29k. That would be $1,100 (10% of the first $11k) plus about $2,160 (12% of the remaining $18k) for a total of about $3,260 in federal tax. That's only about 7.6% of their gross income. Add 7.65% for FICA and about 5% for state (varies widely), and you get to around 20-21% total, which lines up with what the original poster is seeing on their paychecks.

Does Xero handle revenue recognition well for subscription services? We're having issues with our current setup properly spreading annual payments across 12 months.

Xero handles subscription revenue recognition pretty well. You can set up automated journal entries to spread annual payments across 12 months. It takes some initial setup with a template, but once it's running, it works smoothly. We have clients who pay annually, quarterly, and monthly, and the system keeps it all straight. For really complex subscription setups, we did add a Xero plugin called "Deferred Revenue" that adds some extra functionality, but most startups won't need that until they're at a larger scale.

Wave is definitely underrated! I do have issues with it handling my AWS and GCP invoices tho. Constantly miscategorizes them as personal expenses for some reason.