Is there a simple way to figure out which credits I might qualify for? There seem to be so many and the eligibility requirements are confusing.

The most common credits for younger people are the Earned Income Tax Credit (if your income is below certain thresholds), education credits like the American Opportunity Credit or Lifetime Learning Credit if you've paid for college, the Saver's Credit if you've contributed to retirement accounts, and potentially the Child Tax Credit if you have kids. Most tax software will automatically check your eligibility for credits as you go through the filing process. You just answer questions about your situation, and it determines what you qualify for. That's why I recommend software for beginners - it does the heavy lifting of figuring out which credits apply to you.

Do you think that's better than using tax software for a first-timer? I'm worried I'll get totally lost in the forms without guidance.

But what about expenses that only benefit the rented bedroom during the first half of the year? Would those be 100% deductible or still just 1/3?

If the expense only benefited the rented bedroom and had no benefit to your personal use areas, then you could deduct 100% of that specific expense. For example, if you painted only the rented bedroom or replaced a window in only that room, those would be fully deductible. However, most home expenses (like roof repairs, HVAC, plumbing, exterior painting, etc.) benefit the entire property and would need to be allocated based on the portion used for rental (1/3 in your case for the first period).

So would the first half of the year be considered a "rental of a portion of unit" and the second half be a separate "entire dwelling unit" rental on Schedule E? Or do you combine them somehow?

Thanks for the suggestions! Do you know if the booth rental option would require my roommate to do anything special with taxes throughout the year? They're worried about owing a huge amount at tax time if they go independent.

If they switch to booth rental (self-employed), they would need to make quarterly estimated tax payments. They'd pay both income tax and self-employment tax (which covers Social Security and Medicare). The benefit is they could deduct ALL their business expenses - not just supplies, but also a portion of their phone bill, mileage driving to buy supplies, art classes to improve their skills, even a home office if they do any work at home. These deductions often offset much of the self-employment tax increase.

Is it complicated to set up an LLC? I'm in a similar situation (hairstylist buying all my own stuff) and thinking about going independent, but all the business formation stuff seems intimidating.

That's a really smart point about considering future income growth! Do you know off-hand what the depreciation percentages would be for each year if I went the MACRS route? And did you have to file any special forms when you did this?

For 5-year property under MACRS with the half-year convention, the percentages are roughly: 20% in year 1, 32% in year 2, 19.2% in year 3, 11.52% in year 4, 11.52% in year 5, and 5.76% in year 6. But since you're starting in the year after purchase, you'd use 32% for this year. Yes, you'll need to file Form 4562 (Depreciation and Amortization) with your Schedule C regardless of which method you choose. It's not particularly complicated, but tax software makes it much easier. The form has specific lines for listing your depreciable business assets and the method you're using.

I used TurboTax Self-Employed last year for my freelance business, and it does handle depreciation including Section 179 and MACRS. It asks a series of questions about when you purchased the equipment, what it's used for, and then gives you the options. It filled out Form 4562 automatically based on my answers. The interview process was pretty straightforward for basic equipment like computers. If you have more complex assets it might be worth getting additional help, but for a laptop used for tutoring, TurboTax should be fine.

That's super helpful, thanks! Sounds like it should work for my situation too. I was worried I'd need to understand all the depreciation rules myself, but it sounds like TurboTax guides you through it. Appreciate the feedback!

Thanks for mentioning that about eBay handling the sales tax now. I didn't realize that! So I just need to focus on accurately reporting my cost basis vs. selling price on my tax return? Do you know if it matters whether these were personal items vs. items I bought with the intention to resell?

For the IRS, intent does matter. If these were truly personal items you originally bought for yourself (not with intention to resell), then you're generally not taxed on sales unless you sell for more than your purchase price. Many personal items actually sell at a loss, which isn't deductible for personal items. If you bought items specifically to resell, that's different - you'd report all profit as business income on Schedule C and could deduct legitimate business expenses. The line gets blurry when you're selling collectibles that appreciated in value while you owned them. Those can be subject to capital gains tax (usually at higher collectible rates of 28% versus normal capital gains rates).

The 1099-K thresholds are actually changing! Congress kept pushing back the $600 reporting threshold. It was supposed to start in 2022, then 2023, and now it's delayed again. So confusing to keep track of. I think we're still at $20K/200 transactions for 2023 tax year.