Oh wow I hadn't even thought about mileage! I've definitely been driving all over meeting with potential clients and checking out wholesale suppliers. Is there a good app you recommend for tracking business miles? And do I need to separate startup miles vs regular business miles or are they treated the same for tax purposes?

I use MileIQ now and it's pretty good at automatically tracking trips. For tax purposes, there's no difference in the deduction rate between startup miles vs regular business miles - they both qualify for the same standard mileage rate. The only difference is how you categorize them on your tax forms. Just make sure you log the purpose of each trip and keep that record with your tax documents. The IRS can get picky about mileage deductions if you ever get audited. You'll want your startup miles listed with your other startup expenses, while regular business miles go with your regular business expenses.

Organization costs are specifically for the legal formation of your business entity (like incorporation fees, legal fees for creating your LLC, etc.) while startup costs are the actual business expenses before you open (like market research, advertising, employee training, etc.). They're treated similarly for tax purposes though - both allow up to $5k in first-year deductions with amounts over that amortized over 15 years. The main difference is just which line they go on in your tax forms.

This is really helpful! I do have all my invoices and bank statements showing the deposits. Do I need to submit any of this documentation with my tax return, or just keep it in case of an audit?

Just keep all that documentation safely stored for at least 3 years after filing. You don't submit it with your return, but if you're ever audited, you'll need to produce it. Electronic copies are fine as long as they clearly show the information. And don't worry too much about being audited - it's not super common for regular folks. Just be honest about your income, take legitimate deductions you're entitled to, and keep your supporting documents.

FreeTaxUSA is way cheaper and handles self-employment income just fine. I've been using it for years for my 1099 work and W-2 job. No need to pay the big companies extra for basic Schedule C filing.

Do you know if tankless water heaters qualify for any energy credits in 2025? I just installed one in my rental and the contractor mentioned something about tax benefits but wasn't specific.

Yes, tankless water heaters often qualify for energy efficiency tax credits! For 2025, energy-efficient home improvements can qualify for the Residential Clean Energy Credit, which is 30% of the cost with no upper limit. Tankless water heaters typically need to meet certain Energy Star requirements to qualify. Make sure you get a Manufacturer's Certification Statement from your contractor or the manufacturer that specifically states the water heater meets the efficiency requirements. Keep this with your tax records along with your receipt. This credit is reported on Form 5695 when you file your taxes.

Good point! I had the same experience with my duplex renovation. My property taxes increased by about $1,200/year after the reassessment. One suggestion: check if your county has any programs that phase in assessment increases over multiple years. Our county has a 3-year phase-in program I was able to apply for, which gave me time to gradually increase rents to cover the higher taxes.

Thank you for this detailed breakdown! I wasn't aware of the Section 179 option at all. The insurance payment is a flat rate per visit with no specific travel component mentioned in the contract. Just to clarify - with the actual expenses method, can I deduct the percentage of the purchase price over time as depreciation? And do you recommend any specific apps for tracking mileage?

Yes, with the actual expenses method, you can deduct the business-use percentage of your purchase price through depreciation (typically over 5 years for passenger vehicles). There are annual limits on depreciation deductions for passenger vehicles, but vehicles over 6,000 lbs have more favorable treatment. For mileage tracking, my clients have good experiences with MileIQ, Everlance, and TripLog. Most have free versions to start with. The key features you want are automatic trip detection, easy business/personal categorization, and good reporting. Whatever app you choose, make sure you also document the purpose of business trips and keep supporting records of your appointments or on-call schedule to substantiate the business necessity.

I'm confused about the 6000 lbs rule - does that mean if I buy a big SUV or truck I get better tax treatment than a smaller 4x4?

Exactly! Vehicles over 6,000 lbs gross vehicle weight rating (GVWR) are classified differently by the IRS and aren't subject to the same depreciation limits as "passenger automobiles." This is sometimes called the "SUV tax loophole" and it can provide significant tax advantages. For example, in recent tax years, a vehicle over 6,000 lbs used primarily for business could qualify for much higher first-year depreciation than lighter vehicles. This is why you'll sometimes see tax advisors suggesting heavier vehicles to business owners. You can find the GVWR on the sticker inside the driver's door of most vehicles. Just remember, you still need to document the business use percentage accurately regardless of vehicle weight.

Oh crap, I didn't even think about that. So basically I need to estimate what I'll owe and make payments throughout the year? How do you figure out how much to pay each quarter?

Exactly - you need to estimate your annual tax liability and make quarterly payments. For most people, if you pay 100% of last year's tax liability (or 110% if your income is over $150,000), you'll be safe from penalties even if you end up owing more. You can calculate it more precisely using the worksheet in Form 1040-ES. Basically, estimate your annual income, calculate the tax on it, subtract any withholding from your W-2 job, and divide by 4. Your tax software should help with this too. Just remember that you need to include both income tax and self-employment tax (the 15.3% that covers Social Security and Medicare).

Does this work for things I already owned before starting the side gig? I've been using my personal laptop for my freelance work.