Thanks for bringing this up! To clarify, I do have paying gigs throughout the year in the same line of work. This festival opportunity is unusual in that it's "payment in kind" rather than cash, but it's definitely part of my overall business strategy to build contacts and get higher-paying work. I've been profitable overall for the past year, just not with this specific job.

That's good news! The fact that you have other paying gigs in the same line of work and are profitable overall will really help your case if you're ever questioned. Just keep good records showing how this unpaid gig connects to your overall business plan. Maybe even document any contacts you make or future opportunities that come from this festival work to show the business purpose. The IRS is most concerned with people trying to write off hobby expenses or vacations as "business" - since you have a legitimate business that makes money at other times, you should be on solid ground.

The IRS mileage rate for 2023 is actually 67.5 cents per mile for the second half of the year (July 1-Dec 31). It was 65.5 cents for the first half. Just wanted to clarify so OP doesn't miss out on deductions!

How do you figure out how much to pay each quarter? Is there a calculator or something?

You can use the worksheet in Form 1040-ES to estimate your payments. Basically, you'll need to estimate your total tax liability for the year and divide by 4. If your income is fairly consistent each quarter, equal payments work fine. If it varies a lot, you can use the "annualized income" method (Form 2210) to vary your payments.

Exactly! The LLC question is completely separate from tax deductions. An LLC can elect different tax treatments, but having/not having one doesn't affect your ability to deduct business expenses.

That's a great point I hadn't considered! So if I keep my current state as my official residence while traveling, I'd still potentially need to file state taxes even if I'm not physically there or earning income there? Do you know if there's a minimum income threshold for state taxes similar to federal?

Yes, exactly - if you maintain your legal residency in a state with income tax, you generally need to file there regardless of where you physically are during the year. It's based on legal domicile, not physical presence. State filing thresholds vary widely. Some states require you to file if you're required to file federal taxes, regardless of the amount. Others have their own thresholds that may be lower than federal ones. For example, California requires filing for single people who earned as little as $20,000 in 2024. I'd definitely check your specific state's requirements. When I was planning my year off, I found that calling the state tax department directly was the most reliable way to get accurate information for my situation.

I heard you need to report to the VA if you're out of the country for more than 30 days though? Something about benefits verification. Is that true?

I hadn't even thought about state tax implications! I'm in Michigan - do you know if there are specific homeowner benefits here? Also, does using the standard deduction on federal mean I have to do the same on state?

Michigan has a Homestead Property Tax Credit that's separate from your federal return. You may qualify for this even if you take the standard deduction on your federal return. It's based on your property taxes in relation to your household income, and can provide significant savings. No, you don't have to use the same deduction method for state as federal. You can itemize on one and take the standard deduction on the other - choose whatever gives you the best outcome for each return separately. The Michigan form MI-1040CR is what you'll need for the homestead credit.

Also check if you paid points to get your mortgage! Those are usually deductible in the year you pay them. They should be on your closing documents.

Schedule D has a worksheet in the instructions called the "Capital Loss Carryover Worksheet" that you should fill out each year. It's not submitted with your return, but it's the official way to calculate your carryover amount. Keep it with your tax records! There's one for 28% rate transactions and another for regular transactions. You can find it in the Schedule D instructions PDF on the IRS website.

Thanks for the tip! I didn't realize there was an official worksheet in the Schedule D instructions. I'll definitely download that and start using it instead of my homemade spreadsheet. Makes sense they'd have something for this since so many people carry losses forward, especially after market downturns.

I've noticed this too! The difference is usually because the summary screen might be showing your net capital loss after offsets, while Schedule D shows the detailed breakdown. Check Form 1040 line 7 to see the actual amount of loss being applied against your income this year (max $3k). The software is probably right, but it's showing you different stages of the calculation.