How do you figure out how much extra to have withheld on your W-4? I always end up owing hundreds and get hit with an underpayment penalty too.

I use the IRS withholding estimator tool on their website. It lets you input your expected tip income and other variables, then recommends how much additional withholding to request on your W-4. For the underpayment penalties, you might want to look into making quarterly estimated tax payments instead of waiting until filing season. That's what I started doing - I set aside about 15% of my tips each week, then make quarterly payments using Form 1040-ES. It's a bit more work throughout the year, but way better than getting hit with those penalties every April.

I used VITA last year for my restaurant taxes. They were great with my W-2 and basic tip reporting but struggled a bit with some of the more complex situations like allocated tips vs reported tips. It probably depends on which volunteer you get and their experience level.

That's a really good point - I hadn't even thought about the eventual sale. How exactly does that work? Do I need to track the depreciation separately for each unit or for the building as a whole?

You need to track depreciation separately for the personal portion and the rental portions. When you sell, you'll need to allocate the sale price between the units based on fair market value at the time of sale. For your personal unit, you can potentially use the Section 121 exclusion ($250k single/$500k married) if you've lived there for 2 of the last 5 years. The rental units will be subject to capital gains tax, plus depreciation recapture at 25% for all the depreciation you've claimed (or were required to claim even if you didn't). Keep detailed records of all improvements to establish your cost basis for each unit.

I switched to TaxSlayer and it handles rental properties much better than TurboTax did. Has specific sections for multi-unit properties and asks all the right questions about personal vs rental use.

That's actually super helpful to know! I definitely had taxes taken out of each check. Do you know if I need to file state taxes too? I'm in Illinois if that matters.

Yes, you should file state taxes for Illinois as well. Illinois has a flat income tax rate (currently 4.95%), and similar to federal taxes, if you had state taxes withheld from your paychecks, you'll likely get that money back if your income was only $3,200 for the year. The good news is that most tax software will let you file both federal and state returns, and will walk you through the process for both. Many of them offer free filing for simple tax situations like yours.

This is actually not correct information. The wage and income transcript for 2024 is generally available by May-June of 2025. So it would be available before the October extension deadline if the OP needs to file an extension.

Thanks for suggesting that! I hadn't thought to look at the Census Bureau site. Did you end up using the same code on your Schedule C as the NAICS code you found? Did you have any issues with matching it to the IRS list?

Yes, I used the same code I found through the NAICS search for my Schedule C. The IRS business codes are actually based on the NAICS system, though sometimes they're slightly condensed. I did have to cross-reference what I found with the IRS list in the Schedule C instructions, but it was pretty straightforward. For my conservation work, I found code 711510 (Independent artists, writers & performers) through NAICS, and it matched perfectly with the Schedule C list. Just make sure you're looking at the most current list since they update them periodically.

But I thought 712110 was only if you're operating a museum? Can you use that if you're just working for one as a contractor? I've been using 541900 (Other professional services) for my museum consulting work and now I'm worried I've been doing it wrong.

Isn't that technically incorrect though? I thought you're supposed to report the full W-2 amounts exactly as they appear on the forms, then use Form 8958 to show the allocation. Wouldn't entering modified amounts on the W-2 entries potentially cause issues?

You're absolutely right that it's not the technically correct way to do it. The proper way is to enter the W-2s as they appear and then use Form 8958 to allocate. However, Free Fillable Forms has this verification issue that prevents many people from e-filing when done the correct way. It's one of those situations where the system limitation forces a workaround. The important thing is that the final tax calculation is correct and Form 8958 properly shows the community property allocation. I spoke with a tax professional before doing it this way, and they said that as long as Form 8958 is included and properly shows how you derived your numbers, it should be fine. The IRS is ultimately looking at your taxable income, withholding, and whether you've properly split community property income.

Paper filing works but it's sooo slow right now. I paper filed my MFS return from Washington state last year and it took almost 7 months to get my refund. The IRS is still catching up on their backlog.