I dunno what these other folks are talking about with the 25% thing. I'm self-employed too and my accountant told me it's 20% not 25%. Been doing it that way for 3 years now.

Just to add some clarity on the 20% vs 25% confusion - you're both right! The IRS rule states 25% of "compensation," but for self-employed individuals, compensation is defined as net earnings from self-employment MINUS the SEP contribution itself and MINUS half of your self-employment tax. This creates a circular calculation that effectively works out to about 20% of your net Schedule C profit. So when people say "25%," they're quoting the official IRS language, but when your accountant calculates it, it comes out to roughly 20% of your business profit. The easiest way I've found to calculate it is using the IRS worksheet in Publication 560, or just multiply your net Schedule C profit by 0.20 as a rough estimate (assuming you're not hitting the $69,000 annual limit). Your tax software should handle the precise calculation automatically.

This happened to me last month. I waited until my regular refund came through before paying what I owed on the amendment. Just make sure to pay before the tax deadline to avoid any penalties. The systems are completely separate.

Just want to add another perspective here - I went through this exact situation two years ago and made the mistake of panicking and paying the amendment amount immediately out of pocket. Turned out I didn't need to rush at all since I had filed before the deadline. The key thing to remember is that when you file Form 1040-X, you're not getting a separate bill - the form itself calculates what you owe. As long as you pay by the original tax deadline (April 15th in most cases), you won't face penalties. The IRS systems really are separate, so your original refund will process normally while your amendment goes through their much slower review process. My advice: wait for that $890 refund, set aside the $271 immediately when it arrives, and then pay the amendment amount. You'll save yourself the cash flow hassle and still be completely compliant with IRS requirements.

This is such a common mistake for new business owners - you're definitely not alone! I went through the exact same panic when I started my consulting business and realized I'd been mixing personal payment apps with business expenses. The key thing to remember is that the IRS doesn't care what payment method you used - they care about whether the expenses were legitimate business costs. Since you have invoices and contracts for the bigger jobs, you're already in good shape. For the smaller verbal agreements with friends, I'd recommend creating simple documentation now listing the work performed, dates, and amounts paid. Even a basic spreadsheet with this info will help if you ever get questioned. One thing that really helped me was setting up a separate business checking account for this year going forward. It makes tracking so much cleaner and you won't have to worry about mixing personal and business transactions. You can still use payment apps if needed, but transfer the money from your business account first to maintain that separation. Don't stress too much about this - with proper documentation, you'll be fine claiming these as legitimate business expenses!

You're absolutely not alone in this situation! As someone who's been through tax season nightmares with mixed payment methods, I can tell you that you're worrying more than you need to. The IRS really doesn't care if you used Venmo, PayPal, cash, or carrier pigeons to pay your contractors - what matters is that these were legitimate business expenses and you can document them. Your invoices and contracts for the bigger jobs are perfect, and creating a simple spreadsheet for the smaller payments with friends is exactly the right approach. One practical tip: when you create that documentation for the verbal agreements, include as much detail as possible - specific dates, what work was performed, how many hours, etc. Even better if you can get your friends to sign off on these records after the fact. Most people are happy to help with this kind of thing. The 1099 situation might feel overwhelming, but it's really straightforward once you get organized. You'll need W-9 forms from anyone you paid $600+ to, and then issue 1099-NECs by January 31st. Most tax software can handle this automatically once you input the information. Take a deep breath - you haven't committed any kind of fraud! This is just normal first-year business owner learning curve stuff. Get that business checking account set up for next year and you'll be golden.

As someone who's been through multiple IRS notices over the years, I just wanted to say how refreshing it is to see this kind of supportive, informative discussion! Ezra, you handled this perfectly by asking questions and actually reading through the responses rather than just panicking or ignoring the notice. For anyone else who finds this thread later: the key thing to remember is that CP303 notices are incredibly routine. The IRS processes millions of tax returns and automatically flags discrepancies - it's not personal, and it doesn't mean you're in trouble. Most of the time it's just simple math errors or mismatched information between what you reported and what third parties (like employers or loan servicers) reported about you. The student loan interest deduction mistake is probably the #1 error I see among college graduates. The 1098-E form shows the interest you actually paid, but many people see the $2,500 maximum deduction amount somewhere and use that instead. Easy mistake to make, easy to fix. Great job getting it resolved quickly, and thanks to everyone who shared their experiences here. This is exactly the kind of practical, real-world advice that makes dealing with government services so much less intimidating!

Welcome to the tax-filing club, Ezra! 🎉 Reading through this entire thread has been such a great journey to follow - from your initial panic to confidently getting everything resolved. This is exactly why I love this community! As someone who's been filing taxes for several years now, I can confirm that pretty much everyone gets at least one notice during their first few years of filing. It's like a learning tax (pun intended) that we all pay while figuring out the system. Your CP303 notice for the student loan interest deduction is probably the most common first-timer mistake I've seen. What's really impressive is how you approached this - instead of ignoring the notice or panicking indefinitely, you asked for help, listened to the advice, and took action quickly. That's exactly the right mindset for handling any kind of government paperwork or financial responsibility. The $127 you paid is a small price for a valuable education in how tax notices work. Plus, now you're way ahead of most people your age in understanding how the IRS operates and what to expect. That knowledge will serve you well throughout your career! Thanks for sharing your experience so openly - this thread is going to be incredibly helpful for other first-time filers who find themselves in the same situation. You've basically created a masterclass in "How to Handle Your First IRS Notice" just by being willing to ask questions and learn from the community.

This is a really common issue that catches people off guard! I went through something similar when I had a big bonus year that pushed me over the limit. One thing I'd add to the great advice already given - if you decide to do the recharacterization route, ask your brokerage about the exact process for reporting this on your tax return. You'll need to file Form 8606 if you recharacterize to a Traditional IRA, and the timing of when you make the recharacterization request can affect which tax year it applies to. Also, some brokerages are faster than others at processing these requests, so don't wait until the last minute if you're going that route. The backdoor Roth conversion is definitely worth understanding even if you don't use it this year - it's a valuable strategy for high earners going forward. Just make sure you understand the pro-rata rule implications if you have existing Traditional IRA balances from old 401k rollovers.

Just wanted to chime in as someone who dealt with this exact situation last year. The capital gains surprise is so frustrating - I had no idea they counted toward the income limits either until my tax software flagged it. One thing I'd recommend is acting quickly once you decide on your approach. I initially thought I had plenty of time since the deadline seemed far away, but the recharacterization process with my brokerage took almost 3 weeks to complete. They had to calculate the earnings attribution, get supervisor approval, and then submit all the paperwork to the IRS. Also, if you're considering the backdoor Roth route for future years, it might be worth talking to a tax professional about whether you should roll your existing Traditional IRA balances into a current employer's 401k first (if your plan allows it). This can help you avoid the pro-rata rule complications down the road. The silver lining is that this is a "good problem to have" - your investments did well! Just an expensive lesson in tax planning for higher income years.