Thanks for the warning! So if I have a desk in my bedroom that I only use for work, but it's in my bedroom where I also sleep, would that area around the desk qualify? Or does the entire room have to be exclusively for business?

The space needs to be exclusively for business, not the entire room necessarily. So if you have a clearly defined area in your bedroom that's used only for work (like a desk and the surrounding area), that specific space can qualify. Take measurements of that dedicated workspace to calculate what percentage of your home it represents. You'll need to be able to prove that area is used exclusively for business if audited. Take photos of your setup, keep records of business activities conducted there, and ensure nothing personal is stored in that specific area. I recommend consulting a tax professional if you're unsure, but many people successfully claim partial room deductions.

This is great advice. I started a SEP IRA when I was contracting and it made a huge difference in my tax bill. I think you can contribute something like 20% of your net earnings? Definitely worth looking into.

11 Wait, so if my candle making business hasn't been profitable yet, I can't deduct ANY of my expenses?? I've spent like $2000 on supplies and only made like $800 in sales so far this year.

22 That's not exactly right. You CAN deduct expenses even if you're not profitable yet. The hobby loss rule doesn't kick in immediately - it's more of a guideline the IRS uses after several years of losses. The key is demonstrating that you have a profit motive and operate in a businesslike manner, even while you're in the startup phase. Keep good records, have a separate business bank account, develop a business plan, market your products, and maintain professional practices. These all help show it's a legitimate business attempt, not just a hobby.

16 That's not actually how tax deductions work for sole proprietors. You can't "deduct" the value of your own labor - you can only deduct actual expenses paid. Though I agree it's important for pricing products correctly!

Oh no, I didn't make any quarterly payments! This is my first time dealing with self-employment. Will the penalty be really bad? And should I start making quarterly payments for this year right away?

The penalty usually isn't too severe - it's basically an interest charge on what you should have paid earlier. There are some safe harbor rules that might help you avoid it, especially if this is your first year with self-employment income or if your W-2 withholding from any other jobs covers at least 90% of your total tax liability. Yes, for 2025 you should plan on making quarterly estimated payments. The due dates are April 15, June 15, September 15, and January 15 (of the following year). You can use Form 1040-ES to calculate and submit these payments. It's much easier to pay a little each quarter than to be hit with a large bill at tax time!

I used HR Block last year for my Schedule C (freelance writing) and it was ok but not great. The interface was a bit confusing for business expenses. This year I switched to TurboTax Self-Employed and found it more intuitive - it asked better questions to help identify deductions I might have missed. It's more expensive but worth it if you have various expenses to deduct.

Does it matter if they're tracking it separately in a dedicated account? I've heard that can sometimes make a difference with the IRS if the money is clearly segregated.

Keeping the money in a separate account is good practice and helps demonstrate your intent, but unfortunately it doesn't change the fundamental tax treatment. The IRS generally looks at the nature of the transaction when it occurs, not what you intend to do with the proceeds later. Having a separate account does provide a clear paper trail though, which is always helpful if questions ever arise. It shows you weren't trying to hide anything and had a specific purpose for the funds.

This is actually brilliant! My sister did something similar with her kids' "chore money" - she reported it properly as rental income but then put it in 529s for them. The growth being tax-free for education expenses made it really worthwhile.

Is there a good app you recommend for tracking business miles? I always forget to log them and probably lost out on hundreds in deductions last year.

I use MileIQ and it's been super helpful. It automatically tracks when you're driving and then you just swipe right for business trips and left for personal. Takes like 2 seconds per trip. Stride is another good one that's free, but I find it misses some trips since you have to manually start tracking. Either way, the standard mileage deduction is 65.5 cents per mile for 2023, so it adds up crazy fast especially for renovation work where you're going to different job sites!

In my experience it's worth checking! I amended my 2022 return after ignoring that message for months and got an additional $1200 refund. I had missed some legit business expenses my first year. Different software sometimes finds different deductions.