Wait what? I thought ANY side income got hit with self-employment tax! Are you sure about the $400 thing?

Yep, 100% sure about the $400 threshold for self-employment tax. It's directly from the IRS rules. If your net earnings from self-employment are less than $400, you don't have to pay the SE tax, though you still report the income on your tax return for income tax purposes. Most new content creators don't realize this and end up saving way too much when they're just starting out. Of course, most people who stick with it eventually earn more than $400 in profit annually, but it's good to know the actual threshold.

This is solid advice. I started doing this after my first year and it made a HUGE difference. My question is do you do quarterly estimated payments or just save it all for April?

Can you still make that election now? Or was that something that had to be done on the 2020 return?

Unfortunately, the election to report the full amount in the first year had to be made on your original 2020 tax return. Since you already reported only 1/3 of the distribution as taxable in 2020, you're now locked into the three-year reporting method. The only way to change this would be to file an amended 2020 return (Form 1040-X), but that has risks and costs that likely outweigh any potential benefits at this point. You'd pay interest and possibly penalties on any additional tax from reporting the full amount in 2020, plus you'd draw additional scrutiny to your return.

You can repay a CARES Act distribution within 3 years of the date you received it to avoid taxes on the repaid amount. So if you took it out in July 2020, you have until July 2023 to put it back. You'll need to file amended returns to get back any taxes you already paid on the portions reported in 2020 and 2021.

Do you need receipts for all of these? I did some freelance work last year but was terrible about keeping records. Can I still claim some of these deductions?

You should ideally have documentation for all business expenses, but the level of documentation varies. For things like home office, you need to know the square footage. For mileage, you should have a log of business trips. For expenses like internet and phone, you can calculate the business percentage based on reasonable usage. If you don't have exact receipts but have bank or credit card statements showing the purchases, that can work too. The key is being able to show the expense was real and business-related if you ever get audited. For this year going forward, I recommend using a free app to track expenses or even just a simple spreadsheet. It makes tax time so much easier!

I used Direct Pay last year. When you go through the steps, you select "Form 1040" and then "Tax Return" or "Balance Due" as the payment type (I used Balance Due). Then select the right tax year. It was actually easier than I expected. Just make sure you keep the confirmation number they give you after the payment processes. I also took a screenshot of the confirmation page just to be safe.

I thought about that but was trying to save money since my income is already pretty tight. Do you think it's worth the cost even if my situation isn't super complicated? Did they find any deductions you missed or was it just for the reassurance?

Yes, I think it's worth the cost even for a relatively straightforward situation, especially in your first year or two of self-employment. The CPA actually found several deductions I had missed - part of my phone bill, a portion of my internet, some office supplies I'd forgotten about. These additional deductions saved me around $400 in taxes, so the service more than paid for itself. The peace of mind was the biggest value though. Having a professional review everything and say "this looks correct" eliminated so much anxiety. They also gave me a simple system for tracking everything this year, which has made the whole process much easier. If money is tight, you might look into VITA (Volunteer Income Tax Assistance) which offers free tax help for people who make under $60,000.

This is a good point. The IRS isn't suspicious of people who happen to be in the EIC range - they're looking for people who make up fake income or dependents. Lots of legitimate self-employed people naturally fall into this income range.

That's a really good point about keeping all the documentation. Should I also be sending the payment by certified mail or some other trackable method? And do I need to include a copy of the latest CP2000 with my payment?

Absolutely send your payment via certified mail with return receipt requested. That gives you proof of exactly when you sent it and when they received it. I would recommend including a copy of the payment voucher from the CP2000 (not the entire notice), along with a brief letter stating that this payment is for the agreed amount on your CP2000 dated [specific date] for tax year 2019. Include your Social Security number, the notice number, and any other reference numbers on the CP2000. Better to include too much identifying information than not enough.

Totally agree about the IRS departments not communicating. I work at an accounting firm and we see this constantly. The examination department will agree to one thing while the collections department is still pursuing the original amount. For the OP, you might check if your local Low Income Taxpayer Clinic (LITC) can help. If you qualify based on income, they provide free representation.