That's an interesting approach I hadn't considered. Would that be simpler to manage than tracking all these loan amounts and interest calculations? What kind of documentation would we need for a cost sharing arrangement?

A cost sharing arrangement could be simpler operationally but requires careful upfront documentation. You'd need a formal agreement specifying how costs will be allocated (usually based on projected benefits like expected sales or profits in each territory), which costs qualify for sharing, and how developed IP will be owned. The documentation is actually quite extensive. You'll need economic analysis to support your allocation method, regular documentation of actual costs incurred, and annual true-ups if estimates differ from reality. The IRS scrutinizes these arrangements closely under Section 482, so you'd want to prepare a transfer pricing study to support your approach.

We designated our intercompany loans as long-term investments so the foreign currency gains/losses are reported as Other Comprehensive Income instead of hitting our P&L directly. Talk to your accountant about whether that approach might work for your situation.

Wait seriously? I thought you only report what you actually received after the app's commission. Is that really how it works? Now I'm even more confused about this 1099-K stuff.

Yes, that's exactly how it works. The 1099-K reports the gross amount processed through the platform, before they take their cut. So if passengers paid $10,000 total and the app took $2,000 as their commission, your 1099-K will show $10,000. You then report that full $10,000 as your gross receipts on Schedule C, but you also get to deduct the $2,000 in fees as a business expense on the same form. The net effect is the same - you're only taxed on the $8,000 you actually received - but the reporting has to be done this way.

I use MileIQ and it's pretty automatic - just swipe drives as business or personal. Around $60/year but worth it for the deduction. Stride is free but more manual. Both export nice reports for your 1099-K related driving work.

That's actually brilliant - I never thought about finding potential business opportunities in Albuquerque! I work in software development consulting and there might actually be some tech companies there I could connect with. How detailed do my records need to be for this to count? Would emails setting up meetings be sufficient documentation?

Emails setting up meetings would be excellent documentation. You want to establish both your intention to conduct business and that actual business activities took place. Save those emails, take notes during the meetings, keep any business cards you collect, and record all mileage specifically related to these business activities. If you end up gaining any clients or doing future work based on these connections, that strengthens your case even more. Just remember that the primary purpose of the Albuquerque portion still needs to be business for those miles to count, so make sure you're spending more time on business activities than personal ones while there.

The 30-mile detour to see a tourist attraction would be personal miles and not deductible. However, the direct business route from Sacramento to San Diego would still be fully deductible. Think of it as drawing a line on the map - the most direct reasonable route for business is deductible, any detours for personal reasons are not. Stopping for meals during business travel doesn't disqualify your miles though - that's considered a necessary part of business travel.

That's a good point I hadn't considered. Our company does have operations in California, Texas, and New York. Would I need to file separate state returns for each of those states even if I personally only work from one location?

Yes, you'll likely need to file returns in each state where the LLC operates, regardless of where you personally work. This is because as a member of the LLC, you're considered to be doing business in all states where the LLC operates. Each state will tax the portion of your distribution income that's attributed to business in that state. Some states have minimum taxes or filing fees just for having any presence there at all. This is definitely a situation where good tax software or a knowledgeable accountant is worth the investment, as multi-state taxation can get extremely complicated quickly.

This is such an important distinction! I got burned by this exact issue last year. My "distributions" were actually classified as guaranteed payments in our operating agreement, and I ended up owing an additional $7,800 in self-employment taxes I wasn't expecting. Definitely worth having a professional review your operating agreement.

Thanks for bringing this up! We are claiming the Child Tax Credit for both kids, but I'm not sure if we've maxed it out. My husband does get 1099s and I know he needs to do the quarterly payments but honestly we never knew how to calculate them properly. Is there a simple formula to figure out roughly how much we should set aside from each check?

A simple rule of thumb is to set aside about 25-30% of his 1099 income for taxes. This covers both income tax and self-employment tax (which is roughly 15.3% alone). For proper quarterly payments, you can use the IRS Form 1040-ES worksheet, which helps calculate your required payments based on expected income. The due dates are April 15, June 15, September 15, and January 15 of the following year. Setting up a separate savings account just for taxes can be really helpful - deposit that percentage from each check immediately before you're tempted to spend it.

This is great advice! I'm a contractor too and opened a SEP IRA last year. Was able to contribute almost 20% of my income and it dropped me into a lower tax bracket. Saved me thousands.

Just be aware that SEP IRAs have an earlier deadline than traditional IRAs! For 2024 taxes, you need to set up and contribute to a SEP IRA by the tax filing deadline (including extensions) in 2025. Don't wait until last minute like I did!