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One thing nobody's mentioned yet - you need to start keeping your business and personal expenses SEPARATE! Get a dedicated credit card for all your freelance expenses. Trust me, trying to sort through a year's worth of mixed expenses at tax time is a nightmare. Also, look into SEP IRA or Solo 401(k) options. Even with a smaller side income, you can make retirement contributions as both the employee AND employer which gives you a nice tax deduction now and builds retirement savings. It's basically the one silver lining of paying self-employment taxes.
Is there a minimum amount you need to make from self-employment to open a Solo 401k? I'm just starting out with freelance work too.
Make sure you track EVERYTHING for your Schedule C! As someone who's been freelancing for years, here's what you can typically deduct: - Software (like Adobe - you can allocate a % for business use) - Hardware (laptop, etc. - with depreciation) - Internet (% used for business) - Phone (% used for business) - Office supplies - Professional development (courses related to your design work) - Business insurance if you have it - Portion of rent/mortgage for home office (if you have a dedicated space) - Utilities for that same % of your home Just make sure everything you deduct is ORDINARY and NECESSARY for your business. That's the IRS standard. And keep receipts for EVERYTHING!
Don't forget to consider filing as Head of Household instead if you have qualifying dependents and meet the requirements! If you've been separated for the last 6 months of the tax year AND have a qualifying dependent living with you for more than half the year, you might qualify for HOH status which has better tax rates than Married Filing Separately.
I do have our daughter living with me full-time since the separation. I didn't know this was an option! What exactly qualifies as "separated" though? We don't have any legal separation agreement, just living in different places for about 8 months now.
For the IRS, being "separated" means you and your spouse didn't live in the same household during the last 6 months of the tax year. You don't need a formal separation agreement for tax purposes. Since your daughter lives with you full-time and you've been living separately for 8 months, you likely qualify for Head of Household status. This gives you a higher standard deduction and better tax rates than Married Filing Separately. You'll also remain eligible for certain credits that you lose with MFS. Definitely look into this option in TurboTax - there should be a section where you can check if you qualify for HOH status!
Has anyone dealt with this scenario where you filed MFS and then found out later your ex filed as Single even though you were still legally married? My ex did this and I'm worried I'll get in trouble somehow, even though I filed correctly.
Your ex will be the one in trouble, not you. If you were legally married on December 31 of the tax year, neither of you can file as Single - that's tax fraud on their part. The IRS will likely catch this when they match Social Security numbers and may audit your ex, but you're fine since you filed correctly as MFS.
One thing nobody's mentioned yet - check if your brokerage actually submitted a corrected 1099-B after you filed your taxes. This happened to me and was the source of the problem. I filed in February, then in March my brokerage sent a corrected form with updated cost basis info, but I never realized it. The IRS got the updated form which didn't match what I filed, and that triggered the notice. If this is what happened to you, the solution is pretty straightforward - you just need to show that you filed based on the information you had at the time, and provide the corrected information now.
That's a really good point I hadn't considered. I did file pretty early (mid-February) because I usually get a refund. I'm going to log into my brokerage account right now and see if they issued a corrected 1099-B that I missed. If they did, would I need to file an amended return or just respond to the notice with the updated information?
You typically don't need to file an amended return in this case. The response to the notice effectively serves as your correction. In your response letter, you should explain that you filed with the original information provided by your brokerage, and include copies of both the original and corrected 1099-B forms. Make sure to clearly reconcile the differences between what you reported and what the corrected form shows. The IRS mostly wants to see that you can account for the discrepancy and that you're not trying to hide income. They're generally reasonable when the error originated with the brokerage rather than you.
Has anyone mentioned CP2000 responses can be done online now? You don't always have to mail back paper forms. The IRS has a portal where you can respond to certain notices electronically. Check if your notice has an option for online response - it's WAY faster.
Online response is definitely better when available! But you still need to scan and upload all your supporting documents. I did mine online last year and still had to upload about 20 pages of stock transaction records. But processing time was only about 3 weeks versus the 2+ months it took when I mailed in a response the previous year.
You make a good point about still needing to provide all the documentation. I should have been clearer. The main advantage isn't reducing what you need to submit, but rather the processing time and confirmation. When you submit online, you get an immediate confirmation that they received your response, which gives peace of mind compared to wondering if your mail got lost. The other major advantage is that online responses typically get processed in the order received, while paper responses can get shuffled into various processing backlogs. This is especially important when responding to a notice with a deadline.
14 Just a heads up - I made the mistake of not properly reporting my ESPP last year and got a notice from the IRS about underreported income. Turns out I had DOUBLE counted certain parts while not reporting others correctly. Make sure you document everything clearly, especially which portions were already taxed as income on your W2 vs what needs to be reported as capital gains.
1 That sounds stressful! Did you end up having to pay penalties or just the corrected tax amount? I'm trying to avoid any issues with my ESPP reporting this year.
14 I had to pay the additional tax plus about $120 in interest since it had been nearly 8 months since the filing deadline. Fortunately no major penalties since they determined it was an honest mistake and not deliberate underreporting. The most annoying part was having to fill out an amended return and providing all the documentation showing which transactions were which. The whole process took about 3 months to resolve. Definitely worth getting it right the first time if you can!
3 Don't most tax software programs handle this situation automatically? I use TurboTax and when I enter both my W2 and 1099, it seems to correctly adjust things so I'm not double-taxed on the ESPPDD amount.
20 In my experience, tax software doesn't always get ESPP transactions right, especially with disqualifying dispositions. Last year TurboTax didn't connect the dots between my W2 ESPPDD and the 1099 for the same shares. I had to manually override the cost basis. It's always good to understand what's happening rather than trusting the software completely.
Lukas Fitzgerald
Don't forget to check if your state has special tax credits for college students! My state has a special deduction for tuition and fees even if you claim the federal education credits. I missed this my first two years and ended up filing amendments to get back almost $700. Also, if you're independent and your income is low enough, look into the Earned Income Tax Credit. Being a student doesn't disqualify you, and it can be pretty substantial depending on your earned income.
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Kendrick Webb
β’I had no idea about state-specific education credits! Is there an easy way to find out what my state offers? I'm in Illinois if that helps.
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Lukas Fitzgerald
β’Illinois has the Illinois Education Expense Credit which allows parents or legal guardians to take a credit of up to $750 for qualified education expenses for K-12 students attending Illinois schools. Unfortunately, it doesn't extend to college expenses, but it's worth keeping in mind if you have younger siblings. For college students specifically in Illinois, look into the Illinois Property Tax Credit if you're paying rent. Since landlords pay property tax and pass that cost to renters, you might qualify for some relief there as a renter. Also check out the Illinois Earned Income Credit which is 18% of the federal EITC if you qualify for that.
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Ev Luca
Honestly the biggest mistake I made as a student was not separating my 1099 gig work expenses properly. For your DoorDash income, create a simple spreadsheet NOW before you file and track: - Total miles driven (this is huge) - Hot bags or delivery equipment - % of phone bill used for the app - Any insulated delivery bags - Car maintenance proportional to business use - Parking fees while doing deliveries I screwed this up my first year and probably overpaid by $800+ in self-employment taxes. If u have over $400 in profit from DoorDash, you'll owe SE tax (15.3%) on top of regular income tax.
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Avery Davis
β’Do you need receipts for all of this or can you just estimate? I did Uber Eats last year but wasn't great about keeping track of expenses.
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Kendrick Webb
β’This is super helpful, thank you! I actually didn't track my mileage during the year - is it too late to claim that deduction or is there some way to reconstruct a reasonable estimate?
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