This is super helpful! Quick question - for things like my iPad and Apple Pencil that I use for both personal stuff and illustration work, how do I figure out what percentage I can deduct? Is there a standard way to calculate that?

For mixed-use items like your iPad and Apple Pencil, you need to determine the percentage of business use based on time. If you use your iPad 80% for client work and 20% for personal stuff, you can deduct 80% of the cost. There's no standard calculation - it's based on your honest assessment, but you should be prepared to justify it if asked. I recommend keeping a log for a few weeks to track your usage patterns. Some artists I know set aside specific "business hours" for their devices to make this calculation cleaner. Just make sure you're being reasonable and truthful - claiming 100% business use for a device you also use for Netflix and games is asking for trouble!

This varies SO much by state! In my state (Washington), I had to get a business license even for occasional freelance illustration work and pay Business & Occupation tax instead of sales tax. It was a whole thing. Definitely check your specific state requirements.

Thanks for bringing up the prorating - I converted in September, so that's really helpful. For the startup expenses, is there a limit to how much I can deduct in the first year? And what about the lawn mower and tools I bought specifically for maintaining the rental?

You can deduct up to $5,000 in startup expenses in your first year, with amounts above that amortized over 15 years. But these are specifically business startup costs like advertising, not equipment. For the lawn mower and tools, those are considered assets used for your rental activity. You can either depreciate them over their useful life (usually 5-7 years) OR you might qualify for Section 179 expensing or bonus depreciation to deduct them immediately. It depends on your specific situation and the total amount spent. Small tools under $200 each can generally be expensed immediately regardless.

You might qualify for the $25,000 special allowance for rental losses if your modified adjusted gross income is under $100,000 and you "actively participate" in rental management. This phases out entirely once your MAGI hits $150,000. If your income is higher, your losses are suspended until you either have passive income or sell the property.

Wait, I'm confused. If the expense amount is $0, how does that help? Wouldn't you need to make the expense equal to the amount on the 1099-K to offset it?

The zero-dollar expense line isn't actually affecting the calculations - it's just documentation in case of an audit. The real adjustment happens when you check the box saying "This income has already been reported elsewhere on my return" when entering the second form. When you check that box, the tax software knows not to add that income again to your totals. The $0 expense line with the description is just creating a paper trail showing that you acknowledged both forms but are only counting the income once. It's more about documentation than actual tax calculation.

Is this still a problem with the new threshold for 1099-K? I thought they raised it back to $20,000 for 2023 tax year? Or are we still supposed to report all 1099-Ks regardless of amount?

That's another good point. We're definitely over the income limit for direct Roth contributions. Our MAGI is around $280K this year which is why we did the conversion approach. So I definitely shouldn't be entering anything in the contributions section. Can I ask you one more question - does TurboTax automatically calculate the income limits or do I need to manually check if I'm eligible for direct contributions?

TurboTax does automatically calculate the income limits and will warn you if you try to enter Roth contributions that exceed your eligible amount based on your income. It will actually prevent you from claiming contributions you're not eligible for. However, it's still smart to understand the limits yourself as an extra check. The software is generally reliable, but ultimately you're responsible for what's on your return. When in doubt, you can always check the IRS website for the current year's limits or use the built-in help features in TurboTax that explain the rules.

This explanation is so clear! I wish they would just explain it this way in the tax software. They use all these technical terms without really explaining the difference. I'm looking at doing a small Roth conversion next year (nothing like the OP's amount!) and this really helps me understand how it'll work.

Wait how do I even check this? I literally just signed up with my email years ago and never thought about it. Is there a specific setting I need to look for?

Go to your profile icon, then "Personal" at the bottom. If you see an option that says "Switch to Business" then you're currently on a personal account which is good. If it says something like "Business Settings" or shows a business name, then you have a business account. Cash App also has colors - personal accounts are usually green while business accounts are typically black. Double check this ASAP because it makes a huge difference in how your transactions are reported!

All the payment apps have to follow the same IRS rules now. Venmo, PayPal, Cash App - they all report when you hit $600 in goods/services. Switching platforms won't help unless you're making sure to use personal payment options.