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.

Oh wow, I hadn't even thought about the state tax implications. Do you know if there's any way around this? Would it help if they established residency in another state before going to Pakistan next time?

Yes, establishing residency in a no-income-tax state before leaving for an international assignment can help. States like Florida, Texas, Nevada, etc. would be options. They would need to genuinely establish residency though - driver's license, voter registration, bank accounts, etc. For the current situation, they should look closely at NY's 183-day rule. If they were physically present in NY for fewer than 183 days and don't maintain a permanent abode there, they might have an argument against NY residency. However, with 6 months (approximately 180-183 days), they're right on the edge. Documentation of exact days in and out of NY will be critical.

I've used Form 8833 before and it's actually not that bad. Just make sure your friend documents which specific article of the US-Pakistan tax treaty they're relying on. The form is pretty straightforward - just explains what treaty benefit you're claiming and why you qualify.

Is Wave better than just using a spreadsheet? I'm doing rideshare and food delivery and trying to track everything but getting overwhelmed.

I find Wave much better than spreadsheets for a few reasons. It automatically creates the right categories for taxes, connects to your bank account to import transactions (so you don't have to manually enter everything), and generates reports you can use for tax filing. The learning curve is pretty minimal compared to spreadsheets where you have to create your own formulas and categories. Plus, it's specifically designed for small businesses and self-employed people, so it knows what information you need for taxes. The basic version is free, which is all I need for my side gig income tracking.

That sounds really helpful! Do they help with the self-employment forms too? I've heard those are more complicated than regular W-2 employment.

I tried VITA last year and they refused to help with my Schedule C for rideshare driving. Said it was "out of scope" for their volunteers. Maybe it varies by location though.

How did you find your tax attorney? I'm in a somewhat similar situation (owe about $30k from business losses) and have been getting bombarded with ads from tax resolution companies that sound super scammy with their "we can settle for pennies on the dollar" promises.

I found our attorney through the state bar association's referral service. I specifically asked for attorneys specializing in tax controversy and resolution. This approach was much better than responding to those "pennies on the dollar" ads, which are usually misleading. The bar association gave me three names, and I interviewed all of them. I asked about their experience with cases similar to ours, their success rate with Offers in Compromise, and their fee structure. Our attorney charged a flat fee for the initial analysis of our situation, then another flat fee for preparing and submitting the Offer in Compromise. This was much more transparent than the percentage-based fees some places charge.

Thanks for mentioning this! Do you know what the income limits are to qualify for these clinics? And do they help with state taxes too or just federal?