Are CPAs really worth the cost for someone who's just starting out? My business only made about $27,000 last year total, and I'm trying to save where I can.

For someone making $27,000, it could still be worth it for your first year. A good CPA will not only file correctly but teach you things about business deductions you might miss. For example, mine showed me how to deduct a portion of my rent as a home office, track mileage, and properly deduct phone/internet expenses. The peace of mind alone can be worth it, plus they might find enough deductions to pay for their fee. That said, if money is really tight, something like FreeTaxUSA is quite good for self-employment income and costs much less than TurboTax while offering similar guidance.

This is exactly right. I switched from TurboTax to FreeTaxUSA last year and saved almost $100. The interface isn't as pretty but it does the exact same thing and asks all the same questions about business income.

Wait for real? So if I have a doctor's visit that costs $200 today and I pay out of pocket, I could technically withdraw that $200 from my HSA in like 5 years and it's still tax-free? That seems too good to be true.

Yes, that's absolutely correct! There's no time limit on when you need to reimburse yourself for qualified medical expenses. The only requirement is that the HSA must have been established before you incurred the medical expense. This is one of the best HSA strategies - pay medical expenses out of pocket when you can afford to, keep good records of those expenses, and let your HSA investments grow tax-free. Then years later, you can take tax-free distributions to reimburse yourself for those old expenses whenever you need the money. It's completely legitimate and one of the reasons HSAs are considered such powerful retirement accounts.

Yes! You can make HSA contributions for the previous tax year until the tax filing deadline (usually April 15th). Just make sure you tell your HSA provider that the contribution is for tax year 2024, not 2025. I just did this exact thing last week!

Thanks for mentioning this! I hadn't even thought about self-employment taxes. Is there a minimum amount I need to earn before I have to pay those? My Etsy shop only made about $1,200 last year.

You're required to file Schedule SE and pay self-employment taxes if your net earnings from self-employment are $400 or more during the year. Since your Etsy shop made $1,200, you'll need to determine the profit after deducting expenses. If your profit exceeds $400, you'll need to pay self-employment tax on that amount. Even though it's a small amount, it's still important to report it correctly. The upside is that reporting this income helps you build Social Security credits, which can be important for your future benefits. Also, properly documenting even small business activities establishes a history if your business grows in future years.

I used FreeTaxUSA last year for my W2 and two side businesses. It handled everything perfectly and was MUCH cheaper than TurboTax. The interface isn't as fancy but it asked all the right questions and let me do multiple Schedule Cs without charging extra. Federal filing was free and I only paid like $15 for state.

Does the business code you choose affect your audit risk? I heard some industries get audited more than others.

Yes, certain business codes do have higher audit rates, particularly those with lots of cash transactions or typically high deduction claims. Examples include restaurants, laundromats, taxi services, and some personal services. However, you should never choose a code that doesn't accurately reflect your business just to avoid audit risk. Using an incorrect code is itself a red flag that could trigger scrutiny. The IRS looks for businesses with unusually high deductions compared to income within their industry category, so being properly classified ensures you're compared against appropriate benchmarks.

Use the most current codes. The 2022 NAICS update had some significant changes and the IRS forms reflect this. Using outdated codes can cause confusion in processing. I had to switch mine from 541430 to 541922 with the update.

Thanks for this perspective! How do you handle documentation for things like the business-use percentage for your laptop or phone? Do you keep a log of some kind or just estimate based on your typical usage?

I don't keep a daily log because that would be too cumbersome, but I do periodic sampling. Every quarter, I'll track my usage carefully for about a week, noting business vs. personal time. I document this in a simple spreadsheet showing dates, hours used, and business purpose. For my phone, I use my phone bill to identify business calls and texts versus personal ones during those sample periods. For my laptop, I use a time-tracking app that shows which programs and websites I'm using throughout the day, which helps distinguish between business and personal activities. This periodic sampling gives me a reasonable basis for my percentage rather than just pulling a number out of thin air.

I went through a correspondence audit two years ago. They focused heavily on my home office deduction and business travel. They wanted floor plans showing the dedicated office space, photos of the setup, and utility bills to verify the expenses. For travel, they wanted receipts, calendar invites proving business purpose, and mileage logs. The process took about 4 months from start to finish. In my case, I had good documentation for most things, but I did have to pay back some deductions for a conference where I extended the trip for personal reasons but claimed the full airfare. The lesson I learned was that partial-use situations are where they tend to dig in the most.