Does this actually work with mortgage lenders though? Don't they usually look at 2 years of tax returns? I wonder if they'd notice the pattern and question it.

It can work depending on the lender and your specific situation. You're right that they typically look at 2 years, but many put more emphasis on the most recent year, especially if your income is trending upward. The key is to be strategic and consistent. Don't make it look like you're manipulating numbers - instead, make legitimate business decisions about when to make major purchases or when to defer income. For example, delaying some business purchases until after you close on the home is completely legitimate. Lenders understand that self-employed income fluctuates naturally.

This is a really good point. When I did this last year, I was surprised how much extra I ended up paying because I forgot about the self-employment tax part. Definitely do the math carefully!

Thanks for the detailed list! I didn't realize payment processing fees were deductible - that's actually a significant amount for my business. Is there a good rule of thumb for determining what percentage of my internet and phone to deduct? I use both for business but obviously personal use too.

For internet and phone, you need to determine a reasonable business-use percentage. If you use your cell phone 70% for business and 30% personal, you can deduct 70% of those costs. Just make sure you can justify the percentage if asked. For payment processing fees, absolutely deduct them all! Those PayPal/Stripe/credit card fees add up quickly and are 100% legitimate business expenses. Don't forget the monthly fees plus the per-transaction percentages. Many new business owners miss these, but they can easily add up to thousands of dollars in deductions over a year.

I second this. Using a tax professional my first 2 years taught me how to properly do my taxes. Now I use TurboTax but actually understand what I'm doing. The education alone was worth the fee, and they likely will save you more than their cost.

Doesn't that strategy risk owing penalties if you end up owing too much at tax time? I thought there were rules about having to pay enough throughout the year.

You're right to be concerned about that! You do need to be careful not to underwithhold too much. The general rule is you need to pay at least 90% of your current year tax liability OR 100% of last year's tax liability (110% if your income is over $150,000) through withholding and estimated payments to avoid underpayment penalties. What we did was calculate it pretty closely so we'd either get a very small refund or owe just a little bit. This way we avoided the penalties while also preventing large refunds that would be automatically applied to old debts. It takes a bit more planning, but the IRS has a good withholding calculator on their website that helps make sure you're still meeting the requirements.

Yes, the standard 10-year statute of limitations for IRS collections does apply to shared responsibility payments. The clock starts ticking from the date the tax was assessed, not the tax year itself. So if the assessment happened in 2017 for a 2016 tax issue, the IRS would have until 2027 to collect. Keep in mind that certain actions can extend this timeline, like if the taxpayer requests a payment plan or submits an offer in compromise. But barring any extensions, the IRS generally has 10 years to collect on this type of debt.

Oh no, I had no idea about quarterly payments! How do you even calculate how much to pay each quarter when freelance income is so unpredictable? Do you just guess?

You don't have to guess exactly. The IRS allows you to use the "annualized income installment method" for irregular income. Basically, you calculate your tax based on what you've earned so far in each quarter. Most tax software can help you calculate this, or you can use the IRS Form 1040-ES worksheet. Another approach is to set aside a percentage of each payment you receive (maybe 25-30%) in a separate savings account. Then use that to make your quarterly payments as best you can estimate.

The EITC is great but it's way less helpful for people without kids. I think at $28k for a single person with no dependents the credit is tiny or might not qualify at all. The system is really stacked against childless low-income workers.

How exactly does the employer know you did a disqualifying disposition? I'm confused about the reporting requirements here. Do you have to tell them when you sell the shares?

Your brokerage is required to report transactions back to your employer for ISO shares. When you exercise ISOs, the shares are typically "marked" or tracked in a special way. When you sell them, your employer is notified of the sale and can determine if it was a qualifying or disqualifying disposition based on the holding periods. This is why it's generally not possible to "hide" a disqualifying disposition from your employer. They'll find out and will include the income on your W-2. This coordination happens behind the scenes between your brokerage and your employer's equity administration team.

This is super helpful! I definitely need to start tracking this better. Do you have a template or example spreadsheet you could share?

I don't have a shareable template, but here's what my tracking columns look like: Grant date | Vest date | # of options | Exercise date | Exercise price | FMV at exercise | Total exercise cost | Exercise spread | AMT paid | Sale date | Sale price | Holding period | Tax treatment (qualified/disqualified) I also include a notes column for things like "partial sale of 50 shares" or "used AMT credit this year for shares exercised in 2023" etc. The most important thing is just to start tracking now before it gets complicated. Even a simple spreadsheet is better than trying to reconstruct everything later from brokerage statements.