That's a really good point! So with my W-2 job, I'm actually saving that 7.65% that I'd otherwise have to pay if it were 1099 income? Does this mean I should try to increase my W-2 hours rather than taking on more photography clients if I want to maximize my after-tax income?

Yes, you're saving that 7.65% on every dollar of W-2 income compared to 1099 income. Whether you should increase W-2 hours vs. taking more photography clients depends on several factors. If both pay roughly the same hourly rate before taxes, then yes, you'd keep more of your W-2 earnings after tax. However, if your photography business pays significantly more per hour, or if you can deduct legitimate business expenses, self-employment might still be more profitable despite the higher tax rate. Also consider that your photography business might have growth potential that your W-2 job doesn't.

This is what I do! Instead of making quarterly payments for my side gig, I just have my day job withhold extra. You can put a specific dollar amount on line 4(c) of the W-4. Super convenient.

Can you explain how the QBI deduction works in simple terms? I tried reading about it online but got lost in all the technical jargon.

QBI deduction is basically a 20% discount on your taxable business income. So if you made $50,000 profit from your contracting work after all expenses, you get to deduct another $10,000 (20% of that profit) before calculating your income tax. You don't even need to itemize to get this deduction! There are some limitations if your income gets above $170,050 (for single filers in 2024), but for most beginning contractors, you'll qualify for the full 20%. The deduction appears on your 1040 after you calculate your business income on Schedule C - you don't need any special forms if you're a simple sole proprietor. It's essentially free money the government is giving to small business owners and self-employed folks.

Agree 100%! I got absolutely destroyed my first year as 1099. Now I use a separate business checking account and put my "tax money" in a high-yield savings account so at least I earn some interest on it while waiting to pay the IRS.

Is there a simple way to calculate how much I should set aside for taxes on my gambling winnings throughout the year? I'm worried about getting hit with a big tax bill next April.

For most people, setting aside about 30% of your net gambling profits should cover the federal taxes, but you should also account for state taxes if your state has income tax. Remember that gambling winnings are added to your other income, so they're effectively taxed at your highest marginal tax rate. If you're already in a higher tax bracket from your regular job, your gambling winnings could be taxed at 32% or higher federally. It's always better to set aside too much than too little - you can always keep the extra if you overestimated.

Could you expand on what counts as a "session" for online poker? If I play multiple sit-n-gos in one day on the same site, is that all one session? Or is each tournament separate?

1 These are all really good ideas! I hadn't thought about the mortgage skip-payment option. I'll definitely look into that. I'm also considering selling some stock I've been holding, even though the market is down a bit right now. I guess paying the IRS has to take priority over ideal investment timing. Did you find that the IRS was generally reasonable to work with? I've been anxious about dealing with them directly.

13 In my experience, the IRS representatives were surprisingly reasonable and helpful once I actually got through to them. They've dealt with this situation thousands of times and have standard procedures in place. The key is being proactive and honest. I explained my situation clearly, had all my numbers ready, and proposed a solution rather than just asking what to do. They responded well to that approach. Most importantly, never ignore IRS notices or deadlines - that's when they become much less flexible.

1 That's a good point. I've done a preliminary calculation for state and we actually should be getting a small refund there (about $1,200). I guess that will help offset the federal bill a tiny bit. The majority of our issue was federal withholding that didn't account for some investment income and a side business I started last year.

7 Also, don't forget to check if you qualify for state-level payment plans too. Some states offer better terms than the IRS, with lower interest rates or longer payment periods. When I had a similar issue, I was able to set up a 24-month payment plan with my state that had a much lower interest rate than the federal one.

Her husband passed away so she can't file separately going forward, she'll be filing as single or qualifying widow. But your advice about responding to IRS notices is spot on! The worst thing is to ignore them.