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Here's a simple breakdown of what qualifies as self-employment income vs hobby: - Self-employment: You do it regularly, keep business records, depend on the income, work at it consistently, have expertise in it, make changes to increase profitability - Hobby: You do it irregularly, don't really need the money from it, do it mainly for fun, don't spend much time on it If you have a hobby, you still report the income but don't pay self-employment tax and can't deduct losses. With $8700, chances are its self-employment. Most of my "hobby" friends who started making real money had to switch to treating it as a business after they crossed about $2000 in annual income.
Does having a separate bank account matter for proving it's a business? I just use my personal checking for everything.
Having a separate bank account isn't required but it's extremely helpful for proving business intent. It shows you're treating the activity professionally and makes tracking income and expenses much easier. It's one of the factors the IRS considers when determining if something is a business vs. hobby. Other factors include business cards, a business name, proper recordkeeping, and marketing efforts. The more business-like behaviors you demonstrate, the stronger your case for self-employment treatment.
Don't forget that if your net self-employment income is over $400, you need to make estimated quarterly tax payments throughout the year! I learned this the hard way and got hit with penalties my first year.
Just a tip: make sure you actually go directly to the Cash App Taxes website or app. Don't click through from Credit Karma because they're now sending people to TurboTax. I almost got tricked into paying $89 for TurboTax when I could file the exact same return for free! Another thing to note is that if you need to file multiple state returns, Cash App Taxes won't work for you since they only support one state filing for free. In that case, you might want to check out FreeTaxUSA which charges $0 for federal and around $15 per state.
Do you know if Cash App Taxes handles cryptocurrency transactions? I did some trading last year and TurboTax wants to charge me for their "premier" tier just for that.
Yes, Cash App Taxes does handle cryptocurrency transactions. You can report crypto sales and exchanges without being forced into a paid tier. The interface is pretty straightforward - you enter each transaction with the purchase date, cost basis, sale date, and sale amount. If you have a lot of transactions though, it can get tedious since you have to enter them manually. Some of the paid services offer direct import from exchanges, which Cash App Taxes doesn't have. But if you're willing to do a bit more manual work, you can absolutely report crypto for free.
Is Cash App Taxes actually reliable though? I'm nervous about using something connected to a payment app for my taxes. Has anyone had issues with accuracy or audits?
I've used it for the past three years (back when it was Credit Karma Tax and now as Cash App Taxes) and never had any issues. The software asks all the same questions as TurboTax and other paid options. I had a somewhat complicated return with freelance income, investments, and a home office deduction, and it handled everything correctly. The interface is actually cleaner than TurboTax in my opinion - less upselling and scary warnings designed to make you upgrade. Just straightforward questions about your tax situation.
One thing nobody's mentioned yet - keep track of EVERYTHING mileage related to maximize your deductions. That means miles driven: - To your first pickup location - Between deliveries - Returning home after your last delivery - To purchase supplies related to your work (hot bags, phone mounts, etc) - To get car maintenance if that car is primarily used for deliveries I made the mistake my first year of only counting miles while actively on deliveries and missed out on hundreds in deductions.
Wait really? I thought you could only count the miles when you actually have food in the car doing a delivery! This would make a huge difference. Is there a specific form or place in the tax return where you claim these miles?
You can deduct all miles driven for business purposes, not just when you have food in the car! This is a common misconception. You'll report these miles on Schedule C (Profit or Loss from Business) which is part of your personal tax return. The current deduction rate is around 67 cents per mile (for 2025), so it adds up quickly. Just make sure you have good records - either a mileage log or a tracking app that shows dates, destinations, and business purpose. The IRS can ask for proof if you get audited, but they generally don't question mileage deductions that seem reasonable for your level of business activity.
Don't forget you can also potentially deduct a portion of your cell phone bill since you need it for the app, any car accessories specifically for delivery (phone mount, hot bags, etc), and even part of your car insurance if the vehicle is used significantly for business. I save all my receipts in a folder on my phone labeled by month.
Here's another point of confusion that might explain what happened with your TurboTax expert: Sometimes people who are eligible can make BOTH 401k and traditional IRA contributions in the same year. Maybe the tax expert was trying to ask if you had made any traditional IRA contributions IN ADDITION TO your 401k contributions? For 2024, you can contribute to both types of accounts, but whether your traditional IRA contribution is deductible depends on your income level and whether you're covered by a workplace plan like a 401k.
That's an interesting thought! Maybe there was just a communication breakdown. I was so focused on my 401k contributions that I might have misunderstood if she was asking about separate IRA contributions. Is it worth going back to TurboTax and clarifying this with a different expert?
Absolutely worth clarifying with a different TurboTax expert. Ask specifically about the deductibility of traditional IRA contributions when you already participate in a 401k plan. The rules get complicated based on your income level and filing status. For context, if you're single and covered by a workplace retirement plan, your ability to deduct traditional IRA contributions starts phasing out at an income of $77,000 and disappears completely at $87,000 (for 2024). The ranges are different if you're married or if only one spouse has a workplace plan. But regardless, 401k and IRA contributions are always reported separately - they're never the same thing.
This is definitely a common confusion! I work at a financial services firm and get this question all the time. To be super clear: 1) 401k = employer-sponsored plan with $23,000 contribution limit for 2024 (under age 50) 2) Traditional IRA = individual retirement account with $7,000 limit for 2024 (under age 50) These are SEPARATE accounts with different limits. You report them differently on your taxes and they appear on different forms.
What about a SIMPLE IRA? Those are employer-sponsored but have "IRA" in the name. Could that be what the TurboTax person was confusing?
Hannah White
Another option to consider: If you're expecting a refund and the corrected W2 shows MORE income than you reported, you could just wait until you receive your refund based on your filed return, and then file an amended return with the corrected W2. Since you'd owe a bit more tax with the higher income amount, you'd need to pay the difference when you submit the amended return. But this way you'll get most of your refund sooner rather than waiting for everything to be sorted out. I did this last year when I had a similar issue with a late-corrected W2, and it worked fine - got most of my refund promptly, then squared up the difference later.
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Michael Green
ā¢Wouldn't filing an amended return be a lot of extra work just for a $400 difference though? Seems like it might trigger more scrutiny too.
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Hannah White
ā¢You're right that it's additional work, and for such a small difference it might not be worth the effort. The amended return process isn't particularly difficult, but it does take time to complete Form 1040-X and provide all the explanations. As for triggering scrutiny, amending a return doesn't automatically flag you for an audit, especially when you're reporting additional income and paying more tax. The IRS actually appreciates voluntary compliance. But given the small amount involved here, letting the IRS make the adjustment automatically is probably the path of least resistance.
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Mateo Silva
Has anyone had issues with their employer repeatedly sending incorrect W2s? This is the second year my company has messed up my tax documents. Last year they had to issue THREE corrected W2s before they got it right. I'm wondering if there's any penalty for employers who consistently do this.
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Elijah Brown
ā¢Yes, employers can face penalties for filing incorrect W-2s with the IRS or providing incorrect copies to employees. The penalty can range from $50 to $290 per W-2, depending on how late the correction is made.
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Mateo Silva
ā¢Thanks for that info! I had no idea there were actual penalties. Maybe I should mention this to our payroll department... might motivate them to be more careful next year!
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