22 Do credit card fees really add up to that much though? And even if they do, isn't it illegal to deduct those from reported contractor payments? I thought the 1099 was supposed to show the gross amount paid.

5 Credit card fees typically run 2-3%, so no, they wouldn't account for a $4,800 discrepancy unless your brother earned well over $150,000 from this one shop. You're absolutely right that the 1099-NEC should show the gross amount paid to the contractor before any fees. What sometimes happens (incorrectly) is that salon owners might deduct booth rental fees or product charges before calculating the 1099 amount. This is incorrect - those should be handled separately, and the 1099 should reflect the total payments made to the contractor.

1 Thank you all for the advice! I'm showing my brother this thread tonight. He does keep pretty good records with a booking app that tracks all his appointments and payments, plus he has his bank statements showing deposits. I think we'll start with a formal written request for a corrected 1099-NEC, and if that doesn't work, he'll report the full income anyway and keep all his documentation ready. And maybe check out some of these services you've all recommended to make sure he's handling everything correctly!

How do you document that something was "required" though? My prof just tells us verbally we need the McGraw Hill access code but it isn't mentioned anywhere in writing. Does that count?

You should email your professor asking them to confirm in writing that the McGraw Hill access is required for the course. A simple email response will work as documentation. Alternatively, check if your course has a syllabus or course website that mentions the requirement - you can take a screenshot or save that as a PDF. If there's absolutely nothing in writing, you might ask the professor to update the syllabus or send a class-wide email confirming these materials are required. The key is having some form of documentation beyond just a verbal instruction. Remember, the IRS wants to see proof that these weren't optional purchases but necessary for your coursework.

Did you have to mail in any documentation or just enter the extra amount somewhere on your tax form? I've never claimed education credits before.

u just enter the total qualified expenses on form 8863 for education credits. no need to mail receipts or anything, but keep all that stuff in case ur ever asked for it. i used turbotax and it walked me thru it - there's a specific section for education credits where u put in all the expenses. super easy. just add up all ur tuition plus the required subscriptions and enter the total.

This is super helpful, thank you! We've been tracking expenses but weren't sure about some of these categories. Are there specific records we need to keep for the home office deduction?

For the home office deduction, you need to measure the square footage of your dedicated workspace versus your entire home to calculate the percentage used for business. Keep receipts for all home-related expenses (utilities, internet, rent/mortgage, insurance, repairs) as you'll apply that same percentage to these costs. Take photos of your home office setup and maintain a log showing regular use. The space must be used exclusively for business - a corner of your bedroom doesn't qualify if you're also sleeping there. The IRS scrutinizes this deduction, so documentation is key. A separate entrance is ideal but not required. Your CPA can help determine if the regular deduction or simplified method (currently $5 per square foot up to 300 sq ft) is better for your situation.

That's super reassuring, thanks! We definitely want to follow the rules but also not handicap our growth in these early stages. I'll talk to our CPA about the safe harbor provision you mentioned.

Thanks for that warning. My goal isn't to change careers - I'm planning to expand my real estate portfolio and possibly move into commercial properties in the future. Would that still count as my "current" business or would the IRS see commercial real estate as a new trade?

Expanding from residential to commercial real estate would generally still be considered the same trade or business since you're still in property management and real estate investment. The IRS would likely view this as a natural progression within your current business rather than entering a new field entirely. Going from real estate into something completely different like investment banking (as in my case) is what triggers the "new trade or business" limitation. Just make sure you document your intention to expand within real estate rather than presenting it as preparation for a career change.

In TurboTax, you'd enter it under the Schedule E section for your rental property. When you get to the expenses part for each property, there's an "Other Expenses" category where you can add custom expense items. That's where I put my real estate continuing education costs last year.

This is good advice. California treats punitive damages the same as federal, but I know New York has some differences in how they tax certain court awards.

Exactly. It varies widely by state. For example, in Pennsylvania they follow federal guidelines pretty closely, but in Michigan, they have specific exemptions for certain types of damages. Worth checking your state's department of revenue website or tax guidelines.

The judgment just says I'm awarded "double damages pursuant to [state law]" and cites the relevant statute about wrongfully withheld security deposits. It doesn't specifically use the terms "punitive" or "statutory" from what I can see.

Based on that wording, it sounds like statutory damages rather than punitive damages, since it's specifically following a state statute that prescribes the double damages remedy. However, for tax purposes, most statutory damages are still considered taxable income. I'd recommend noting on your tax return that these were "statutory damages under [state] security deposit law" when you report the additional amount beyond your original deposit. This provides clarity in case of any questions.