And make SURE you send it certified mail with return receipt if you're mailing your response! I learned this the hard way when the IRS claimed they never received my response to a similar notice.

It definitely came through regular mail with all the official letterhead and notice numbers. I'm pretty sure it's legit - just confusing! Thanks for looking out though. I've heard about those scams where they call and threaten to arrest you if you don't pay with gift cards right away.

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.

1 Oh that's an important point I hadn't considered! So are you saying that the $3500 work-study might already be enough earned income to maximize our Additional Child Tax Credit without needing to make the scholarship taxable?

14 It depends on your total tax situation and other income. The refundable portion of the Additional Child Tax Credit is calculated as 15% of earned income above $2,500, up to the maximum credit amount. So with $3,500 work-study, that's $1,000 above the $2,500 threshold, which would give you $150 in refundable credit (15% of $1,000). If you need more than $150 of the refundable portion, then you might consider other options, but making the scholarship taxable won't help since it's not earned income. And as others pointed out, it could hurt your Premium Tax Credit. Your best bet is to run the calculations both ways with actual tax software to see which approach gives your family the best overall result.

22 Thanks for the correction on the threshold! Do you know if there's a way to calculate exactly how much including his income would reduce the Premium Tax Credit? I'm trying to figure out if it's worth it.

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?

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.