This happened to my sister too! The dealership claimed it was an "accounting error" but had been collecting both payments for 4 months before she caught it. She had to threaten legal action to get refunded.

Does this apply if you're not fully self-employed? I use my car about 30% for a side gig but have a regular W-2 job too.

Yes, it absolutely applies even if you're not fully self-employed! The business use of your vehicle for your side gig would be reported on Schedule C along with your other business expenses and income. You'd only deduct the percentage used for business - so in your case, you'd track all your mileage and then deduct 30% of it at the standard rate. Make sure you keep detailed records showing the date, starting point, destination, purpose, and mileage for each business trip. The IRS is particularly strict about vehicle deductions, so good documentation is essential. There are several good apps like MileIQ or Everlance that can help you track this automatically.

This is really helpful info, thank you! How many hours would I need to spend on my rental business for it to be considered "material participation"? And does managing my existing rooms count toward that total if I'm also using those hours to justify business travel to look at other properties?

For material participation in a short-term rental business, you generally need to meet one of several tests, but the most common is spending more than 500 hours per year on the activity. For smaller rental operations, there's also a 100-hour test if you have the most participation of any individual in the activity. Yes, all the time you spend managing your existing rental rooms absolutely counts toward your material participation hours. This includes time communicating with guests, cleaning, maintenance, bookkeeping, researching prices, updating listings, processing payments, etc. All of this builds your case for being actively engaged in the rental business, which supports both the material participation standard and justifies business travel to expand your existing operation.

You definitely need at least TurboTax Premier for rental properties. The Deluxe version won't have the Schedule E forms you need. I tried doing it with Deluxe last year and had to upgrade halfway through. Save yourself the headache.

This is really helpful! A lot of that money did go to developers creating new algorithms for the app. Is there a specific way I need to document these expenses to qualify for the R&D credit? And can I claim this credit as a single-member LLC?

You can absolutely claim the R&D credit as a single-member LLC, since the credit will flow through to your personal return. Documentation is crucial though - you need to track not just the expenses but also what specifically was being developed. For developer costs to qualify, you need to document what technical uncertainties they were addressing, the process of experimentation, and how it relies on hard sciences (computer science counts). Keep timesheets showing hours spent on qualified activities, project plans showing the research component, and any technical documentation describing the innovations.

Did you face any issues with the IRS questioning your business vs hobby status since you weren't profitable? I've heard they scrutinize tech startups that show losses for multiple years.

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.

With FreeTaxUSA, you can absolutely do this! Complete both your federal and state returns in the software, but when you get to the filing stage, only select to e-file your state return. There should be an option to "file state only" somewhere in the filing process. For your federal, make sure you fill out and submit Form 4868 for the extension and pay your estimated amount owed. You can either generate this form through FreeTaxUSA or use the IRS direct pay website to make the payment, which automatically gives you the extension.