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.

Is there an app you recommend for tracking all this? Seems like a lot to keep up with when you're doing multiple rides a day.

I personally use MileIQ now, but there are several good ones - Stride, Everlance, and Hurdlr are all popular with drivers. Most of them use GPS to automatically track your trips and let you swipe to categorize them as business or personal. Then you can export a detailed report at tax time that meets IRS requirements. The key is consistency - start using it from day one and categorize your trips daily or weekly at the latest. It only takes a few minutes once you get in the habit.

Yep, self-employment tax is 15.3% on your net earnings (after expenses like mileage but before the standard deduction). So in the original example, if you had $38k in income and $22,925 in mileage deductions, you'd have $15,075 in net earnings. The SE tax would be about $2,306 (it's actually calculated as 15.3% of 92.35% of your net earnings). So while your income tax might be super low, you'd still owe that $2,306 for SE tax. One small benefit is you get to deduct half of your SE tax on your 1040, which lowers your income tax a tiny bit more.

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.

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.

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.