One thing nobody's mentioned yet - if this is your first year being self-employed, the IRS has a "safe harbor" provision that might help you. If you pay 100% of your previous year's tax liability (through withholding or estimated payments), you generally won't face an underpayment penalty even if you end up owing more. So if your W2 job last year had enough taxes withheld to cover your entire tax bill last year, you might actually be in better shape than you think regarding penalties.

Just a heads up since you're new to self-employment - don't forget you can deduct legitimate business expenses to lower your taxable income! Home office (if you have dedicated space), supplies, mileage for business travel, professional licenses, continuing education, health insurance premiums, etc. This can significantly reduce what you owe. Write down EVERYTHING and keep all receipts. I use a simple spreadsheet + a folder in Google Drive with photos of all receipts. My tax person loves me for being organized lol.

Have you thought about just selling everything in bulk on Facebook Marketplace or Craigslist? That's what I did when I closed my online bookstore. I sold about $7,000 worth of inventory (original cost) for about $1,800. The nice thing was that since I had already expensed it all under cash accounting, that $1,800 was actually pure profit from a tax perspective - though obviously a loss from a business perspective. At least I got something back!

Another option nobody's mentioned yet - what about donating to a local school or community program? I donated my leftover craft supplies to an after-school program when I shut down my Etsy shop. While I didn't get a tax write-off (already expensed under cash accounting), it felt good knowing the items went to good use instead of the landfill. Some organizations will even pick up from you if the quantity is substantial.

Something nobody mentioned yet - look into "demonstration projects" for contractors. My brother-in-law is a bathroom remodeler and he has a specific business policy where he does one showcase project per year at a deep discount (sometimes even at cost) specifically for marketing purposes. He documents everything, has clients sign releases acknowledging the marketing purpose, and his accountant handles it differently than regular personal expenses. Might be worth asking a tax professional about this specific approach since it's common in the trades.

Don't forget about Section 179 deduction for tools and equipment! When I started my woodworking business I was able to deduct almost $18k in equipment purchases my first year instead of depreciating them slowly. Table saw, planer, drum sander, dust collection system - all business assets. Also track EVERY mile you drive for business purposes with an app like MileIQ. Picking up materials, driving to client sites, etc. The mileage deduction adds up crazy fast.

Just want to add something important that nobody's mentioned yet. If you paid FICA taxes (Social Security and Medicare) on that bonus, handling the repayment gets even trickier. For income taxes, you can use the claim of right provision as others have mentioned. But for FICA taxes, you can only get those back if the repayment happens in the same calendar year as the payment. If it crosses calendar years, you generally can't recover the FICA taxes that were withheld (around 7.65% of the bonus). This is actually why many employers will accept the net amount rather than the gross - they understand this tax complexity. So definitely push back if they're asking for the full amount, especially if you're repaying in a different tax year than when you received it.

One thing to consider - check your original offer letter or bonus agreement carefully. Sometimes there's specific language about repayment requirements. Some agreements specify net amount, others specify gross. If your agreement doesn't specifically say "gross amount" or "pre-tax amount" when talking about repayment, you have a stronger case to argue for repaying only what you received. Regardless of what the agreement says, keep detailed records of: 1. Original bonus payment (paystub showing gross and net) 2. Repayment amount and date 3. All communication with the employer about this issue These records will be crucial for your tax filing. Even if you end up repaying the gross amount, having solid documentation will make it much easier to claim back the tax portion when you file.

What tax software are you using? I ran into this exact situation last year with TurboTax and was able to file both returns at the same time but schedule my federal payment for later. Got my state refund about 12 days later and used it to pay federal.

Just a heads up - while this strategy works, remember that if your state refund gets delayed for any reason (audits, verification, etc.), you'll still be on the hook for paying federal taxes by the deadline. Might be good to have a backup plan just in case. And definitely e-file both returns for fastest processing!