Do these free tax prep services handle back taxes from previous years? I thought they only did current year returns during tax season.

You're right that many VITA and TCE sites focus primarily on current year returns during the regular tax season. However, some locations do offer assistance with prior year returns, though this varies by site. You'd need to call specific locations to ask about their services for back tax returns. If free services aren't available for prior years in your area, consider a low-cost tax professional instead of the major chains - often local enrolled agents or CPAs will handle back taxes for much less than the big tax preparation companies, especially for straightforward returns.

I got one of those last year. It's scary but doesn't mean they're immediately coming for your stuff. You usually have 30 days to respond, and if you call them and show you're trying to fix the situation by filing and setting up payments, they'll often put a hold on collection activities.

This is super helpful! I've been keeping receipts but wasn't sure what counts as a legit business expense. For my home office, is there a specific formula to calculate that deduction? And do I need any special documentation for these deductions?

For your home office, you can use the simplified method of $5 per square foot (up to 300 sq ft) or the regular method where you calculate the percentage of your home used for business and apply that to your housing expenses. Most freelancers find the simplified method easier unless you have a large dedicated space. As for documentation, keep all receipts and maintain a log that notes the business purpose for each expense. For things like mileage, keep a log of dates, destinations, and business purposes. Digital receipts are fine - just make sure they show what was purchased, date, and amount. The IRS doesn't require you to submit these with your return, but you'd need them if you're ever audited.

Same thing happened to me my first year. If you can show reasonable cause (like you didn't know about the requirement), sometimes you can get the penalty waived. Worth calling the IRS to ask about penalty abatement for first-time offenders.

Thanks for the detailed breakdown on the depreciation schedule! I definitely had the wrong percentages in mind. Do these figures account for bonus depreciation too or is that something separate?

The percentages I listed are just for regular MACRS depreciation without any bonus depreciation factored in. Bonus depreciation is separate and would actually allow you to deduct a significant portion upfront, similar to Section 179 but with different rules. For 2024, bonus depreciation is at 60% (it's been phasing down from 100%). So you could potentially deduct 60% of the cost in year 1 through bonus depreciation, and then apply the regular MACRS percentages to the remaining 40%. This is another option if Section 179 doesn't work for some reason.

There's no minimum cost to use Section 179, but your business needs to have enough income to offset the deduction. For something small like $800, you can definitely use Section 179 to write it off completely in year 1. Honestly, for that amount, even if you depreciated it over 5 years, the difference isn't huge, but might as well take the full deduction now if you can.

That's a really good suggestion. I do still have the same bank account I used back then, so I'll call them tomorrow and see if they can provide statements from that period. I think I used PayPal for most of my eBay transactions too so I'll definitely check there. Did you just manually go through each statement and categorize everything? How did you handle things like inventory where you might have purchased it in a different year than you sold it?

I did go through each statement manually and created a spreadsheet to categorize everything. It was time-consuming but gave me solid documentation. For inventory timing issues, I made my best estimate of which inventory was sold in which year based on my sales patterns. Since you're doing this retroactively, what worked for me was calculating my overall profit margin across all sales and then applying that same margin to each year's known revenue. For example, if I determined I generally made 40% profit after all costs, I would apply that to each year's total sales figure. The IRS is generally reasonable about reconstructed records as long as your approach is consistent and logical.

Not OP but sometimes people switch tax preparers or maybe they used software that year instead of a professional. I've been in a similar situation where I used TurboTax one year and then couldn't access the account years later because I had changed email addresses and couldn't verify my identity to recover the account.

Do capital losses offset the Net Investment Income Tax as well? I had some gains but also some pretty big losses this year.

Yes, capital losses do offset gains before calculating the Net Investment Income Tax. The NIIT applies to your "net" investment income, so losses are factored in before determining if this additional tax applies. If your losses exceed your gains, you can use up to $3,000 of the excess to offset your ordinary income, and any remaining losses can be carried forward to future tax years. This can be a helpful strategy if you're near the NIIT threshold.

That's a really good point. Does anyone know which states don't tax capital gains? I'm thinking about moving soon and this could be a factor.

That's right! Tax-free states include Florida, Texas, Washington, Nevada, Alaska, Wyoming, South Dakota, New Hampshire, and Tennessee. There are also states with special treatment for capital gains like Arizona and Montana that offer partial exclusions in some cases. But watch out for other taxes these states might have instead - some have higher property taxes or sales taxes to make up for the lack of income tax. Total tax burden is what really matters for your bottom line.