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Don't forget you might need to collect sales tax depending on where you and your customers are located! Each state has different rules about digital products. I learned this the hard way with my digital design business and had to backpay a bunch of sales tax. π
Omg I hadn't even thought about sales tax. Is that separate from income tax? Do you have to register somewhere special for that? This is getting complicated fast...
Yes, sales tax is completely separate from income tax. You report income tax to the federal government (and state if applicable), but sales tax goes to the state and sometimes local tax authorities. You typically need to register for a sales tax permit in your state, and potentially in other states where you have what's called "nexus" (basically a significant business presence or sales volume). The rules for digital products vary dramatically by state - some don't tax digital goods at all, while others tax everything. There are services that can help manage this if you start selling in multiple states, but if you're just starting out, focus on understanding your home state's requirements first.
Have you considered setting up an LLC for your business? It wouldn't change how you're taxed (still Schedule C unless you elect otherwise) but it can provide some liability protection and looks more professional to clients. Cost me about $100 in my state.
An LLC is way overkill for someone just selling foot pics online. The liability protection isn't really necessary for digital content sales, and the annual fees and paperwork in some states aren't worth it for a small side hustle. Just my 2 cents.
Bro just max out your 401k if you can - that'll definitely lower your taxable income. My income jumped last year and I got destroyed on taxes until I realized I could pump more into my 401k. I upped my contribution to like 15% and it dropped my tax bill significantly. Way simpler than the backdoor Roth stuff everyone's talking about.
But wouldn't that only help for next year? OP already owes for this year's taxes, so isn't it too late to increase 401k contributions for the tax year that already ended?
You're totally right and I should have been clearer. For the current tax bill that's already calculated, increasing 401k won't help since those contributions had to be made during the calendar year. For the IRA though, you actually have until the tax filing deadline (usually April 15) to make contributions that count for the previous year. So while the 401k ship has sailed for last year, you can still make that IRA contribution up to the filing deadline and potentially benefit from the backdoor Roth strategy others mentioned. My bad for not being specific about the timing difference.
Something nobody's mentioned yet - if you're self-employed even part-time, look into an SEP IRA instead. Higher contribution limits ($66,000 or 25% of income, whichever is less). I switched from traditional to SEP last year and was able to shelter way more income.
Does that work if you have a regular job too? I have W-2 employment but also make about $15k from a side hustle. Would that qualify?
Another tip - take pictures of EVERYTHING before you mail it. Last year I had to prove what I sent and thankfully had photos of all my documents. Also write down the certified mail tracking numbers somewhere safe in case you lose the receipt.
That's really smart! Should I also make photocopies or are pictures enough? And should I mail it from the post office or can I just drop it in a mailbox?
Pictures are generally enough if they're clear and show all the information, but if you want to be extra cautious, photocopies are good too. Personally, I just take clear photos of each page with my phone and save them in a dedicated folder. I strongly recommend going to the post office counter rather than using a dropbox, especially for tax documents. At the counter, you can get a stamped receipt with the tracking number. For something as important as your tax return, that extra confirmation is worth the few minutes in line.
My advice is to try again with e-filing! You don't actually need last year's AGI if you never filed before or can't access it. There's usually an option to enter "0" or check a box that says you didn't file last year. Much faster for getting your refund (about 21 days vs 6-8 weeks for paper returns).
This is actually correct! I work as a tax preparer and there should be an option to indicate you don't have last year's AGI. Which software are you using? I can tell you exactly where to look for this option.
Don't forget about depreciation when comparing rental properties! Property tax is just one piece of the puzzle. You can depreciate residential rental properties over 27.5 years, which is a huge deduction. So for your two examples, the property value (excluding land) would also factor in. A more expensive property would give you a larger depreciation deduction, which might offset some of the higher expenses.
How do you separate the value of the land from the building for depreciation purposes? I've always been confused about that part. My property tax statement doesn't break it down clearly.
Your property tax assessment should actually have this breakdown. Check your property tax statement or look up your property on your county assessor's website - most will show the land value separately from the improvements (building) value. If it's not clearly stated, a common method is to use the ratio that other similar properties in your area use. Your tax professional can help with this, or you can look at comparable properties with known land/building breakdowns.
One thing nobody's mentioned yet - which property do you think will appreciate more in value? That's a huge factor too. A property with higher taxes might be in an area with better schools or services, which could mean better appreciation over time.
This is a really good point. My rental in the high-tax suburb has appreciated WAY more than my rental in the low-tax area. After 5 years, the difference in appreciation has completely dwarfed any tax deduction differences.
Jessica Nolan
For anyone still waiting, I received my refund yesterday after filing on February 3rd with Child Tax Credit for my 2 kids. So that's about 7 weeks total waiting time. The "Where's My Refund" tool never updated beyond "still processing" until suddenly it showed a deposit date. Hang in there!
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Angelina Farar
β’Did you ever call the IRS or do anything special to get it moving? Or did it just suddenly update on its own?
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Jessica Nolan
β’It just updated on its own. I checked the "Where's My Refund" tool religiously every morning and one day it finally showed a deposit date. I never called or did anything special to move things along. I've heard from friends that calling doesn't usually speed things up anyway - they just tell you to keep waiting unless there's an actual issue with your return that needs to be addressed. So unless you think there might be a specific problem, it seems like waiting is unfortunately the only option.
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SebastiΓ‘n Stevens
Has anyone noticed that the Child Tax Credit verification seems to be happening in batches? My sister and I filed on the same day (Feb 5) and we both got our refunds exactly on the same day last week. My neighbor filed a week later and is still waiting. Makes me think they process these in groups rather than strictly by filing date.
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Bethany Groves
β’I've noticed something similar! My husband and I filed separately (complicated situation) but on the same day. He got his refund after 3 weeks (no kids/CTC on his return) and mine took 6 weeks (claiming our daughter and the CTC). Definitely seems like these get sorted into different processing queues.
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