Do you know which tax form you'd use to claim that theft loss? And would you need to have filed police reports or anything to back it up?

You'd report theft losses on Form 4684 (Casualties and Thefts) and then carry that information to Schedule A if you're itemizing deductions. But there's a catch - under current tax law, personal theft losses are only deductible if they're attributable to a federally declared disaster. However, if the theft is connected to a business or income-producing property, you might be able to deduct it anyway. Some tax professionals argue that money in investment apps could qualify as income-producing property. For documentation, yes, you'd ideally want police reports, documentation of all your attempts to recover the funds, complaint filings with CFPB and other agencies, and proof that the company is unresponsive or insolvent. Without these, the IRS might reject the theft loss claim.

I actually did this last year! Filed in small claims against one of these apps for $800 they were holding. Won by default because they didn't even show up to court. Getting them to actually PAY was another story, but I eventually got my money back after sending the court judgment to their legal department. Tax-wise, I didn't have to report anything special since it was just my own money being returned to me, not new income. Definitely worth the $75 filing fee in my case.

Thanks for the suggestion, but unfortunately it's not that simple in our case. My brother has a multi-car discount policy that would be significantly more expensive if we split it up. Also, his driving record is better than mine, so our total costs would increase by about $780/year if I got my own policy. That's why we've kept this arrangement going. I'm wondering if there's a way to make it work tax-wise without actually changing the policy.

That makes sense about the multi-car discount. In that case, I'd suggest creating a formal agreement between you and your brother. Have him "bill" you for the insurance with a simple invoice each month, and pay him by check or electronic transfer that clearly states "vehicle insurance" in the memo/notes. Keep these records organized. This creates a paper trail showing you're paying for a legitimate business expense. On your Schedule C, you'd list it as "vehicle insurance" under car expenses. Just be aware you can only deduct the percentage used for business - if you use the car 60% for business and 40% personal, you can only deduct 60% of what you pay.

This is the correct answer. The "substance over form" doctrine is exactly what the IRS would apply here. It doesn't matter whose bank account the payment comes from - it matters who is the economic payer. If brother gives cash first, then brother is the economic payer.

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.

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.

I didn't even think to call my 401k administrator! That's a great idea. My plan does mention hardship withdrawals for medical expenses in the documentation, but when I requested the distribution I just did it through their online portal and didn't specify the reason. I'll definitely give them a call tomorrow and see if they can issue a corrected form with code 2. Would that completely eliminate the need to file Form 5329, or would I still need to do that?

If they can issue a corrected 1099-R with code 2 (which indicates an exception applies), you won't need to file Form 5329 at all to claim the exception. The code 2 tells the IRS that the distribution already qualifies for an exception to the 10% penalty. This would make your e-filing much simpler since you wouldn't have to deal with the additional form. Just make sure to wait for the corrected 1099-R before filing if they agree to issue one.

The health insurance premium exception is super helpful! I used it last year when I had to take an early distribution during a period of unemployment. You need to make sure you meet all the criteria though - you must have received unemployment compensation for 12 consecutive weeks.

That's a good point about the 12 consecutive weeks requirement. There are also some timing requirements - the distribution must be taken in the year you received unemployment compensation or the following year. And if you've been reemployed for more than 60 days, you no longer qualify for this exception.

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.

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?