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Make sure your LLC is set up properly for tax purposes! I made a huge mistake with my design business last year - formed an LLC but didn't file the right paperwork to elect how it would be taxed. The IRS defaulted me to being taxed as a partnership even though I was the only owner, and it was a complete nightmare to fix. If you're the only owner, make sure you're being taxed as a sole proprietor (which happens automatically) or you've specifically elected S-Corp status if that makes sense for your situation. This will affect how you deduct those Fiverr payments.
Thanks for the heads up! I am the only owner of the LLC. Do I need to do anything special to make sure I'm being taxed as a sole proprietor? I don't think I filled out any additional forms after creating the LLC.
You're already set then! Single-member LLCs are automatically treated as "disregarded entities" for tax purposes, which means you'll report your business income and expenses on Schedule C of your personal tax return. No additional tax forms are needed to select this treatment - it's the default. You'll use your personal SSN for most tax purposes, though you should have an EIN (Employer Identification Number) for your LLC as well. This setup is the simplest for your situation and allows you to deduct all legitimate business expenses like your Fiverr payments directly against any income the business generates.
Don't forget about hobby loss rules! The IRS might challenge your business expense deductions if you show losses for too many years. Since you mentioned you're not making money yet, you need to be able to prove you're running this as a business with intent to profit, not just a hobby. Keep detailed records of: - Your business plan - Marketing efforts - Time spent working on the comic - Any pitches to publishers - Website/social media for the comic Trust me, I learned this the hard way with my photography "business" that was actually just me buying expensive camera gear and occasionally selling a print.
This is super important. I've been creating comics for years and the IRS did question my expenses once. What saved me was having a detailed log of hours worked, draft versions showing progress, and a marketing strategy document. Even though I wasn't profitable yet, I could show I was seriously trying to be.
I went through this exact situation with a medical GoFundMe in 2021. The important thing to remember is that even if you don't get a 1099-K (which you wouldn't for under $20k in 2021), the nature of the funds determines taxability, not whether you received a form. For your flood damage fundraiser, those contributions are almost certainly considered gifts if donors didn't receive anything in return. Gifts aren't taxable income to you. Just keep good records of what the campaign was for and documentation of your flood damage in case you're ever questioned about it.
Thanks for the insight! So just to be clear, since the GoFundMe was specifically to help with flood damage repairs and donors didn't get anything in return, I probably don't need to report it as income? Do I need to keep any specific documentation besides the withdrawal statements from my bank?
That's correct - funds received as gifts to help with your personal hardship (like flood damage) with no goods or services provided to donors would generally be considered non-taxable gifts. The IRS doesn't require you to report gifts you receive on your tax return. I would recommend keeping documentation that clearly shows the purpose of the GoFundMe campaign (screenshots of the campaign page would be ideal), records of the deposits to your bank account, and documentation of how you used the funds for flood repairs (receipts, invoices, etc.). While this might seem excessive, having this documentation will make things much easier if questions ever arise.
Just wanted to add that the reporting thresholds for 1099-K forms changed after 2021. For 2022, it was supposed to drop to $600 with no minimum transaction count, but then the IRS delayed implementing that. So if you have another fundraiser in the future, don't assume the same rules apply!
Just want to add something that hasn't been mentioned yet - you'll also need to pay self-employment tax on your 1099 income! This catches a lot of new contractors by surprise. Self-employment tax is basically both the employer and employee portions of Social Security and Medicare taxes (15.3% total). When you're a W-2 employee, your employer pays half of this, but as a contractor, you pay the whole thing. The good news is you get to deduct half of your self-employment tax on your 1040, which helps a bit. And making estimated quarterly tax payments can help avoid a big tax bill at the end of the year.
Is there a minimum amount of 1099 income before you have to pay self-employment tax? I'm only doing very occasional freelance work.
If your net self-employment income is $400 or more for the year, you need to pay self-employment tax. It's a much lower threshold than for income tax. So even very occasional freelance work can trigger self-employment tax requirements. For income tax purposes, you'd only need to file if your total income exceeds the standard deduction amount, but self-employment tax kicks in at just that $400 level. This catches many part-time contractors off guard.
One thing I learned as a freelancer - tracking expenses throughout the year is WAY better than trying to gather everything at tax time! I use a simple spreadsheet with categories like: - Home office (sq footage, rent, utilities) - Internet & phone (% used for work) - Software subscriptions - Equipment/supplies - Professional development - Mileage Take photos of ALL receipts with your phone right away. Future you will be so grateful when tax season comes around!
One thing nobody's mentioned yet - if you're physically present in another state performing services, you could also potentially be subject to local taxes too, not just state taxes. Cities like NYC, Philadelphia, and San Francisco have their own income taxes on top of state requirements. I found this out the hard way after consulting in Philadelphia for 3 months and getting hit with their city wage tax. Definitely check the local tax requirements for any cities you'll be working in!
Oh wow, I hadn't even considered local taxes! I know I'll be working in Chicago for about a month - does anyone know if they have special local tax requirements? This is getting more complicated than I expected.
Chicago doesn't have a city income tax like some other major cities, so you're safe there. You'll just need to deal with Illinois state income tax for the period you're working in Chicago. However, if your contract takes you to New York City, Philadelphia, San Francisco, or certain cities in Ohio or Michigan (among others), you'll need to account for local income taxes as well. It's definitely worth researching each location before you go. Some cities have very low thresholds - Philadelphia, for instance, starts taxing non-residents from day one of working there.
Has anyone dealt with having to register as a foreign LLC in multiple states? I'm just wondering about the costs involved. I might have to register in 3-4 states and I'm concerned about all the fees adding up.
The fees vary wildly by state. When I registered my LLC in Nevada, Colorado and Texas last year, the initial registration fees were around $150-200 per state. But then many states also have annual report fees or franchise taxes. California is notoriously expensive with their $800 minimum franchise tax regardless of whether you make any money there.
Noah Irving
Before everyone scares you too much, I just want to mention that the IRS has programs specifically for people in your situation. Look into the Voluntary Disclosure Program - it's designed for taxpayers who want to come clean and get back on track. Don't forget to check state taxes too! Everyone's talking about federal, but your state might have separate penalties and procedures.
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Vanessa Chang
ā¢My friend tried to catch up on his taxes and ended up owing way more in penalties than actual taxes. Is there any way to avoid that or at least reduce those penalties?
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Madison King
Don't stress too much about this. I went through almost exactly this in 2024. Hadn't filed for 4 years, was a 1099 contractor making about $70k/yr. One thing nobody mentioned - pull your IRS transcripts BEFORE you file anything. This shows what income the IRS already knows about. You might find some 1099s you forgot about or didn't receive. The worst part is the self-employment taxes + penalties, but it's all manageable with a payment plan. I'm paying $400/month on about $31k total debt including penalties.
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Julian Paolo
ā¢How do you get your IRS transcripts? Do you have to call them or can you get them online?
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