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Quick tip: even tho you don't owe SE tax, keep track of your expenses from that day! Gas, mileage, any hot bags or stuff you bought for deliveries. If you do more gig work later in the year and go over $400, you can deduct those expenses to lower your taxable income. I learned this the hard way after doing Uber Eats part time!
How do you prove mileage if you get audited? I've been taking pics of my odometer before and after shifts... is that enough?
A mileage log is your best bet. You don't need to take pics of your odometer (though it doesn't hurt), but you should record the date, starting location, ending location, purpose of the trip, and total miles driven. There are free apps that can help track this automatically. The IRS mostly wants to see that you have a consistent record-keeping system, not just estimates after the fact. Even a simple spreadsheet or notebook works as long as you update it regularly. If you claim a ton of miles with zero documentation, that's when audit flags can pop up.
Honest question - with just $38, is it even worth reporting? Like what happens if you just don't? The tax on that would be like what, $4? Would the IRS even care???
While technically all income should be reported, the practical reality is that the IRS is not going to come after you for a few dollars in tax on $38. DoorDash won't issue any tax documents for this amount. That said, it's generally best to develop good tax habits from the start. If this is your only income, you likely wouldn't even need to file. If you have other income requiring you to file anyway, including the $38 is the right thing to do, but realistically, the impact on your tax bill will be minimal and the chances of issues arising from omitting it are extremely low.
One important tip: when you request the First Time Abatement, be very specific about which penalty you want abated. The IRS might have charged both a late filing penalty AND a late payment penalty. Make sure your request addresses all penalties you were charged. Also, keep records of everything! Document when you called, who you spoke with, and what was said. If you send a letter, use certified mail so you have proof of delivery.
Thanks for this advice! Looking at my notice now, I think there might actually be both types of penalties. Would I be eligible for FTA on both the late filing and late payment penalties? Or just one of them?
You can absolutely request First Time Abatement for both penalties! The FTA can cover failure-to-file, failure-to-pay, and failure-to-deposit penalties. Just make sure to specify in your request that you're asking for abatement of all penalties assessed for that tax year. Many people don't realize that multiple penalties can be covered under a single FTA request, as long as they're all for the same tax period. The important thing is to clearly identify all the penalty types in your request so nothing gets overlooked.
Has anyone used the IRS online account portal to request penalty abatement? I've heard mixed things about whether this is possible or if phone/mail are the only options.
My neighbor is a retired IRS agent and she told me that estimated tax penalties are calculated per QUARTER, not just annually. So if you made one big payment at the end, you could still get hit with penalties for the earlier quarters. There's a special test called the "safe harbor" provision. If you paid either 90% of this year's tax or 100% of last year's tax (110% if your AGI was over $150k) through timely estimated payments, you won't get penalties. Maybe check if you met one of these tests?
This same thing happened to me! Check if your state has residency requirements for tax purposes. I moved mid-year and had to pay estimated taxes to TWO states because of their different rules. The CP30 was because the IRS thought I underpaid federally, but it was actually because I was paying to multiple state tax authorities and messed up the allocation. Call the IRS (good luck lol) and explain. They removed my penalty after I explained and sent proof of my state tax payments showing i was actually in compliance with the quarterly requirements when you look at the whole picture.
Another approach is to estimate based on your major purchases. I usually focus only on items over $100 purchased online without sales tax. For everything else, I take the safe harbor amount. No state tax auditor is going to come after you for a few dollars difference in use tax, they're looking for people who buy $5,000 artwork or expensive jewelry out of state to avoid taxes.
Does Etsy charge sales tax? I buy a lot of stuff from small creators there and never really paid attention to whether tax was included.
Etsy began automatically collecting and remitting sales tax in most states starting around 2019, but implementation rolled out gradually. For current purchases, they should be collecting the appropriate sales tax based on your delivery address. If you're calculating use tax for previous years, you'd need to check your receipts. Prior to their automated system, it depended on whether the individual seller collected sales tax, which varied widely. Small sellers below certain thresholds weren't always required to collect tax in all states.
Don't forget that use tax isn't just for online purchases. If you physically traveled to another state, bought something, and brought it back to your home state to use, you technically owe use tax on that too if you didn't pay sales tax equal to your home state's rate.
Wait really? So if I went on vacation to Oregon (which has no sales tax) and bought a laptop there, I'd owe use tax in my home state when I got back?
Anthony Young
One thing nobody's mentioned yet - check if your brokerage actually submitted a corrected 1099-B after you filed your taxes. This happened to me and was the source of the problem. I filed in February, then in March my brokerage sent a corrected form with updated cost basis info, but I never realized it. The IRS got the updated form which didn't match what I filed, and that triggered the notice. If this is what happened to you, the solution is pretty straightforward - you just need to show that you filed based on the information you had at the time, and provide the corrected information now.
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Victoria Charity
ā¢That's a really good point I hadn't considered. I did file pretty early (mid-February) because I usually get a refund. I'm going to log into my brokerage account right now and see if they issued a corrected 1099-B that I missed. If they did, would I need to file an amended return or just respond to the notice with the updated information?
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Anthony Young
ā¢You typically don't need to file an amended return in this case. The response to the notice effectively serves as your correction. In your response letter, you should explain that you filed with the original information provided by your brokerage, and include copies of both the original and corrected 1099-B forms. Make sure to clearly reconcile the differences between what you reported and what the corrected form shows. The IRS mostly wants to see that you can account for the discrepancy and that you're not trying to hide income. They're generally reasonable when the error originated with the brokerage rather than you.
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Charlotte White
Has anyone mentioned CP2000 responses can be done online now? You don't always have to mail back paper forms. The IRS has a portal where you can respond to certain notices electronically. Check if your notice has an option for online response - it's WAY faster.
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Admin_Masters
ā¢Online response is definitely better when available! But you still need to scan and upload all your supporting documents. I did mine online last year and still had to upload about 20 pages of stock transaction records. But processing time was only about 3 weeks versus the 2+ months it took when I mailed in a response the previous year.
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Charlotte White
ā¢You make a good point about still needing to provide all the documentation. I should have been clearer. The main advantage isn't reducing what you need to submit, but rather the processing time and confirmation. When you submit online, you get an immediate confirmation that they received your response, which gives peace of mind compared to wondering if your mail got lost. The other major advantage is that online responses typically get processed in the order received, while paper responses can get shuffled into various processing backlogs. This is especially important when responding to a notice with a deadline.
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