Thanks for explaining the hobby loss rule! That's really helpful context. My husband has actually been making small profits consistently (between $1,500-2,000) for the past three years, which I guess would tend to support business classification?

Yes, consistent profits over three years would definitely strengthen the case for business classification. That's one of the key factors the IRS looks at. Since he's showing a consistent pattern of profits, the IRS would be more likely to consider this a business activity rather than a hobby. This actually works in his favor since business expenses are fully deductible against business income, while hobby expenses aren't deductible at all under current tax law. He should definitely consider tracking expenses - he may be paying more tax than necessary by not documenting his costs.

This is great advice. I use a similar system for my side gig. The separate account/card approach makes it super simple to track everything.

Yes, TurboTax will ask if you itemized last year and will calculate the taxable portion of your state refund correctly. It actually imports your previous year's info if you used TurboTax last year too, so it knows automatically. I've been using it for years and it handles this situation well.

Thank you for confirming! That's a relief. I wasn't sure if it would automatically know or if I needed to figure it out myself. I'll just make sure I have last year's return handy when I do my taxes this weekend.

This worksheet is so confusing though!! I tried to use it and got completely lost. Does anyone know if there's a simpler explanation somewhere?

I agree the worksheet is pretty confusing. The basic idea is that you're only taxed on the portion of your refund that actually gave you a tax benefit in the previous year. If your itemized deductions were just barely more than the standard deduction, then only a portion of your state tax deduction actually benefited you, so only part of the refund is taxable. But if your itemized deductions exceeded the standard deduction by more than your state tax payments, then the whole refund would be taxable.

Thanks for breaking that down! Have you ever caught it missing deductions you should have gotten? That's my biggest worry tbh

I have actually caught it missing things a few times over the years. It's generally good at finding common deductions, but it misses some of the more obscure ones unless you know to look for them. For example, last year I realized it didn't prompt me about the student loan interest deduction until I specifically searched for it, even though I had entered student loan information. It's not perfect, which is why it helps to have at least a basic understanding of what deductions you might qualify for.

I've used both. For small business stuff like an Etsy shop, I actually preferred H&R Block. Their self-employment version seemed to ask more relevant questions about business expenses and gave better guidance on what qualifies. TurboTax was more confusing for the business portion in my experience.

Honestly they're pretty similar but I found TurboTax had a slightly better interface. For Etsy specifically though, make sure whichever one you choose can import your Etsy 1099-K directly. Saves a ton of time vs. entering everything manually.

3 Exactly what states require IFTA? I'm mainly running routes between Texas and Oklahoma right now but thinking about expanding.

11 IFTA applies when you operate in multiple states or Canadian provinces. Since you're running between Texas and Oklahoma, you definitely need to comply with IFTA requirements. Both states are IFTA members, as are all 48 contiguous states and most Canadian provinces. You'll need to track your mileage in each jurisdiction and the fuel purchased in each place. The quarterly reports reconcile the fuel taxes - you might get a refund or owe additional tax depending on where you bought fuel versus where you drove. If you're planning to expand your routes, getting a good system to track this now will save you tons of headaches later.

9 This! My accountant charges extra if I mix personal and business expenses. Said sorting through statements takes forever. Any bank recommendations that don't charge crazy fees for business accounts?

Oh wow, I had no idea about the estimated payment requirement. Does that happen automatically, or only if the IRS notices a pattern? And is that $1,000 threshold after applying any withholding I might have, or just based on total tax liability?

The estimated tax requirement is based on your final tax return results - it's not subjective or based on IRS discretion. If you owe more than $1,000 after accounting for any withholding you did have, you're generally required to make estimated payments the following year. The requirement is calculated on your total tax liability minus your withholdings and credits. So if your total tax liability is $10,000 and your withholding was only $8,900, you'd owe $1,100 at filing time - triggering the requirement for quarterly payments the following year. This is a statutory requirement, not a penalty the IRS chooses to impose. It's designed specifically to prevent the kind of strategy you're considering.

I've actually had success with balance transfers combined with a proper withholding adjustment (not going exempt, just adjusting to the correct amount). I got a 15-month 0% offer, transferred my high-interest debt, then adjusted my W-4 to account for legitimate deductions I was eligible for. The extra money in my paychecks went straight to paying down the transferred balance before the 0% period ended.