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Here's a simple breakdown of what qualifies as self-employment income vs hobby: - Self-employment: You do it regularly, keep business records, depend on the income, work at it consistently, have expertise in it, make changes to increase profitability - Hobby: You do it irregularly, don't really need the money from it, do it mainly for fun, don't spend much time on it If you have a hobby, you still report the income but don't pay self-employment tax and can't deduct losses. With $8700, chances are its self-employment. Most of my "hobby" friends who started making real money had to switch to treating it as a business after they crossed about $2000 in annual income.
Does having a separate bank account matter for proving it's a business? I just use my personal checking for everything.
Having a separate bank account isn't required but it's extremely helpful for proving business intent. It shows you're treating the activity professionally and makes tracking income and expenses much easier. It's one of the factors the IRS considers when determining if something is a business vs. hobby. Other factors include business cards, a business name, proper recordkeeping, and marketing efforts. The more business-like behaviors you demonstrate, the stronger your case for self-employment treatment.
Don't forget that if your net self-employment income is over $400, you need to make estimated quarterly tax payments throughout the year! I learned this the hard way and got hit with penalties my first year.
The real IRS never threatens arrests or demands immediate payment over the phone. They always send multiple written notices first. If you want to be extra safe, here's what I did when I got similar calls: 1. Didn't respond to the callback number 2. Independently looked up the IRS customer service number 3. Called and verified I had no issues (after waiting on hold forever) 4. Added my number to the Do Not Call registry (doesn't stop all scammers but helps) 5. Blocked the scam numbers on my phone The worst part is these scammers specifically target elderly people and immigrants who might be more fearful of government authorities.
Do you remember what the official IRS number is? I got one of these calls yesterday and now I'm paranoid even though I'm 99% sure it's a scam.
The general IRS customer service number is 800-829-1040. When you call, be prepared for a long wait time, and have your tax return handy as they'll ask verification questions to confirm your identity. I recommend calling early in the morning right when they open or later in the evening before they close as those tend to have shorter wait times. You can also try calling mid-week as Mondays and Fridays are typically their busiest days.
Has anyone actually fallen for these scams? My grandmother almost sent them $4,000 in gift cards because they said she'd be arrested if she didn't pay immediately. The scary part was they had her actual name and the last 4 digits of her SSN (probably from some data breach). They kept her on the phone for hours so she couldn't call anyone else to verify.
Yes, these scams are successful enough that they keep doing them. My coworker's father lost $12,000 to an IRS scammer last year. They told him he had outstanding tax bills and would be arrested at work the next day if he didn't pay. They kept him on the phone for 5 hours while he went to different stores buying gift cards. He was too embarrassed to tell anyone until weeks later.
One important thing to know - if you sell your car to a dealership rather than private party, they may issue you a 1099 form if the amount is over $600. This doesn't change the tax situation (you still only pay tax if you sold for a profit), but it means the IRS is automatically notified of the transaction. So don't panic if you get a 1099 - you just need to properly report it on your return and show your original basis (purchase price) to demonstrate there was no taxable gain.
Is this a new rule? I sold a car to a dealer last year for $15k and never got any 1099 form from them.
Everyone is focusing on federal taxes, but don't forget about state taxes! Some states have different rules about vehicle sales. For example, in Massachusetts where I live, if you sell a vehicle for more than $1000, you need to report it on your state tax return using Schedule D. You probably still won't owe taxes unless you sold at a profit, but you might need to file additional paperwork depending on your state.
Have you checked your bank statements from 2021? If you paid your mortgage from the same account all year, you could add up all the payments to get close to the interest amount. The statements should show who you paid and when. Not as good as the actual 1098 but might help in a pinch.
Thanks for the suggestion! I actually thought about that, but the problem is my mortgage payment included principal, interest, taxes and insurance all bundled together. So just seeing the total payment on my bank statement wouldn't tell me how much was specifically interest. I wish it was that easy!
Just want to mention that the IRS might be quicker than your mortgage company. You can request a "wage and income transcript" directly from the IRS that shows all forms filed for you including 1098s. Go to irs.gov and search for "Get Transcript Online.
Malik Jenkins
One thing nobody has mentioned yet - you can also avoid the penalty if you owe less than $1,000 after subtracting withholding and credits. So if your final tax bill minus what you've paid throughout the year is under $1,000, you won't face penalties regardless of the safe harbor rules. Also, if you have irregular income (like big year-end bonuses or commissions), you can use the annualized income installment method on Form 2210. It might be more complicated but could save you from penalties if your income isn't evenly distributed throughout the year.
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Freya Andersen
ā¢Could you explain the annualized income method a bit more? I get most of my income in Q4 and always struggle with this.
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Malik Jenkins
ā¢The annualized income installment method basically divides your tax year into periods (Jan-Mar, Jan-May, Jan-Aug, and Jan-Dec). For each period, you calculate the tax on your income received so far, annualize it, and then figure what percentage of that annual amount you should have paid by that quarter's estimated tax deadline. It's helpful for people with seasonal or irregular income because it matches your required payments more closely to when you actually receive income. For example, if you earn 70% of your income in Q4, the standard method would still require you to make equal estimated payments throughout the year, which might be difficult. The annualized method would require smaller payments earlier in the year. It's calculated on Form 2210, Schedule AI. It's definitely more complex than the regular method, but for someone with heavily weighted Q4 income, it can prevent you from having to overpay early in the year just to meet safe harbor requirements.
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Eduardo Silva
I got caught with underwithholding penalties last year and learned my lesson the hard way. I'm also MFS with high income. What software are people using to track this stuff throughout the year? I've been using TurboTax but it doesn't seem to help much with planning until the end of the year when it's too late.
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Leila Haddad
ā¢Try TaxPlanner Pro - it lets you run multiple scenarios and updates your projected tax and withholding requirements throughout the year. Way better than waiting until December to figure out you're going to owe penalties.
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Eduardo Silva
ā¢Thanks for the recommendation! I'll give TaxPlanner Pro a look. I definitely need something that will alert me earlier if I'm going to face penalties. December was way too late to fix my situation last year, and I ended up with almost $2,100 in penalties. Not making that mistake again!
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