Does anyone know if you can deduct mileage when you're carrying passengers (like other band members) to gigs? We usually carpool in my van since I'm the one with all the gear space, but I wasn't sure if having others with me affects the deduction.

Yes, you can absolutely deduct business mileage even when carpooling with band members! The key is that the primary purpose of the trip must be business-related, which going to a paid gig certainly is. Having passengers doesn't reduce or eliminate your deduction. In fact, if you're the designated driver for your band and regularly transport equipment and band members, make sure you're also tracking any parking fees and tolls, as these are deductible in addition to your mileage. Just keep good records of dates, locations, and the business purpose of each trip.

I've done this with my $9000 cello. My accountant recommended depreciation rather than Section 179 since I use it for both W-2 and 1099 work. We calculated that I use it about 65% for self-employed gigs and teaching, so I'm depreciating that portion over 7 years. Makes my tax situation more stable than taking one huge deduction in a single year.

We did file our returns, just haven't been able to pay what we owe. But that's good advice for anyone reading who might be afraid to file! Does anyone know if we should adjust our W-4 withholding for this year to prevent owing more next year?

Yes, absolutely adjust your W-4 forms with both of your employers immediately! If you've been underwithholding for 2 years, you're likely still underwithholding now, which means you're digging a deeper hole. You can use the IRS Tax Withholding Estimator on their website to figure out exactly how to fill out your W-4. Also, when you get on a payment plan for your back taxes, make sure you don't miss any payments and that you stay current on this year's taxes. The IRS will cancel your payment arrangement if you fall behind on current taxes or miss payments on your plan.

DON'T DO IT!! Those companies charge thousands of dollars for services you can do yourself for free or at low cost. I paid $3,000 to one of those places and all they did was put me on an installment plan I could have set up myself online. Total ripoff!

Wait this is amazing! We definitely qualify based on those requirements. Does this mean we could potentially reduce our payroll tax burden instead of waiting until we're profitable to use the credits? Our payroll taxes are a huge expense right now.

Yes, that's exactly what it means! Instead of the R&D credit just carrying forward until you have income tax liability, you can use up to $250,000 of it immediately against the employer portion of Social Security taxes (the 6.2% you pay on employee wages). This is particularly valuable for startups and small businesses that are still in growth mode and not yet profitable. You'll claim the credit quarterly when you file your Form 941 payroll tax returns. The election has to be made on a timely filed tax return (including extensions), so make sure your tax preparer knows you want to make this election when they prepare your business return.

This is super important. We got audited last year and the IRS disallowed almost half our claimed R&D expenses because our documentation wasn't specific enough about the technological uncertainties we were trying to resolve. Make sure you have detailed lab notes, design documents, and meeting minutes that clearly show the experimentation process.

Thanks for this explanation - I had no idea there were different methods for withholding on bonuses. Do you know if I can specify which method I want them to use, or is that entirely up to my employer?

It's technically up to your employer which method they use, but many payroll departments will accommodate your preference if you ask nicely. The flat rate method is actually easier for them to administer anyway. If they won't change their method, your other option is to adjust your W-4 withholding around the time you know you'll receive a bonus. You could increase your allowances temporarily for that pay period to offset the overwithholding. Just remember to change it back afterward!

The blended or "effective" tax rate is just your total tax paid divided by your total income. So if you made $100,000 and paid $18,000 in federal income tax, your effective federal rate would be 18%. What confuses most people is that we have marginal tax brackets - different rates that apply to different portions of your income. Your first ~$12,950 is tax-free (standard deduction), then 10% on the next chunk, 12% on the next chunk, etc. Your highest marginal rate (the rate on your last dollar earned) might be 24%, but your overall effective rate will be much lower.

Is there any way to do the Mega Backdoor Roth if your employer plan doesn't allow after-tax contributions? I've heard about using Solo 401ks but I'm not sure if that would work for someone with just a regular W-2 job and no side business.

Unfortunately, you need a 401k plan that specifically allows after-tax contributions (beyond the regular pre-tax or Roth 401k limits) to do the Mega Backdoor Roth. Without that plan feature, this strategy isn't available. If you have any self-employment income, even from a small side business or freelance work, you could potentially establish a Solo 401k with the right provisions. However, this only works with actual self-employment income - you can't use a Solo 401k for your W-2 income from your main employer.

This is my concern too. I feel like "tax-free forever" is too good to be true, especially as the government looks for more revenue. But at the same time, I'm not sure what alternative is better? Traditional accounts are definitely going to be taxed at withdrawal.