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Confused about IRS letter after trying to pay Doordash taxes online for 2021 - what do I do next?
So I started doing Doordash as a side gig back in 2021 and made around $9,800 that year. I didn't really understand the whole tax situation for independent contractors at the time and totally forgot about it until earlier this year when I was organizing my finances. I went directly to the IRS website to try and pay what I figured I owed for that 2021 Doordash income. I remember I chose the direct payment option and entered all my information, but I wasn't really sure if I was doing it right because the website kept timing out. Anyway, I just got this letter in the mail from the IRS about my 2021 taxes and now I'm super confused. It mentions something about Schedule C and self-employment tax that I didn't calculate? The letter says I might owe additional taxes plus some penalties for late payment. I honestly have no idea if what I already paid online even went through, or if this letter is completely unrelated to my payment attempt. Should I call the IRS? Try to file an amended return? I've never dealt with 1099 income before and I'm worried I'm going to make things worse if I respond incorrectly. Has anyone dealt with something similar for their gig work? Really need some guidance here!
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Can I reduce taxes on my $30k side hustle while paying myself from my C Corp?
So I've got this side gig that's bringing in around $30-35k annually, and I'm trying to figure out how to minimize what I'll owe in taxes if possible. The complication is that I also have a C Corporation that I need to pay myself from as well. I'm not totally clear on how these two income streams interact tax-wise. I'm wondering if there are any strategies for reducing the overall tax hit from the side hustle while still making sure I'm paying myself properly from the corporation. Do I need to worry about reasonable compensation issues with the C Corp while also dealing with self-employment taxes on the side income? Any advice on structuring this to keep more in my pocket without getting into trouble with the IRS would be super helpful!
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Has anyone here used a PEO (Professional Employer Organization) for their C Corp? I'm in a similar situation and considering using one to handle the payroll/benefits side. Curious if it makes tax management easier when you have multiple income sources.
I've been using Justworks for my C Corp for about 2 years now. It definitely simplifies the admin side but doesn't really address the tax optimization between multiple income sources. You still need a good accountant for that part. The PEO basically just handles compliance, payroll processing, and can get you better benefits options than you'd have as a tiny company.
One thing nobody's mentioned yet - timing! If your C Corp is on a different fiscal year than your personal taxes, you might have some options for timing income recognition that could be advantageous. My accountant saved me a bunch by strategically timing my salary vs distributions across tax years.
This is actually a really good point. I've used fiscal year planning with my S-Corp (mine runs Feb-Jan) and it gives me an extra month to make strategic decisions before the personal tax year ends.
I hadn't thought about the fiscal year angle at all. My C Corp is currently on a calendar year but I'm wondering if it would be worth changing that. Would it complicate my accounting too much to have different fiscal years?
Can I abandon an unused C corp with bank transactions and file as Schedule C instead?
I'm in a bit of a pickle with a business structure decision. Back in 2022, I set up a C corporation for my small business venture. I filed an extension for the 1120 return, but haven't actually filed the corporate tax return yet. Now I'm thinking I'd really prefer to just operate as a sole proprietorship and file everything on Schedule C instead. The thing is, I did use the corporation's bank account for some business transactions throughout the year. There were deposits and expenses flowing through that account, even though I never formally filed any 1120 returns for the corporation. Since I never officially filed a corporate tax return, just the extension, can I simply disregard the C corp structure at this point and report all the income and expenses on my personal return as a Schedule C business? Or does the fact that I used the corporation's bank account mean I'm stuck with the C corp classification and need to file the 1120? I really don't want to deal with the corporate tax complexity if I can avoid it, especially since the business is still small. Any insight would be really helpful!
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Be careful about just ignoring the C corp. I tried doing this exact thing with an S corp I formed but never used (or so I thought). Years later I got massive penalties for unfiled returns. The IRS doesn't care that "you didn't really use it" - once it exists legally, you have filing requirements. Do things properly - file the required C corp return(s), formally dissolve it with your state, and then start fresh as a sole proprietorship. Yes it's annoying and costs some money now, but way less than dealing with penalties later.
Thanks for this warning. Can I ask how much the penalties ended up being in your case? And did you eventually have to file all the back returns anyway?
The penalties were brutal - about $5,200 for just two years of unfiled S corp returns. They hit you with $435 per month for up to 12 months per unfiled return. And yes, I still had to file all the back returns anyway, plus pay a CPA to help me sort through the mess. The worst part was reconstructing records from years ago. All told it probably cost me close to $8,000 including penalties, professional fees, and state filing costs to clean it all up. Definitely take care of this now while everything is still fresh and you have all your records easily available.
One thing nobody's mentioned yet - if your LLC is taxed as a C corp but you personally paid for business expenses out of your own pocket, you might be able to get reimbursed tax-free by the corporation. Or the corporation can recognize those as capital contributions. Just something to consider when filing that 1120. Talk to a tax pro about the best way to handle any "mixed" transactions where personal and business funds got commingled.
Great point! I was wondering about this because I have the opposite situation - I paid some personal expenses from my business account. How would that be handled on the corporate return?
Will I be charged late fees if I request extension and owe federal taxes in 2025?
I'm trying to figure out a messy situation and hoping someone can help. I think I might need to file for an extension this year because my previous employer is being super slow about sending my 2024 W-2. They keep saying "it's coming" but it's already mid-March! Last year I got hit with a $950 tax bill because I completely messed up the Multiple Jobs worksheet on my 2023 return. Basically no federal taxes were taken from my weekend job in 2023. I've since fixed this by increasing my withholding throughout 2024, but honestly, I'm terrible with numbers and I'm worried I might still end up owing something. My big question is: will the IRS charge me penalty fees if I have to file an extension because I'm waiting on this W-2, especially if I end up owing federal taxes? And if they do charge penalties, can I fight those charges since it's not my fault my employer is dragging their feet on sending my tax document?
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Extension or not, you HAVE to pay what you estimate you owe by the original deadline or you'll get hit with penalties! The extension only gives you more time to file the paperwork, not more time to pay. I learned this the hard way last year and got charged penalties AND interest on what I owed. Don't make my mistake!
So even if I explain to the IRS that I couldn't file accurately because my employer hasn't given me my W-2, they'll still charge penalties if I end up owing?
Exactly. The IRS doesn't care why you couldn't pay on time - they only care that you didn't pay by April 15. Your issue with your employer is separate from your obligation to pay taxes on time. That's why you need to make your best estimate and pay that amount by the deadline. Think of it this way: the IRS considers your taxes due as you earn income throughout the year. The April 15 deadline is already a grace period to finalize everything. So waiting on documents doesn't extend your obligation to pay what you already owe.
Has anyone actually had success disputing penalties due to employer W-2 delays? My HR departmentt is a complete disaster this year and I'm in the same boat.
I went through this in 2023 and couldn't get the penalties removed despite documenting all my attempts to get my W-2 from my ex-employer. The IRS agent told me it's my responsibility to estimate and pay on time regardless of having the final documents. It really sucks but that's how they enforce it.
At what point do you report tax fraud to the IRS?
So I'm in this weird situation where my cousin has been bragging about how he's been claiming tax deductions he's not entitled to for the last 3 years. He basically told me he's been writing off personal expenses as business expenses for his side gig (he made like $7,000 last year from it) and also claiming some home office deduction even though he doesn't have a dedicated space. He showed me his last return and the numbers don't add up - he's claiming way more in deductions than what seems legit. I'm not trying to be a snitch but this seems pretty blatant to me. He's literally laughing about how he's "gaming the system" and said everyone does it. I'm worried because we're kinda close and our families see each other all the time. Is there a certain dollar amount where the IRS actually cares? Do they even follow up on tips from people? And if I did report it, would they tell him who reported him?
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I think there's also an ethical question here beyond just "can you report it?" and "will the IRS care?" Consider your relationship with your cousin and family dynamics. Tax fraud is wrong, but is reporting your cousin worth potentially destroying family relationships? Maybe try talking to him first about how serious this is and the penalties he could face if caught? The penalties for tax fraud can include up to 75% of the underpaid tax amount plus potential criminal charges in serious cases. Maybe sharing that information might scare him straight without you having to make a report.
But if you warn them, won't they just hide the evidence better? I had a former friend who was doing something similar and when someone in our group warned him, he just got more sophisticated about hiding it. Sometimes people need to learn consequences the hard way.
That's a fair concern. If someone is determined to commit fraud, a warning might just make them better at concealing it. However, sometimes people genuinely don't realize the severity of what they're doing - they might see it as "bending the rules" rather than committing a federal offense. If you think your cousin might be receptive, a gentle approach might work: "Hey, I'm concerned about what you told me about your taxes. Those penalties can be really serious." But if they've shown they don't care about the rules or might become defensive, then you're right that a direct confrontation might not help the situation.
The IRS whistleblower program actually pays rewards if the tax fraud is substantial enough! But there's a catch - it only applies if the tax, penalties and interest exceed $2 million AND the person's annual gross income exceeds $200,000. Sounds like your cousin is way below that threshold, but thought it was worth mentioning. For smaller cases like this, you'd use Form 3949-A as others mentioned, but there's no reward. I've heard the IRS is pretty overwhelmed so smaller cases might not get immediate attention, but they do keep records and if patterns emerge they might investigate.
Is there any way to find out what happened after you submit a tip? Like do they tell you if they investigated or collected more tax? I reported an employer a few years ago who was paying people under the table but never heard anything about what happened.
Grace Lee
Don't forget to claim all your mileage from doing Doordash! I did delivery apps in 2021 too and the standard mileage deduction was 56 cents per mile. That adds up FAST and can reduce your taxable income significantly. Make sure you go back and estimate your mileage as accurately as possible - total miles driven for deliveries, not just from restaurant to customer but also getting to the restaurant. If you drove 100 miles a week for Doordash, that's about $2,912 in deductions for the year!
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Olivia Van-Cleve
AuthorWait really? The mileage deduction is that much? I never tracked my miles but I was doing Doordash like 4 nights a week for about 8 months. How would I even calculate that now after so much time has passed?
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Grace Lee
You can create a reasonable estimate based on your delivery history. Most delivery apps keep a record of your deliveries - try to get that data from Doordash if you can. If that's not possible, make a good faith estimate. Calculate your average deliveries per shift, estimate miles per delivery (including driving to pickup locations), and multiply by your working days. Document how you arrived at this estimate in case of questions. For 4 nights a week for 8 months, you're looking at roughly 128 working days. Even at a conservative 30 miles per shift, that's 3,840 miles or about $2,150 in deductions! Just be honest but thorough - this could significantly reduce what you owe.
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Mia Roberts
Make sure you also check if you need to file a state tax return for that Doordash income! The IRS notice is just for federal taxes, but most states will also want their cut and have separate filing requirements.
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The Boss
Good point about state taxes. One thing to add - some cities also have local income taxes that apply to self-employment income. I found out the hard way after getting a notice from my city tax department a year after dealing with the IRS!
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