This is such a good point. I live in Washington state so we don't have income tax, but when I moved from Oregon I got a nasty surprise tax bill because I didn't realize how different the systems were.

Exactly! The state differences are huge. I moved from Tennessee (no state income tax) to California (high state income tax) and didn't adjust my savings strategy. Big mistake! Just remember that the general 25-30% rule people mention is usually just for federal taxes and self-employment tax. You need to add your state's rate on top of that.

Do you use any specific apps for tracking? I'm terrible at keeping up with spreadsheets and worried I'll mess it up.

Thank you so much for mentioning this! I actually did pay my neighbor to watch my daughter during my online class sessions and study groups. I have Venmo records of all the payments. Would those work as documentation? And do I need to give her a form to fill out or anything to get her tax ID?

Venmo records are a good start for documentation! You'll need to complete Form 2441 (Child and Dependent Care Expenses) when you file your taxes. You'll need your care provider's name, address, and either their Social Security Number or Employer Identification Number. You should ask your neighbor to fill out Form W-10 (Dependent Care Provider's Identification and Certification). This form doesn't get filed with your return, but it gives you the information you need and shows you did your due diligence in getting their tax information. Keep this form with your tax records. Some providers might be hesitant to share their SSN, but explain that it's required for you to claim this valuable tax credit.

This is super important advice! Head of Household filing status makes a HUGE difference. The standard deduction for Head of Household in 2024 is $21,900 compared to just $14,600 for Single status. That's over $7,000 more of your income that won't be taxed! Definitely claim this if you qualify.

How much should someone set aside for taxes on side income? Is 30% enough?

Does Quickbooks Self-Employed track mileage automatically? I drive to different client locations for my mobile dog grooming business and always forget to log it.

What about state taxes? Aren't those separate from the IRS payment plans? With multiple states involved this seems like a nightmare to sort out.

You're absolutely right about state taxes being separate. Each state has its own tax authority and payment arrangements. You'll need to contact each state where you owed taxes to work out separate payment plans. For multi-state situations, I usually recommend tackling the federal issues first, then addressing each state in order of highest debt to lowest. Many states offer voluntary disclosure programs that can reduce penalties if you come forward before they contact you. It feels overwhelming at first, but breaking it down step by step makes it manageable.

That's only if the taxes were assessed though. For unfiled returns, the clock hasn't even started ticking since there's been no assessment. If anything, unfiled returns have no statute of limitations because the IRS can basically pursue those forever.

You might want to request a Wage and Income Transcript from the IRS for the year they think you claimed the credit. It should show all forms filed under your SSN that year, including a Form 5405 if one was actually filed. If no 5405 appears on your transcript, that's your proof one wasn't filed. Also request your Account Transcript which shows any credits applied. If the credit appears there but no corresponding 5405 on your Wage and Income Transcript, that helps demonstrate the error. Lastly, if you still have your tax return from that year (or can get a Return Transcript), that would show you didn't claim the credit on your actual filed return.

Thanks for these suggestions. I hadn't thought about using the absence of forms as proof! I just checked and I can get my transcripts online through the IRS website. I'll request both the Wage and Income and the Account transcripts to see what they show. I definitely don't have my actual tax return from 2008 anymore, but hopefully the transcripts will be enough to show there's a mismatch between what was filed and what credits were applied.

I did try going to the local IRS office - that's where they gave me the 5405 form and told me to fill it out! Maybe I just got someone who didn't know what they were doing? I think I'll try going back and hopefully get a different representative who might be more helpful like in your case.