Does this apply to sole proprietors too or just formal business entities like LLCs and corporations? I'm self-employed but haven't formed an LLC or anything.

If you're operating as a sole proprietor (meaning you haven't formally created an LLC, corporation, etc.), then you typically won't face these minimum taxes or franchise fees in most states. Those minimum taxes usually only kick in when you've created a formal business entity. For sole proprietors, you're generally just subject to the regular income tax rules of your state. This is actually one reason some freelancers choose to remain sole proprietors rather than forming an LLC - to avoid these minimum taxes when they're just starting out or not making much income.

How much do you have to make before you need to do the quarterly payments? Is there a threshold?

Generally, you need to make quarterly estimated payments if you expect to owe $1,000 or more in federal taxes for the year. For state taxes, it varies by state but most follow a similar threshold - usually somewhere between $500-$1,000 owed for the year. The tricky part with self-employment is that you might hit these thresholds even with relatively modest income because of the 15.3% self-employment tax. With $19,400 in income like the original poster mentioned, they'd likely need to make quarterly payments for federal (SE tax alone would be around $2,740), but state requirements would depend on their specific state's rules and deductions. @975948ffccbc is absolutely right about the penalties - they can really add up if you miss the quarterly deadlines!

Great question! A deduction reduces your taxable income, not your tax bill directly like a credit would. The actual tax savings depends on your marginal tax bracket. For example, if you're in the 22% federal tax bracket and donate furniture with a fair market value of $1,000, your federal tax savings would be about $220 (22% of $1,000). If you also pay 5% state income tax, you might save another $50 there. So in this example, donating $1,000 worth of furniture might save you around $270 in actual taxes. That's why selling can sometimes be more profitable if you can get more than 25-30% of the original value.

I had a CP2000 notice (not technically an audit but similar) last year and used FreeTaxUSA's Audit Assist. They were actually really helpful! They reviewed the notice with me, explained exactly what the IRS was questioning, and helped me gather the right documentation to respond. Ended up being a simple misunderstanding that we resolved quickly. The best part was being able to talk to someone who could translate the confusing IRS language into plain English. For the price difference between FTU and TurboTax, I thought it was excellent value.

Thanks so much for sharing! That's exactly the kind of real-world experience I was hoping to hear about. Definitely makes me feel better about choosing FreeTaxUSA with their Deluxe option.

Thanks for bringing this up! Do you know if there's a quick resource that breaks down different state requirements? My situation is even more complicated because I moved mid-year and had income in multiple states.

There isn't really one perfect resource that covers all states, but the Federation of Tax Administrators (taxadmin.org) has links to all state tax agencies where you can find the specific rules. For multi-state situations, each state you earned income in will have its own requirements. Most tax software platforms also have state-specific guidance built in if you're using one. They'll usually walk you through the proper forms needed for each state. With income in multiple states, you definitely want to be careful since some states have reciprocity agreements while others don't.

Omg this is so important! I completely forgot about this last year and got hit with both penalties AND interest. It's especially confusing because you're paying for two different tax years on the same day. Do you just make two separate payments to the IRS and indicate which is which somehow?

Yes, you make separate payments and specify what each one is for! When you pay online through EFTPS or the IRS website, there are different payment type codes. For your 2024 extension payment, you'd select "Form 1040 Extension" or "Balance Due" and specify tax year 2024. For Q1 2025 estimated taxes, you'd select "Estimated Tax" and specify tax year 2025. If you're mailing checks, you write separate checks and include the appropriate vouchers - Form 4868 for the extension payment and Form 1040ES for the estimated payment. Make sure to clearly mark the tax year on each payment to avoid any confusion with IRS processing. This dual payment situation catches so many people off guard! It's definitely worth setting a reminder for yourself since missing either one can result in penalties.

What's the difference between gross income and net profit for this $400 threshold? Like if I made $2,000 in sales but spent $1,700 on supplies and expenses, would I still need to file?

The $400 threshold refers to net profit, which is your gross income minus your business expenses. In your example, if you made $2,000 in sales but had $1,700 in legitimate business expenses, your net profit would be $300. Since that's below the $400 threshold, you technically wouldn't be required to file based solely on your self-employment income. However, keep in mind there might be other reasons you'd need to file a tax return, and it's generally a good practice to file anyway so you have documentation of your business activity, especially if you plan to claim business losses.

This is super helpful. I've been on the fence about filing since I only made about $300 with my new photography business. Do you think it's worth paying for tax software or a professional just to file when I made so little?

For only $300 in income, you probably don't need to pay for professional help. Free filing options like FreeTaxUSA or even the IRS Free File program can handle a simple Schedule C. Since your business is straightforward, it's mainly just reporting your income and any business expenses you had. The forms aren't too complicated for a basic sole proprietor situation, and you'll save money while still getting that business filing history established.