Just FYI, tax software makes this WAY easier to figure out. You don't need to understand all the details about gross vs net income yourself. Programs like TurboTax, FreeTaxUSA, or even the IRS Free File options will walk you through entering your different income sources and expenses. I use HR Block and it automatically figures out my taxable income after I enter all my 1099 income and business expenses. The interview style questions make sure I don't miss any deductions too.

I'm a tax professional and wanted to add some clarity here. You're absolutely correct that taxes are based on your net income after legitimate business expenses, not gross income. However, I'd caution against relying solely on third-party tools or services without understanding the fundamentals yourself. For your specific situation with $42,000 in design income and $8,500 in business expenses, you'll report both amounts on Schedule C. Your net profit of $33,500 will be subject to both regular income tax AND self-employment tax (15.3%). This is important because many people forget about the self-employment tax component. A few key points: 1) Make sure all $8,500 in expenses are truly business-related and properly documented, 2) Consider whether any purchases should be depreciated over multiple years rather than deducted in full this year, 3) Track your home office expenses and vehicle mileage if applicable, and 4) Remember that your standard deduction will further reduce your taxable income after calculating your adjusted gross income. The quarterly payment advice mentioned earlier is spot-on - with $33,500 in net self-employment income, you should definitely be making estimated payments to avoid penalties. I'd recommend consulting with a local CPA for your first year with significant self-employment income to make sure you're set up correctly going forward.

I completely understand your concerns - those communication issues alone would make me uncomfortable, regardless of whether it's an actual scam. Poor communication from a professional handling your sensitive financial information is never acceptable, busy season or not. Here's what I'd suggest doing immediately: First, request copies of all documents they used to prepare your return and a detailed explanation of their work. Any legitimate CPA should provide this without hesitation. Second, consider having another tax professional review your return - many will do a quick review for a reasonable fee to spot obvious errors or missed opportunities. Regarding the spam increase, while it could be coincidental, it's worth monitoring your credit reports closely. You can get free reports from annualcreditreport.com to check for any suspicious activity. The fact that they dismissed your questions about deductions without proper explanation is particularly concerning. A good CPA should educate their clients, not brush them off. Even if those deductions truly didn't apply, they owe you a clear explanation of why. Moving forward, I'd recommend finding a new tax preparer for next year. Look for someone who offers transparent communication, provides detailed explanations, and comes with strong references from people whose tax situations are similar to yours.

I went through something very similar last year and want to share what I learned. The communication issues you're describing are unfortunately common but definitely not acceptable - a professional CPA should have systems in place to manage client communication even during busy season. What really helped me was documenting everything. I started keeping a log of every email sent, phone call made, and response (or lack thereof) received. This gave me a clear picture of the communication breakdown and also served as evidence when I eventually had to escalate the situation. For the deduction issues, I'd strongly recommend getting a second set of eyes on your return. I paid another CPA $150 to review my completed return, and they found two legitimate deductions my original preparer had missed, plus confirmed that several categorizations were questionable. The review fee was worth it for the peace of mind alone. The spam increase is concerning - while it could be coincidental timing with tax season, it's worth placing fraud alerts on your credit reports just to be safe. I did this as a precaution and it only takes a few minutes online. Moving forward, I'd suggest requesting a detailed meeting to go over every decision they made on your return. If they can't or won't provide clear explanations, that's your answer about whether to continue working with them. A legitimate CPA should welcome the opportunity to educate their clients about tax decisions.

Has anyone actually received any penalties for filing an incorrect 1099-NEC? I submitted one with the wrong amount last year (off by about $2,000) but never bothered to correct it since the contractor said they'd just report the correct income on their taxes anyway. Now I'm worried I should have filed a correction.

I want to emphasize what Natasha said about penalties - you really should file that correction ASAP! I had a client who ignored a $1,500 error on a 1099-NEC thinking it wasn't a big deal, and the IRS hit them with a $280 penalty when they discovered it during an audit two years later. The penalty structure is based on when you correct it: - $50 per form if corrected within 30 days - $110 per form if corrected by August 1st - $280 per form if corrected after August 1st or not corrected at all Even though your contractor might report the correct income, the IRS matches 1099s to tax returns electronically, and discrepancies can trigger notices or audits for both you and your contractor. It's much easier to just file the correction now than deal with potential headaches later. You can still use the IRIS system to file the correction even though it's been a while - just mark it as "Corrected" and include the accurate information.

Don't forget about reasonable compensation requirements for S-corps! If you increase your W-2 just to get higher retirement contribution limits, make sure the salary still aligns with industry standards for your role. The IRS looks at this closely during audits of S-corps. I learned this the hard way when I tried to optimize my retirement contributions by bumping my salary way up one year. My accountant quickly shut that down and explained that my salary needs to be justifiable based on the services I provide to the business.

One more thing to consider - timing! If you're thinking about switching from SEP IRA to Solo 401k, remember that Solo 401k plans must be established by December 31st to make contributions for that tax year (though you can actually fund it until your tax filing deadline). SEP IRAs can be set up and funded all the way until your tax filing deadline (including extensions) for the previous year. This flexibility is one advantage SEPs have over Solo 401ks.

Ok so now I'm thoroughly confused! I have an LLC taxed as an S-corp... on the W-9, do I check LLC and write S, or do I just check S-Corp box??

This is such a common source of confusion! As someone who went through this exact same struggle when I first set up my LLC with S-Corp election, I totally understand the frustration. To clarify what others have said: if you formed an LLC (filed Articles of Organization with your state) and then elected S-Corporation tax treatment with the IRS (Form 2553), you are still legally an LLC. The S-Corp election only changes how the IRS taxes your business income - it doesn't change your actual business entity type. So on the W-9, you should: 1. Check the "Limited Liability Company" box 2. Write "S" on the line that asks for tax classification The "S-Corporation" checkbox is for businesses that were actually incorporated as corporations (filed Articles of Incorporation) and then elected S-Corp status. That's a different legal structure entirely. One tip: I always include a brief note on my W-9s that says something like "LLC electing S-Corp tax treatment per Form 2553" just to be extra clear. It helps avoid confusion with clients who might not understand the distinction and ensures the 1099s come back correctly.