Can I apply standard deduction to my $12,000 self-employment income and pay $0 in taxes?

Ohhh that makes so much more sense now! I had no idea there was a separate self-employment tax that wasn't affected by the standard deduction. So even though I'm below the standard deduction threshold and don't owe income tax, I still owe the 15.3% for Social Security and Medicare? Is there any way to reduce that self-employment tax amount, or am I stuck paying the full $1,500?

Yes, exactly - you've got it right now. You don't owe any federal income tax because your income is below the standard deduction, but you still owe the self-employment tax which funds Social Security and Medicare. You can potentially reduce your self-employment tax by deducting legitimate business expenses that lower your net profit. Things like software subscriptions, equipment, home office expenses, professional development, etc. can all reduce your taxable self-employment income. Every $100 in business expenses you can legitimately deduct will save you about $15 in self-employment taxes. Make sure you're tracking all your business-related expenses!

Did you find it was worth using compared to regular tax software? I'm in a similar boat with about $10k in gig work and wondering if it would catch things TurboTax might miss.

I'm skeptical about these tax tools. How exactly does it find deductions that regular tax software doesn't? Don't they all just ask you the same questions about your expenses?

It was definitely worth it for me because it specifically looks at self-employment scenarios and suggests deductions based on your profession. Regular tax software asks general questions, but taxr.ai suggested specific deductions relevant to my writing business that I hadn't thought to track. The main difference is it uses AI to analyze your specific situation rather than just walking through a standard questionnaire. It identified that as a writer, I could partially deduct my reading materials, research subscriptions, and even some of my coffee shop expenses where I did my work - things TurboTax never specifically asked me about. It's more conversational and personalized to your exact work situation.

How does this actually work? Do they just call the IRS for you or something? I don't understand how any service could get through when the IRS phone lines are always jammed.

Sounds like BS to me. The IRS is notoriously impossible to reach during tax season. I've never gotten through in less than 2+ hours of waiting. No way some random service can magically get you to the front of the line.

They don't call for you - they use a system that navigates the IRS phone tree and waits on hold in your place. When an actual agent picks up, you get a call back to connect with them directly. It's definitely not BS. The reason it works is because they have figured out the optimal times to call and which menu options to select to minimize wait times. I was skeptical too, but after spending 3 hours on hold myself with no luck, I was desperate enough to try. Got through to an actual IRS agent who answered all my questions about self-employment deductions and filing requirements.

Wait seriously? I've been self-employed for two years and have never made quarterly payments. I just pay everything when I file. How bad are these penalties? Now I'm worried...

The penalties aren't usually massive - it's a percentage based on how much you underpaid and how late the payment was. For most people with smaller incomes like $12K, it might be $50-100 total in penalties. But it's still money you don't need to lose! The IRS has a "safe harbor" rule where if you pay either 90% of your current year tax or 100% of last year's tax through withholding or estimated payments, you won't face penalties. So once you have a year of self-employment under your belt, you can use that as your guide for the next year.

I've never heard of this QBI deduction! Would that apply to my graphic design work? And does it reduce the self-employment tax or just income tax? Trying to understand if it would help in my situation.

The QBI deduction only reduces your income tax, not self-employment tax. Since you're already below the standard deduction threshold and won't owe income tax anyway, the QBI deduction wouldn't help you in this situation. Your graphic design work would qualify for QBI, but it's calculated after other deductions and only applies to taxable income. Since your $12k income minus the $13,850 standard deduction puts you at $0 taxable income, there's nothing for the QBI deduction to reduce further. You'd still owe the full self-employment tax on your net business income. Focus on tracking business expenses to reduce your net self-employment income - that's where you'll see real savings on the SE tax you actually owe.

This is really helpful advice! I do work from a dedicated room in my apartment that's probably about 120 square feet - so using the simplified method that would be $600 I could deduct, which would save me around $90 in self-employment taxes. Quick question though - for the equipment depreciation, I bought my main computer and design software about 8 months ago for around $2,500 total. Can I deduct the full amount this year or does it have to be spread out? I'm trying to figure out if it's worth it to go through all the paperwork for the actual expense method vs just using the simplified home office deduction.