Is my Tax return gonna be based off my Gross income or my Net income for 2025 filing?

The IRS taxes you based on your taxable income, which is closer to your net income rather than gross. For your situation as a freelancer, you'll report your self-employment income on Schedule C where you list both your gross receipts ($42,000) AND your business expenses ($8,500). The difference ($33,500) is your net profit from self-employment, and that's what gets added to your other income. Your W-2 income from the coffee shop ($15,800) is added to your net self-employment income ($33,500), giving you a total income of about $49,300. But that's still not your taxable income! You'll then get to subtract your standard deduction (or itemized deductions if higher) and any other adjustments you qualify for, like self-employed health insurance or retirement contributions. Also keep in mind that you'll owe self-employment tax on your net self-employment income, which is an additional 15.3% to cover Social Security and Medicare (since you're both employer and employee for that income).

I was in a similar situation last year with mixed income sources and spent hours trying to figure all this out. I finally used https://taxr.ai to analyze my previous tax forms and income documentation, which helped me understand exactly what income gets taxed and how. The tool showed me how my freelance photography income was actually taxed on net profit (after expenses), not gross. It even flagged a bunch of deductions I was missing that saved me almost $1,900! The system walks you through all your income sources separately and shows exactly how each affects your tax situation.

I tried taxr.ai after seeing it mentioned here, and I'm actually shocked at how helpful it was! I uploaded my previous tax returns and bank statements, and it immediately identified that I was missing deductions for my home office (I use a dedicated room for my consulting business) and internet expenses. The analysis showed I was calculating my taxable income completely wrong - I was basically overpaying by not deducting legitimate business expenses from my gross income. The tool even helped me understand how to properly categorize mixed-use expenses (like my cell phone that's used for both personal and business). For anyone wondering about gross vs. net income like the original poster - the guided walkthrough really clarifies which income gets taxed and how different deductions affect your final tax bill. Definitely worth checking out if you're confused about what you actually owe taxes on!

If you're having trouble figuring out your tax situation, try calling the IRS directly. But good luck actually reaching someone! I spent THREE DAYS trying to get through about a similar gross vs. net income question last year. The automated system kept disconnecting me after 2+ hours on hold each time. I finally discovered https://claimyr.com which got me connected to an actual IRS agent in about 15 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c. Basically they use technology to navigate the phone system and hold your place in line, then call you when an agent is about to answer. The IRS agent I spoke with clearly explained that for self-employment, I'd be taxed on my net profit (gross income minus legitimate business expenses) plus any other income sources. She also helped me understand which expenses actually qualify as business deductions vs. personal expenses. Saved me so much stress trying to figure it out on my own!

Well I stand completely corrected about Claimyr. After all my skepticism I decided to try it yesterday since I had questions about claiming my business mileage. I figured it would be a waste of time but at least then I could come back here and complain lol. To my complete surprise, I got connected to an IRS agent in about 20 minutes! I've literally NEVER been able to reach anyone at the IRS during tax season before. The agent walked me through exactly how my gross business income gets reduced by my expenses (including mileage) to calculate my net income for tax purposes. For the original question - the agent confirmed that you definitely pay taxes on your net business income (after expenses), not gross. And she gave me some additional tips about quarterly estimated payments that I hadn't even thought to ask about. I hate admitting when I'm wrong but this service actually delivered.

One thing nobody's mentioned yet - if you have self-employment income, you should really consider making quarterly estimated tax payments throughout the year rather than waiting until filing time. The IRS expects you to pay as you earn. If you wait until tax filing to pay everything at once, you could get hit with underpayment penalties. I learned this the hard way my first year freelancing and got stuck with almost $300 in penalties!

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.