What about retirement contributions? Do those reduce your qualified business income? I contribute to a SEP IRA and I'm wondering if that affects my QBI calculation.

Retirement contributions like SEP IRA, Solo 401(k), or SIMPLE IRA contributions do not directly reduce your QBI. These deductions are taken "above the line" on your personal tax return, but QBI is calculated at the business level before these personal deductions. However, retirement contributions do lower your overall taxable income, which can be beneficial if you're near the QBI phase-out thresholds. By reducing your taxable income through retirement contributions, you might avoid or reduce the phase-out limitations on your QBI deduction, potentially making more of your business income eligible for the full 20% deduction.

Generally, you'd want to keep them separate since the SSTB limitations would only apply to your consulting business. If you aggregated them, your rental income might get caught in the SSTB limitations. The regulations allow aggregation in certain cases but don't require it.

17 Quick question - for the home office deduction, does it matter if the space is also sometimes used for other things? Like, I have a desk where I package all my items, but sometimes my kids do homework there too.

22 For the home office deduction, the space needs to be used "regularly and exclusively" for business purposes to qualify. If your kids are doing homework at the same desk, unfortunately that area wouldn't qualify for the deduction since it's not exclusively business use. However, you might be able to claim a portion of your utilities, internet, and phone as business expenses based on the percentage used for business activities without taking the formal home office deduction. Just make sure you can reasonably justify the business percentage you're claiming if ever questioned.

5 Technically, the IRS requires you to report ALL income, regardless of the amount. There's no minimum threshold for self-employment income. If you earned $500 from your side business, you should report it. That said, self-employment tax (Social Security and Medicare) only kicks in when your net earnings are $400 or more. But income tax could still apply to amounts less than that, depending on your overall tax situation.

Thank you for bringing this up! My parents do still claim him as a dependent. But he definitely had taxes taken out of his checks - I remember him complaining about it lol. So even if he's not required to file, he'd basically be giving free money to the government by not filing, right?

Exactly right! Even if he's not legally required to file, any federal income tax withheld from his paychecks is essentially an interest-free loan to the government. Filing would get that money returned to him. At $7,500 income as a dependent, he'd likely get most or all of his federal withholding back as a refund. Many young workers don't realize they're leaving hundreds of dollars on the table by not filing. Plus, getting into the habit of filing annually is a good practice for his financial future.

Is this really true? So if I'm pretty sure I'm getting a refund, I can just file whenever I want with no consequences? That seems too good to be true.

Thanks for bringing this up! I checked and the second notice is dated about 3 weeks after my payment was processed. So unfortunately it's not just a timing issue. And yes, I specifically selected tax year 2018 Form 1040 when making the payment online - I was very careful about that since I didn't want any mix-ups. I think what might have happened is that the payment went through but wasn't applied to the specific CP22A balance. Maybe it was applied to the original tax liability but not to the additional assessment? The whole thing is so confusing and there's no way to check exactly where the payment was applied online.

That's definitely more concerning then. You're probably right about the payment being misapplied within the same tax year. The IRS has different "buckets" for different types of assessments, even within the same tax year. When you do manage to speak with someone (either through regular calls or using one of the services mentioned above), specifically ask them to check ALL modules for tax year 2018 to locate your payment. Make sure they know it was in response to a CP22A so they can properly apply it to the additional assessment rather than just the original tax liability. Be sure to have your payment confirmation number handy when you call. That's the fastest way for them to trace where your money actually went in their system.

This is great advice. The transcript will show all transactions for the tax year including payments, assessments, penalties, and interest calculations. Look for transaction code 670 which indicates a payment was received and applied. The date and amount should match your payment.

Thanks for this insider perspective. So if I understand correctly, as a genuine recovery startup (formed after Feb 2020), I might actually be at lower risk than established businesses? That's somewhat reassuring. About the voluntary disclosure program - would using that be essentially admitting I did something wrong? I believe my claim was legitimate based on the recovery startup provisions, but now I'm second-guessing everything because of the company I used.

Yes, recovery startups generally face less scrutiny because your eligibility was based on clear criteria (formation date, gross receipts under the threshold) rather than the more subjective "partial shutdown" or "significant decline in gross receipts" tests that established businesses had to meet. The voluntary disclosure program isn't necessarily an admission of wrongdoing - it's designed for businesses who, after review, believe their claim may not fully qualify. If you believe your claim as a recovery startup was legitimate, there's likely no need to use this program. Instead, focus on organizing your documentation. Make sure you have clear records showing: 1) formation after February 15, 2020, 2) evidence of actual business operations (not just a paper entity), 3) documentation of qualified wages paid, and 4) gross receipts under the threshold. The IRS is primarily targeting obviously fraudulent claims first, particularly those made by established businesses using aggressive interpretations of the shutdown provisions.

If the IRS disallows your ERC, you'll likely need to file amended returns for the year(s) affected. The wages you used for ERC would become fully deductible again, which could actually reduce your taxable income for that year. So there's potentially a small silver lining if you have to repay.