Thanks for mentioning SCORE! I hadn't heard of them before. Do they offer online options or is it all in-person? And would they be able to help with digital/creative business tax questions specifically?

They offer both online and in-person workshops depending on your location. During covid they moved most of their programs online and many stayed that way, which is great for accessibility. They definitely can help with digital/creative businesses! Many of their mentors have backgrounds in marketing, design, and digital services. When you sign up, you can specifically request someone familiar with your industry. The tax principles are largely the same across industries, but having someone who understands your specific business expenses and revenue models is super helpful.

This! I use a simple spreadsheet with categories for all my expenses and take photos of receipts with my phone. Makes tax time so much easier. Also, put 30% of every payment into a separate savings account for taxes - that saved me from panic when I got hit with my first self-employment tax bill.

Thanks for the insider perspective! Does your sister have any tips on what kinds of things the computer system typically flags? I'm wondering if having this side gig for the first time might have put me in a higher risk category.

The system mainly looks for statistical outliers compared to similar returns. So if you claimed deductions that are way higher than average for your income level, that's a red flag. Starting a Schedule C business can increase scrutiny, but it's not automatic - it's more about whether your reported expenses and income look reasonable for your type of business. Other big triggers include: not reporting income that was reported on W-2s or 1099s, claiming the Earned Income Tax Credit when the numbers don't quite add up, and home office deductions that seem disproportionate. But honestly, if you reported everything accurately and have documentation, even if you do get audited, it's usually just a matter of showing your records.

This is reassuring. Was it easy to respond to them? Did you have to mail physical documents or could you upload them somewhere?

Would you need to fill out a new W-4 form for this? Or can you just ask payroll to withhold an additional specific amount each paycheck? I've never adjusted my withholding before and don't want to mess anything up.

You would need to submit a new W-4 form to your employer. There's a section on the form (Step 4c) where you can specify an additional amount you want withheld from each paycheck. You don't necessarily need to complete the whole form again. Many employers will let you just indicate the additional amount you want withheld. I'd recommend using the IRS Tax Withholding Estimator on the IRS website to calculate how much extra you should have taken out based on this new income. It's much better to handle this now than to get surprised with a tax bill next April!

No, there's no requirement for employers to gross up the amount. It's completely at their discretion. But it's definitely not a favor if they're just converting the same dollar amount from non-taxable to taxable!

Thanks for clearing that up. I figured that was the case but wanted to check. Guess I'll be having a chat with my manager tomorrow with some calculations in hand!

I've considered that, but the inheritance left me really overweighted in just two sectors (finance and healthcare). The financial advisor at Vanguard recommended I diversify since these stocks now make up almost 30% of my total portfolio. I'm just trying to be smart about when and how I make the transition to minimize the tax hit.

I understand wanting to diversify, but consider doing it gradually over a couple of tax years instead of all at once. You could sell enough this year to stay in a lower tax bracket, then do the rest next year. Also worth checking if any of these companies offer dividend reinvestment plans (DRIPs). If they do, you could potentially shift some portion to those programs and slowly diversify without selling and triggering capital gains.

That's actually incorrect. The wash sale rule only applies when you sell at a LOSS and then rebuy within 30 days. OP is dealing with GAINS, so the wash sale rule isn't relevant here at all. Plus, what would be the point of selling at a gain, paying taxes, and immediately rebuying? That would just create a tax bill with no benefit.

I haven't run the full numbers yet. I was hoping to understand the principles first before diving into calculations. That's helpful to know about the self-employment tax being unaffected by filing status. The grant was specifically for childcare program enhancement, so I'll definitely look into whether it qualifies as tax-exempt. Hadn't even considered that possibility!

This is actually a misconception. Filing separately doesn't protect you from audit risk if the business is legitimately your spouse's. The IRS can still look at both returns regardless of filing status. What might help is filing for innocent spouse relief if there are unreported income issues.