Thank you for bringing this up! I hadn't even considered the multi-state aspect. We are planning to do some promo events in neighboring states. Do you know if there's a minimum value threshold before you have to worry about filing in another state? Like if we only give away 20-30 hats in a different state, is it even worth tracking?

Most states do have minimum thresholds before you're required to file, but they vary quite a bit. For example, California has a $500 threshold for use tax reporting for businesses, while some other states might be higher or lower. Even if you're under the threshold, technically you still owe the tax, but the filing requirements may not kick in until you hit that minimum. I always recommend tracking everything regardless, because if you continue doing events in the same state, you might exceed the threshold over time. Better to have the data and not need it than try to reconstruct it later!

Not OP but I use Shopify for my merch business and their tax handling is actually pretty decent for the standard stuff. They have automatic tax calculation for regular sales, but they don't handle promotional items specially. You still need to manage that part manually or with additional tools.

Wait really? I didn't know they report to the IRS! Most of my payments come through PayPal and Venmo. Does that mean the IRS already knows about this income even if I haven't reported it yet?

Yes, this is a relatively recent change that's been fully implemented. If you received more than $600 total in payments for goods or services through these platforms in 2024, they'll issue a 1099-K that goes to both you and the IRS for your 2025 filing. The IRS will be able to see that you received these payments, though they won't know specifically what you sold. This is exactly why it's important to properly report the income on your Schedule C rather than ignoring it - the information is already being reported to the IRS through these third-party payment processors.

Your business deductions are completely separate from your dependent status. Even if your parents claim you as a dependent, you still file your own Schedule C for your business income and take all applicable business deductions yourself. Your parents claiming you as a dependent mainly affects personal exemptions and credits - it has no impact on how you report your business income and expenses. So you absolutely can (and should) take all legitimate business deductions on your Schedule C regardless of dependent status.

This is incorrect. There's no minimum income requirement to file as Head of Household. You need to meet the requirements about marital status, providing support, and having a qualifying person live with you. The IRS doesn't care if your support comes from current income, previous income, gifts, loans, or inheritance. The confusion might be that you need income above certain thresholds to be REQUIRED to file taxes at all, but that's different from being ELIGIBLE for a certain filing status.

Thanks for the correction - I was mixing up the requirements for being required to file with the requirements for filing status eligibility. You're right that there's no minimum income requirement specifically for claiming Head of Household status. The key factors are the ones mentioned earlier about maintaining a household and supporting a qualifying dependent. The OP should be eligible based on what they've described, regardless of whether they had positive income in the current tax year.

Thanks for bringing this up. My son is definitely my dependent - he's 9 years old and I provide 100% of his support. He lives with me full-time. I do have some small side income from freelance work (about $8,000 for the year) that I didn't mention in my original post since it's minor compared to what I was living on from previous crypto gains. I also had some interest income from my savings where I keep my previous crypto profits. Would that help establish that I had some income for the year?

That sounds like a really clever approach! Do you know if there were any restrictions on how the equipment could be used since it technically came from a non-profit? And how complicated was the paperwork process?

There were some restrictions - the equipment had to be used in line with the non-profit's mission (in their case, supporting local food businesses and job creation). They had to document how the equipment was supporting those goals with quarterly reports for the first year. The paperwork wasn't too bad actually. The non-profit handled most of it since they're used to the documentation requirements. My brother just had to provide some information about his business plan and how the equipment would benefit the community. The whole process took about 3 weeks to set up, but the tax savings made it worthwhile. The non-profit also helped with promoting the fundraiser which got them more donations than they might have received on their own.

You're close, but it depends on the equipment and depreciation rules. For many business equipment purchases, you can't deduct the full amount in year one - you have to depreciate it over several years (often 5-7 years for kitchen equipment). So you might have $12,000 in GoFundMe income this year, but only be able to deduct $2,400 of the mixer this year (assuming 5-year depreciation). That means you'd have $9,600 in net taxable income from this transaction for the current year. You'd get the remaining deductions spread over future years. Now, there are some exceptions like Section 179 expensing or bonus depreciation that might let you deduct it all in year one, but those have limitations and phase-outs based on your total equipment purchases and business income.

Ohhhh that makes sense, thanks for explaining! I totally forgot about depreciation. So even with the deduction it could still impact your taxes quite a bit in that first year. Definitely worth talking to an accountant before launching the campaign then.

Thanks for bringing this up! I had no idea about the itemizing rule. Does this mean we need to coordinate our filing strategies even if we're doing separate returns? That seems frustrating.

Yes, you do need to coordinate at least on this one aspect. If your ex decides to itemize their deductions, you'll be forced to itemize as well, even if your itemized deductions are less than the standard deduction. This can result in you paying more tax than if you both took the standard deduction. It's one of the downsides of the Married Filing Separately status. That's why it's worth having a brief conversation with your ex about whether either of you plans to itemize, just so you're not caught off guard.

No, you can't claim Head of Household if you're married as of December 31st. You would need to be "considered unmarried" which means either legally separated under a decree or legally divorced. Plus you need a qualifying dependent and to have paid more than half the cost of keeping up your home.