This is a good explanation but you're missing tax CREDITS which are even better than deductions! Deductions reduce your taxable income, but credits reduce your actual tax bill dollar-for-dollar. Like the Earned Income Credit can be worth thousands if you qualify!

You're absolutely right! Credits are super valuable and I should have mentioned them. Deductions reduce your taxable income, while credits directly reduce your tax bill, making them more powerful. Some common credits include the Earned Income Tax Credit (EITC) for low to moderate income workers, Child Tax Credit if you have kids, American Opportunity Credit for education expenses, and Retirement Savings Contributions Credit (Saver's Credit) if you contribute to retirement accounts while having moderate income. Thanks for pointing this out - credits can make a huge difference in your final tax bill!

Tax deductions and exemptions are similar but different. Deductions are expenses that reduce your taxable income (like student loan interest or charitable donations). Personal exemptions used to be a thing (a set amount you could deduct for yourself and dependents) but they were eliminated by the 2017 tax law until 2025. For tax brackets, they only apply to the income within each bracket (this is called "marginal" taxation). For example, if you're single with $48,000 taxable income in 2023, you'd pay 10% on the first $11,000, then 12% on the income from $11,001 to $44,725, and 22% only on the amount from $44,726 to $48,000. People sometimes think getting into a higher bracket means ALL their income gets taxed at the higher rate, but that's not how it works.

I wish! My foreign investments generate way too much in foreign taxes to qualify for the simplified credit. I'm talking about $9,500 in foreign taxes last year, so there's no way to get under that $300 threshold without completely overhauling my investment strategy and potentially giving up significant returns. That's why I'm stuck dealing with Form 1116 and these frustrating limitations.

Interesting idea but wouldn't that just be avoiding the problem by giving up the investments entirely? The whole point is to keep the investments while figuring out how to use the tax credits.

That's interesting but I only have one W2 job, so I don't think that's the issue for me. Though that's good to know for the future if I ever have multiple employers. Did you end up just filling out the reconciliation worksheet to explain the legitimate difference?

Yes, I completed the worksheet and explained the legitimate difference. For me, the difference was because I worked in two states during the year (relocated mid-year), so my box 16 state wages were split between two states while my box 5 Medicare wages were the total for the entire year. The reconciliation worksheet allows you to explain these discrepancies, and CashApp accepted my explanation without any issues. Once I submitted it, I was able to continue with my filing. In your case, since there shouldn't be a difference, just clearly state that the values are identical and that there appears to be a system error causing the false flag.

Yeah, CashApp Taxes has been buggy this season. For your student loan interest issue, make sure you're entering your 1098-E in the income section and not the deductions section. Counter-intuitive, I know, but that's how their system is set up. If that doesn't work, try entering the information again in a private/incognito browser window - sometimes their web cache causes issues.

Do you list every single transaction separately? My Cash App export has like 200+ transactions. Do I seriously need to document each one?

You don't need to list every transaction individually on your tax return, but you should have documentation for them in your records. I grouped similar transactions together - for example, "January-March roommate utility reimbursements: $450" rather than listing each $25-50 payment separately. For your records, I'd recommend at least categorizing each transaction in a spreadsheet. You can summarize these categories on your tax forms, but have the detailed breakdown available if ever questioned. The key is showing you've done your due diligence in separating actual income from money that was just passing through your account.

For a car sale, you need to report it but it's considered a personal capital asset sale, not regular income. You'll use Form 8949 and Schedule D instead of Schedule C. You only pay taxes on the profit (if any) compared to what you originally paid for the car. So if you bought the car for $20,000 and sold it for $18,000, you actually have a $2,000 loss which isn't taxable. If you made a profit, you'd pay capital gains tax on that amount. Just make sure you have documentation of your original purchase price.

Does commercial insurance become a 70% write-off too (matching the business use percentage) or can you deduct the full difference between personal and commercial rates?

You would deduct the commercial insurance at the same percentage as your business use - so 70% in your case. The simplest approach is to pay for the insurance from your business account and then account for the personal portion (30%) as a draw or distribution to yourself. If you're using the standard mileage rate though, insurance is already built into that rate, so you wouldn't deduct insurance separately. That's one of the tradeoffs between the two methods - standard mileage is simpler but gives you less itemized control.

This is important! The luxury auto limits for 2023 kicked in at $20,200 for passenger cars. It'll probably be a bit higher for 2025. Under that limit, you can take larger depreciation deductions. Over that threshold, your annual depreciation gets capped, stretching out the deductions over more years.