Thanks for that additional info! I didn't even think about the state tax implications if I had chosen a different state. If I do something similar in the future and pick a state WITH income tax, how long would I need to work there before I'd have to file a tax return for that state?

It varies significantly by state. Some states require you to file a nonresident return from day one, regardless of how little you earn there. Others have minimum thresholds like working more than 30 days or earning above a certain amount. For example, New York technically requires nonresident income tax filing for any work performed in the state, even for a single day. Other states might have a 15-30 day grace period. Some have minimum earning thresholds ranging from $1,000 to $3,000 before you need to file. There are also a few states with reciprocity agreements where you might only pay tax to your home state.

This is a really good point! Seattle has that head tax thing that even non-residents have to pay sometimes. OP should check on local taxes for wherever they worked.

Wait, so not only do I pay income tax on my side gig money, I also have to pay this additional self-employment tax? Is there a minimum amount I need to make before this kicks in? And what's this about deducting half of it?

You need to pay self-employment tax if your net earnings from self-employment are $400 or more. So yes, it kicks in pretty quickly. This tax is basically covering the Social Security and Medicare taxes that an employer would normally withhold from your paycheck (plus the employer portion too, which is why it's 15.3%). The silver lining is that you can deduct half of your self-employment tax on your 1040 as an adjustment to income. This is because if you were an employee, your employer would pay half of these taxes. So the IRS allows you to deduct that "employer portion" to make things more equitable. It's automatically calculated when you file Schedule SE.

Totally agree! I use FreeTaxUSA and while I love it for the price, the explanations about business deductions vs itemized personal ones were super confusing. I nearly mixed them up completely until I found a YouTube video explaining the difference.

Omg I didn't even think about that! I don't know much about tax credits tbh. Is there an income limit for the Earned Income Credit? And do I need any special documentation to claim it beyond what I'd need for claiming my nephew as a dependent?

Yes there's an income limit but at $42k with a qualifying dependent you should be under the threshold. For 2025 filing season the limit is around $46,000 for Head of Household with one qualifying dependent. You don't need any additional documentation beyond what you'd already gather for claiming your nephew as a dependent. The same proof that he lives with you and that you provide more than half his support works for both. Just make sure when you file your amended return you complete Schedule EIC along with your 1040-X. The credit could be worth anywhere from $1,500-$3,500 depending on your exact income and situation.

This is great advice! And another thing - amended returns can't be e-filed. You have to print and mail them, which means they take forever to process (like 4+ months minimum). Just be prepared for a wait.

Thank you so much for this clear explanation! So I should download the current form labeled "2024" to report my 2023 non-deductible contributions, correct? And then do I just mail it in by itself, or do I need to include anything else with it?

Yes, you should use the current form labeled "2024" for your 2023 non-deductible contributions. You can mail just the completed Form 8606 by itself to the same IRS address where you'd normally send your tax return. No need to include a 1040 or other paperwork since this is a standalone form for your non-deductible IRA contributions. Just make sure to sign and date it, and keep a copy for your records. The IRS may assess a small penalty for filing it late, but it's much better to file late than not at all.

I had to file 3 years worth last year. I sent them all in separate envelopes to make sure they wouldn't get confused or lost together. Each year needs the correct form (so 2022 form for 2021 contributions, 2023 form for 2022 contributions, etc). I also wrote the tax year very clearly at the top of each form to avoid confusion.

Does the FBAR thing apply if I don't have my name on any foreign accounts but I'm still sending/receiving money to family abroad? My parents in the Philippines use their local account but sometimes send me money from it.

FBAR filing requirements typically apply when you have a financial interest in or signature authority over foreign financial accounts that exceed $10,000 in aggregate at any time during the calendar year. If the account is solely in your parents' names and you don't have signature authority, you generally wouldn't need to file an FBAR just for receiving transfers from their account. However, you still need to report any income you receive from abroad on your tax return, regardless of FBAR requirements. The nature of the transfers matters - if they're genuine gifts from your parents, different rules apply than if they're income or business distributions.

Absolutely this! I had a similar setup with my uncle's business in Brazil and it turned into a nightmare during an audit because we had nothing in writing. The IRS ended up treating all the money I sent as gifts (which hit gift tax limits) and all returns as pure income. Documenting everything properly from the start would have saved me thousands.

Thank you all for the amazing advice! I definitely need to formalize the arrangement with my grandfather. I hadn't considered that without proper documentation, the IRS might interpret our arrangement differently than intended. I'll work on creating a written agreement that clearly specifies my contribution is an investment and outlines the expected returns. I've started tracking all transfers in a detailed spreadsheet as suggested. Would it be better to classify this as a loan with interest rather than an equity investment to simplify the tax treatment? I'm wondering which approach would be cleaner from a reporting perspective.