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Former small farm owner here. One tip nobody's mentioned: Make sure you're tracking your mileage for farm-related trips! This includes trips to suppliers, farmers markets, deliveries, etc. The mileage deduction adds up fast and many new farmers miss it. Use a simple app or even a paper notebook in your vehicle. Also, look into if your state has any agricultural tax exemptions. In many states, you can get exempt from sales tax on farm supplies and equipment, which can save you a ton over time. You usually need to fill out a form with your state's department of agriculture or revenue.
For farm vehicles, you generally have two options: deduct actual expenses (gas, maintenance, insurance, etc.) OR take the standard mileage deduction. You can't do both. For most small farmers, the standard mileage deduction is simpler and often more beneficial. In that case, you only need to keep a mileage log with dates, destinations, purpose, and miles driven - no gas receipts needed. The log should differentiate between farm use and personal use if it's a vehicle you use for both. If you choose to deduct actual expenses instead, then yes, you'd need to keep all those gas receipts and maintenance records.
Whatever you do, DON'T toss that shoebox of receipts even after filing! I learned this the hard way when I got audited 2 years after starting my small farm. The IRS specifically wanted to see original receipts for all my startup equipment. Also, take photos of your farm setup and equipment. If you're ever questioned, visual evidence that you're actually operating a legitimate farm business (rather than just claiming hobby expenses) is super helpful.
One thing nobody's mentioned yet - if your parents claim you as a dependent, your standard deduction is different. For 2025, if you're a dependent and earn only earned income (like from your dog walking), your standard deduction will be your earned income plus $400, up to the regular standard deduction amount. But the bigger issue is keeping track of everything throughout the year. I learned this the hard way! Make a spreadsheet of all your income and expenses RIGHT NOW before you get too far into it.
Thanks for mentioning this about being a dependent! So if my parents claim me, does that mean I'll end up owing more in taxes than if I filed independently? And what kind of things should I be tracking in this spreadsheet? Just dates, clients, and amounts or is there more I should be writing down?
Being claimed as a dependent could result in owing more taxes in some situations because your standard deduction might be lower than if you filed independently. However, there are other benefits your parents get from claiming you that might outweigh this difference for your family overall. For your spreadsheet, track way more than just the basics! Record dates, client names, payment amounts, payment methods, mileage to/from each client (with starting/ending odometer readings ideally), any supplies purchased (treats, bags, etc.), apps or software you use for the business, a portion of your phone bill if you use it for client communication, any insurance you get, and even home office expenses if you use part of your living space exclusively for business administration. Basically, document EVERYTHING with receipts. Tax time will be so much easier, and you'll maximize your deductions which directly reduces your taxable income.
dont forget about state taxes too! everyone here is talking about federal but depending on your state you might have to file state taxes too. some states have no income tax but most do. also some cities have local income taxes too.
Just to add another perspective on the LLC partnership issue - I had a similar situation where we thought we had closed down but still had some trailing income come in. We ended up having to file a partnership return for that extra year. One important thing to know: if the business is still registered with the state, the IRS expects to see a tax return, even if it's just to report minimal activity. Don't assume that because you filed a "final" return previously that you're done if there's still activity. The IRS actually has automatic penalty systems that flag missing returns for entities that are still active at the state level.
That's really helpful info about the automatic penalty systems! Do you know if there's a specific form or procedure for "reopening" a partnership for tax purposes after a final return was filed? Or do I just file a regular 1065 again?
You just file a regular Form 1065 again. There's no special "reopening" form needed. Just make sure you don't check the "final return" box this time! The IRS systems are pretty forgiving about this situation since it happens fairly often. The most important thing is to make sure your client properly closes everything at the state level once they're truly done with the business. Until they formally dissolve the LLC with the state, they'll need to keep filing returns as long as there's any activity. Some states also require annual reports or minimum taxes just to maintain the LLC, even with zero activity.
Has anyone dealt with the penalties for the missed K-1? I'm curious how severe they typically are. My spouse and I missed reporting a K-1 a few years back (completely forgot about a small investment partnership) and I'm worried about what might happen when we amend.
In my experience, the penalties really depend on the amount of tax that was underpaid as a result. Small K-1 with minimal income? Probably just interest. Large K-1 with significant income? Could be 20% accuracy-related penalty plus interest. But filing voluntarily before they catch it is ALWAYS better than waiting.
Different tax softwares display education credits differently on the summary screens, which causes so much confusion! In my experience: - TurboTax tends to show the "impact" of the AOTC on your refund, not just the refundable amount - H&R Block typically separates the refundable and non-refundable portions more clearly - TaxAct sometimes lumps all credits together which makes it look like you're getting more back The key is to look at Form 8863 in the actual PDF of your return. Line 8 is your total AOTC, and line 8c specifically shows the refundable portion which cannot exceed $1,000 per eligible student.
Is there any way to see this breakdown before finalizing the return? I'm using TaxAct and it's just giving me a big total number for "education credits" without splitting it up.
Yes, in TaxAct you can view the forms directly before filing. Go to the "Review" section, then look for an option like "View Tax Forms" or "Preview Tax Return." Find Form 8863 (Education Credits) in the forms list. On that form, you'll see the breakdown with line 8c showing specifically how much is refundable. In general, any good tax software should let you preview the actual IRS forms before filing. This is the best way to see exactly what's happening with your credits, rather than relying on the simplified summary screens which can be misleading.
I got audited last year specifically for AOTC and learned the hard way what happens when software gets it wrong! Make sure you have documentation for ALL your qualified education expenses: 1) Your 1098-T from your school 2) Receipts for required textbooks and supplies (even if not purchased from the school bookstore) 3) Receipts for required course-specific fees not included on 1098-T 4) Proof you were enrolled at least half-time for at least one academic period The IRS specifically looks for people claiming the refundable portion of AOTC incorrectly. Double check that you're eligible - you must be pursuing a degree, cannot have completed 4 years of college already, and need to meet the income requirements.
Did you end up owing money back after your audit? I'm worried because I claimed some textbooks but don't have all the receipts.
Miguel Ramos
You should try a third tax software as a tiebreaker! I had a similar issue between H&R Block and TaxSlayer last year. Added my info to CashApp Taxes (formerly Credit Karma Tax) and it matched one of them, which gave me confidence in which calculation was correct. Also, don't forget to check if both programs are handling your state taxes the same way. Sometimes the federal returns match but state calculations cause big differences in the final refund amount.
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Giovanni Conti
ā¢That's a great idea! I didn't think about using a third software as a tiebreaker. Have you found any free options that would work for this? I'm hesitant to pay for yet another tax program just to verify.
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Miguel Ramos
ā¢CashApp Taxes is completely free for federal and state, so that's a good option for a tiebreaker. TaxAct also has a free version that might work depending on your tax situation. Just enter your information and go far enough to see the calculation results - you don't need to file through them. Even if you just get to the federal calculation stage, that should tell you which of your other returns is calculating federal taxes correctly.
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Zainab Ibrahim
Just a warning from my experience last year - I had a $2400 difference between TaxAct and TurboTax. Turned out TurboTax was incorrectly calculating a premium tax credit for my ACA healthcare plan. I filed with the (lower) TaxAct refund amount, which was correct. If healthcare subsidies are involved in your taxes, check those calculations specifically! The difference can be huge and TurboTax doesn't always get it right.
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StarSailor
ā¢Same thing happened to me but with H&R Block calculating it wrong! The ACA credit calculations are super complicated. Double check Form 8962 on both returns if you have marketplace health insurance.
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