Thanks for this info. Did your accountant have you include any specific documentation with your tax return or did you just keep the receipts in case of an audit? And did you have to explain the circumstances anywhere on the actual return?

I just kept all receipts and the agreement with the homeowner in my files - didn't submit them with the return. My accountant did add a brief note in the description field for the "other business expenses" line that said "work-related injury medical costs" but nothing detailed. If you use tax software, there's usually a field for descriptions where you can briefly note what the expense was for. The key is having your documentation organized and ready if they ever ask about it. I keep a dedicated folder for each tax year with all my receipts and any unusual expense documentation.

This is good advice. I learned this the hard way too. Got a proper occupational policy after paying out of pocket for a back injury. The monthly premium is tax deductible too!

Wait, so if the buyer put down more than 30%, I can't use installment sale reporting? My buyer put down 25% so I'm close to that threshold. Can you explain more about how this works?

There's no hard 30% rule that disqualifies you from installment sale treatment. I should have been clearer - I was thinking of the old "substantial payment" rules that aren't relevant anymore. You can use installment sale reporting regardless of the down payment amount. However, a large down payment will result in more taxable gain in the first year. If you received 25% down, then approximately 25% of your total gain would be taxable in the year of sale (assuming your gross profit percentage applies evenly).

My tax software doesn't seem to separate this stuff automatically. Will it prompt me for the breakdown between principal and interest, or do I have to figure that out myself?

4 Did you claim any tax credits like the Earned Income Credit or Additional Child Tax Credit? Those usually trigger automatic verification letters because they have special processing requirements.

15 No special credits at all, which is why I was surprised to get the verification letter automatically. Just basic W-2 income, standard deduction, and a small amount of bank interest. Nothing that would typically flag for additional verification. I've heard some people say the automatic letters sometimes happen if it's your first time filing with a particular software or if you've moved since your last filing, but neither applied to me. It really does seem pretty random!

20 You can request it through your IRS online account if you have one set up (irs.gov), or by calling the general IRS number at 800-829-1040. Be prepared to wait though - phone wait times are crazy this time of year.

Thanks for the suggestion! I double-checked and both programs have the same 1099-NEC income included, but I noticed TurboTax has my photography business categorized as "Arts & Entertainment" while TaxAct has it as "Professional Services." Could that make such a big difference?

Yep, that could absolutely cause the difference! The business classification can significantly impact how the software calculates your QBID. "Professional Services" might be triggering TaxAct to apply different limitations or calculations than the "Arts & Entertainment" category in TurboTax. Try changing the classification to match in both software and see if that resolves the discrepancy. Based on IRS guidelines, photography would typically fall under "Arts & Entertainment" rather than "Professional Services" unless you're doing commercial/corporate work specifically.

I've used both for the last three years. TaxAct is significantly cheaper but I've found TurboTax catches more deductions, especially for business owners. That said, TaxAct has gotten much better with their interface recently. If your taxes are relatively straightforward, TaxAct is probably fine and will save you money.

Thanks for the insight! My taxes aren't super complicated, just a W-2 and some investment income. Might give TaxAct a try this year then.

What about if you're a high-income earner? I heard there's a different percentage for people making over a certain amount. Is it still "whichever is smaller" in that case?

You're right to ask about high-income situations! If your AGI was over $150,000 (or $75,000 if married filing separately) in the prior year, the rule changes slightly. Instead of 100% of your prior year tax, you need to pay 110% of your prior year tax. So using the same example but assuming you're a high earner: - 90% of $12,000 = $10,800 - 110% of $8,000 = $8,800 In this case, $8,800 would be smaller, so that's your target to avoid penalties. And yes, it's still "whichever is smaller" - the IRS just adjusts the prior year percentage for high-income taxpayers.

Yep, the same rules apply for self-employment income. Your required estimated tax payments (to avoid penalties) still need to cover the SMALLER of 90% current year or 100% prior year (110% if high income). The difference is you need to include both income tax AND self-employment tax in your calculations. A good practice for self-employed folks is to set aside 25-30% of your income for taxes (including SE tax), but using last year's total tax as your safe harbor amount is usually the easiest way to avoid penalties if your income is growing.