This is really helpful, thanks! Looking at these brackets, I think that's exactly what happened. My first job had me in the 22% bracket by itself, and then the second job pushed our household income into the 24% bracket. Both were withholding at their respective individual rates rather than our true combined rate. Is there any way to tell your employer to withhold at a higher rate to prevent this problem next year?

Yes, you can absolutely fix this for next year! Fill out a new W4 form with your current employer and use the "Multiple Jobs" worksheet (Step 2) or the "Deductions Worksheet" (Step 4) to increase your withholding. The easiest approach is to use Step 4(c) where you can specify an additional amount to withhold from each paycheck. Calculate your expected annual shortfall (like $3000) and divide by the number of remaining pay periods in the year. So if you're paid twice a month and realize this in February, you'd divide by 22 remaining pay periods = about $136 extra withholding per paycheck. The IRS also has a Tax Withholding Estimator tool on their website that's pretty accurate for calculating the right amount.

This explanation makes a lot of sense. I've been doing payroll for a small business and we see this all the time when people come from lower-paying jobs. The withholding tables just aren't designed to handle multiple employers or mid-year salary changes well.

That's exactly my situation! I went from a $60k job to a $95k job in September, so my new employer has been withholding at the higher rate, but only for part of the year. This really helps me understand why I'm suddenly looking at this tax bill. I think I'll adjust my W4 right away to avoid this happening again next year. Thanks everyone for the helpful explanations!

I know it seems silly to worry about 99 cents, but I just want to make sure I'm doing everything right. Better safe than sorry when it comes to taxes! Thanks for the straightforward advice though.

Trust me, I get it. I used to work myself up over tiny details on my taxes too. My accountant friend always says "report everything accurately but don't lose sleep over pennies." The IRS is looking for major discrepancies, not whether you properly categorized less than a dollar. Cash basis is right anyway for most regular people.

It's because different types of income have to be reported on specific forms. The 1099-B is specifically for proceeds from broker transactions (buying/selling investments). The 1099-MISC Line 3 "Other Income" is for things that don't fit elsewhere - like referral bonuses, interest on uninvested cash, or promotional rewards. The IRS requires brokers to categorize each type of payment correctly. It is confusing though - I agree the system could be streamlined!

Do typos count as discrepancies? I realized after filing that I misspelled the name of my employer but all the numbers and EIN are correct.

Minor typos in company names usually don't cause issues as long as the EIN (Employer Identification Number) is correct. The IRS primarily matches your reported income against what was reported under your SSN using the EIN, not the company name text. The problems typically happen with mismatches in critical identifiers - your name not matching SSA records, incorrect SSNs for you or dependents, income amounts that don't match what was reported to the IRS, or math errors in the calculation of tax owed or refund due.

Is filing early less likely to trigger an audit then? I've always waited until April because I thought filing early might make me look suspicious.

My tax guy told me waiting until April is better because the IRS quotas for audits are usually filled by then. Is that just a tax myth?

Is there any way to reduce the self-employment tax? That's a huge chunk of my income, and I didn't realize it would be that much higher than regular income tax.

You can reduce your self-employment tax by setting up an S-Corporation instead of operating as a sole proprietor. With an S-Corp, you pay yourself a reasonable salary (which is subject to self-employment tax) and take the rest as distributions (which aren't subject to SE tax). For example, if your actual earnings are $125K, you might pay yourself a salary of $75K (subject to the 15.3% SE tax) and take $50K as distributions (not subject to SE tax). This could save you thousands. However, S-Corps have more paperwork and costs, so you need to make sure the tax savings outweigh those expenses.

I thought you can't claim home office deduction unless you have a separate entrance for clients? Is that still true?

Do you need a separate bank account for the rental income too? I'm about to start renting out my spare bedroom and wondering how detailed the bookkeeping needs to be.

A separate bank account isn't absolutely required, but it makes your life SO much easier. It creates a clear separation between your personal finances and your rental business, which is extremely helpful if you ever get audited. As for bookkeeping detail, err on the side of too much rather than too little. Keep all receipts, maintain a spreadsheet tracking income and expenses by month, and document everything about the rental use (dates occupied, repairs, any personal use periods). Take photos before/after tenants for documentation of condition. The more organized you are now, the less stress you'll have at tax time or if questions come up later.

That's for home OFFICE deductions, not rental property. The simplified method doesn't apply to rental income reported on Schedule E. They're totally different tax situations.