I did track some miles but honestly not consistently. I remember putting in something like 4,000 miles but I was driving a lot more than that. Probably closer to 18,000 miles for Lyft that year. I think you're right that this might be a big part of the problem.

That would definitely explain a large portion of the deficiency! At 56 cents per mile in 2021, the difference between claiming 4,000 miles versus 18,000 miles is about $7,840 in additional deductions. Depending on your tax bracket, that alone could account for $1,700-$2,700 in tax differences.

This happened to me! I reported all my Uber income but completely missed the Schedule SE part. Ended up with a $7k notice a year later. I recommend getting a tax transcript from the IRS website to see exactly what they have on file versus what you submitted.

Thanks for confirming my suspicion! I used the calculator and it's showing we might be slightly underwithholding overall. Is it better to adjust both our W-4s slightly or just have one of us make a bigger adjustment? Does it matter which approach we take?

Either approach works from a tax perspective - the IRS doesn't care which spouse has the withholding as long as your household total is correct. For simplicity, I'd recommend just having one person make the adjustment - usually the higher earner or whoever has the more stable income. Remember that if your incomes are fairly high, the "married" withholding tables assume that one spouse might not work, so with two similar high incomes, you might need more withholding than the standard tables suggest. The calculator should account for this, but it's always good to recheck your withholdings around June each year to make sure you're on track.

Is this still the best approach with the redesigned W-4? I thought the new form was supposed to fix these issues with the two-earner worksheet?

Should people proactively contact their benefits offices about potential discrepancies, or just wait to see if they get flagged?

Generally, it's better to wait until you're contacted unless you realize you've made a significant error that would affect your eligibility. The verification systems are designed to filter out minor discrepancies, and proactively contacting benefits offices often just creates confusion when there might not be an issue. If you do discover you've made a major reporting error that would affect your eligibility, then yes, you should contact the appropriate office to correct it. But for small differences in how income is categorized or reported, the cross-referencing systems typically have thresholds for what triggers a review.

From what I've read, it includes pretty much all federal benefit programs - Social Security, Medicare, Medicaid, SNAP, Housing assistance, veterans benefits, etc. But the focus is primarily on programs where eligibility is tied to income levels.

This is super helpful, thank you! Looking at these factors, I'm definitely more on the hobby side. My financial records are pretty basic, I primarily do it for enjoyment, and the income is small compared to my day job. One more question - if I do decide to formally track this as a hobby on my taxes, should I be keeping receipts for all my bonsai-related purchases even though I can't deduct them? Just in case the IRS ever has questions?

Good question! Yes, I would recommend keeping basic records of both your sales and expenses, even though you can't deduct the expenses for a hobby. This serves two important purposes: First, if the IRS ever questions whether this is truly a hobby, your records can help demonstrate the financial reality of your activity. Second, if you eventually transition to business status, having historical records will be valuable. Also, while you can't deduct hobby expenses against hobby income anymore (thanks to the Tax Cuts and Jobs Act), keeping track of expenses helps you understand the true economics of your activity. Just keep it simple - a basic spreadsheet and a folder for receipts should be sufficient. No need for elaborate bookkeeping if it's truly just a hobby.

Getting a 1099-K means Etsy is reporting that income to the IRS, so you definitely need to report it on your tax return. Starting in 2022, platforms like Etsy are required to issue 1099-Ks for $600+ in sales (used to be $20k). This doesn't automatically make your activity a business, but it does mean the IRS knows about the income. You'd still apply the same hobby vs business tests others mentioned. If it's a hobby, report on Schedule 1 (Other Income). If business, Schedule C.

Thanks for the tip! I just looked at the actual Schedule D form in the PDF and you're right - there's a discrepancy. The main software screen shows $0 carryover, but Schedule D Line 16 is showing the $4,000 remaining loss amount. So it looks like the calculation is correct in the actual forms but just displaying wrong in the summary screen? Do you think I should contact the software company about this display issue or just ignore it since the actual form seems correct?

If the actual Schedule D shows the correct $4,000 carryover amount, then your tax return is being filed correctly and you should be fine. This is definitely just a display issue in the software interface. It's still worth reporting to the software company since others might be confused by the same issue. Take screenshots of both the incorrect summary page and the correct Schedule D to include with your report. But as far as your taxes are concerned, you're good to go - the IRS receives the actual forms, not the software's summary screens.

This is good advice. Numbers get fuzzy when we rely on memory. I've messed up carryovers before because I was working from memory instead of having my previous return open while doing my current taxes.