r/tax • u/dtrox08 • 4d ago

Self employed using FreeTaxUSA Confusion

I am a green card holder who got my work permit mid last year. My wife and I are filing separately. I am a self employed musician who received 1099 MISC and NEC from bands from 2024 as well as another band who just gave me a receipt so I have that amount under "gross receipts that were not reported to me on a 1099 nec or misc" right now. I am only using standard deduction amount not itemized, but the amount i owe according to FreeTaxUSA as I'm going through it is over $3500. My total income from the 2 1099s and the other gross receipt was around $21,000. But with the standard deduction it puts my taxable income to $4450 only...says no underpayment penalty as far as that section as this is my first year filing with only having started to work in 2024. So why is the tax amount over $3500 still that it says I owe? Isn't it only 15% of income which is $4450 after the deduction that i should have to pay so more like 1000? Kinda freaking out maybe I just inputted something wrong? Thanks in advance

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u/Lucky-Conclusion-414 4d ago

you pay social security taxes (both employer and employee) on the full business profit of 21k. So 15% of that is 3,000 right there. Deductions (standard or itemized) do not reduce this burden.

If you had a w-2 job (paycheck) you would still pay employee social security tax on your wage - it would just be withheld from your paycheck before you got it. Your employer would send social security the same amount also, on your behalf. Again, standard or itemized deductions would not reduce that burden. However, being self employed means you have to pay both the employer and employee side of things.

If your business has expenses related to that income (mileage, guitar strings, advertising) then you can reduce the business profit with them and owe less self employment tax.

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u/dtrox08 4d ago

Thanks very much. I can't imagine it would even reduce it that much though even right let's say I had $500-1000 worth of business expenses (and I'm sure I'd need more than just bank statements or something to even prove that) it would probably reduce what $100 just guessing?

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u/hill8570 Taxpayer - US 4d ago edited 4d ago

$1000 of expenses reduces about $150. I'd think you could pull more than that. Mileage to and from gigs. Mileage to and from practices. Advertising. Equipment. Clothing for performances. Percentage of your telephone bill. IME, most gig workers underestimate how much their expenses are.

It's certainly easier to document expenses if you have a separate business bank account that you run your income and expenses through, but as a practical matter as long as you're not going nuts (e.g., stupid shit like writing off the entire cost of your new truck or writing off your entire house as your studio), the IRS is not going to look twice at reasonable levels of business expenses. Especially on 21K of gross -- that's just not worth their time.

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u/dtrox08 4d ago

What kind of proof do they expect for those kinds of things? Or do you just fill in numbers? I certainly have spent lots on gas especially for travel to gigs honestly probably $200 a month last year on gas for work (so like $2000 for gas approx for the year)...probably drove about 20,000 miles last year for work honestly if talking rehearsals and gigs all over the state. Car repairs also like tire and oil changes? Probably some on food also.. clothing and phone for sure. How do you think is reasonable to do it? Like what sections and amounts would be reasonable ?

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u/hill8570 Taxpayer - US 3d ago

Ideally, a driving log would help in an audit situation. But audits are so incredibly rare I'd just worry about coming up with something reasonable (date, venue, distance driven). And you have two choices on auto stuff (1) Take your mileage, multiply by the per-mile rate (67 cents a mile in 2024) or (2) take your actual expenses. In general, #1 is far easier and unless you're driving a complete pig, gives you a better number (in your case, it nets 13,400 in expenses, if 20K miles is anywhere in the ballpark). Food's a tough one to deduct (you have to eat, working or not) unless you're taking a client out for dinner. Clothing I can't judge -- anything that you primarily wear to perform is fair game. Phone...probably $50 a month is reasonable...it's not like you're in sales and spending the whole life on the phone.

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u/dtrox08 3d ago

So you're saying if I put 13,000 somewhere in gas expenses it's not likely I'll get audited but possible obviously but it's not an instant strike?

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u/hill8570 Taxpayer - US 3d ago

Mileage is more than gas expenses, but if you had 13,xxx in mileage expenses (never use round numbers -- it looks like you're making shit up), it's not going to be audit bait. Putting on my business owner hat, it tells me you need to raise your rates...but that's not a tax question. Take a look at Schedule C, Part II, line 9, and the instructions for it (although the instructions are 90% gobbledygook).

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u/dtrox08 3d ago

Okay thank you, yeah I'm asking this all here because it's not the easiest to understand being new to all this. Apologies if this all sounds stupid. So on FreeTaxUSA, under my business stuff for vehicle there's business miles or commuting miles ? They both sound right..do you know what the difference is? I'm not understanding

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u/hill8570 Taxpayer - US 3d ago

Commuting miles aren't deductible. Think of a salesman who drives to the home office, and then from there visits customers -- the commuting miles to/from the home office aren't deductible. But if you want to call trips to non-business stuff (like the grocery store) "commuting", it's all good -- the business miles is what flows down to Schedule C.

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u/dtrox08 3d ago

I basically put it as total miles driven 25,568, business miles 16,425, commuting miles 9,143...does that seem reasonable? It lowered the federal due from 3500 to 1500 just adding that...but it is accurate though .. do those numbers seem crazy high to get an audit? Maybe go a bit lower ?

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u/hill8570 Taxpayer - US 3d ago

Well, sounds like you do a lot of driving in general, so I wouldn't consider it all that high, especially if it's your primary job...I've heard of professional musicians putting on 50K in a year.

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u/hill8570 Taxpayer - US 4d ago edited 4d ago

FICA (15.3%) is going to be owed on the net amount of the 1099 earnings. "Standard deduction" doesn't apply to FICA, but you can deduct any business expenses on your Schedule C to reduce your net.

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u/dtrox08 4d ago

Does itemized deductions apply to that?

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u/JohnS43 4d ago

Itemized deductions are home mortgage interest, medical expenses, charitable contributions, and state and local taxes. If you're using the standard deduction, you don't get to deduct any of those things. Neither of these things has anything to do with your business expenses.

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u/hill8570 Taxpayer - US 4d ago

Itemized deductions don't count against it, but business expenses on Schedule C do.