It’s tax season! Here’s what stumped ‘This Is Nashville’ listeners when filing their 2021 taxes

In the first installment of Budget Crunch, This Is Nashville collected listeners’ questions about taxes and invited a panel to answer them. We got quite a few questions around self-employment — not a surprise since Nashville is a creative and gig-based city.

Here’s a breakdown of what our panelists Lucia White, a former bank teller and personal budgeting enthusiast, and Chanon MacDonald, an associate planner at TrustCore pursuing her CFP license, had to say to our listener-generated questions:

My 14-year-old son started mowing lawns in the summer and walking dogs in the winter. He has been incredibly successful and in the past year made over $2,300. I don’t know what I’m supposed to do for his tax situation. Mostly, he’s paid in cash or online payments. Am I responsible for reporting those earnings?

Short answer? Yes — if he made at least $400 after he’s deducted his expenses (think of it all — yard tools, marketing costs, poop bags, etc). If he’s made under $11,000 gross, June can report her son’s income on her taxes.

How much should I set aside each night from my bartending tips so I don’t have to pay that much during tax time?

“Per the IRS guidelines, they want people who are working in those type of industries to report their tips monthly to their employer. And when they do that, the employer is then supposed to go ahead and take the withholdings from that,” MacDonald said.

If that process doesn’t happen, bartenders and other tipped employees can still claim their tips and find out what they owe by using Form 4137. Learn more here, but if you have additional questions about reporting cash tips, it’s always best to contact a financial or tax professional.

COVID allowed us to take money from our 401(k) without penalty. You still had to pay taxes on it, but you could spread it over three years. If you’re regularly contributing to that 401(k) plan, does that amount count toward repayment?

MacDonald said this is complicated. While anyone who took a coronavirus-related 401(k) distribution would have three years to pay that back, there are some caveats, like:

• Loan repayments are not considered contributions, and thus would not count against their max contributions for this year.
• Hardship withdrawals are usually not repayable, but they are repayable over three years and do not count against their max contribution under the CARES act.
• The distribution needed to be considered income, and they could spread it out on their taxes over three years as income.
• They can repay the full amount to a new eligible retirement plan in 2022 and file an amended return for 2021 and 2020 to claim a refund of the tax attributed to the distribution amount.

MacDonald recommends contacting a tax professional because not all 401(k) plans are the same, and there are different types of 401(k) distributions to consider.

Should volunteer work be reported on your taxes? 

When considering volunteer work, you can’t take a deduction for your time. However, you can claim mileage going to and from volunteering and any other quantifiable expenses as deductions. You can also deduct what you give to designated charities — just keep in mind that’s an itemized deduction and that total over the year would need to be greater than the standard deduction to be worth it. Learn more here.

The panelists also offered some other tax tips:

• You can access your tax records, previous payments, current payment plans and more on the IRS website.
• If you received a child tax credit payment in 2021, it may impact how much you owe this year.
• When dealing with more complicated taxes like a mixed W2/1099 income, it’s really beneficial to have someone who is certified look over all your documents — to make sure you’re paying what you have to, getting all the deductions you can and not overpaying.
• It’s a good idea to learn up on what Safe Harbor limits mean for you if you’re a small business owner or otherwise self-employed.
• Remember, taxes are due April 18. If you don’t have your documents together, or still don’t know where that W2 is, White said, “If you feel like you’re not going to make that deadline, go ahead and submit for the extension now … it gives you a little bit of breathing room … better safe than sorry!” However…
• Samantha Williams from The United Way wrote in to tell us that you keep in mind that if you “owe taxes you still need to pay by the 18^th. The extension is on filing the return, not the tax payment. It seems off because how would they know how much they owe, but that is how it works. There are two separate penalties – Failure to File and Failure to Pay. We suggest you pay as much as you can and ask for a payment plan.”
• Williams also said that “any household making less than 70k a year can have their taxes done for free with the VITA Free Tax Prep Program. You can find out more by calling 211 or visiting unitedwayfilefree.org. Local sites are closing up this week but everyone (no income restriction) can file free themselves at myfreetaxes.org until Oct 15^th.”
• Finally, MacDonald gave us a tip that a really good online source is Investopedia. Secret Sauce, but she’s sharing!