Self employment questions.

mileage deduction, or the cost of the fuel? I thought that you could to one or the other. And how would that work?

If you operate a car for hire you have to take actual expenses. This means amounts you pay for gas as well as depreciation if you own the car.

Yes. Repairs, registration, interest of your auto loan, etc. Please read publication 463

parts of publication 463 explain the other rules, such as theone above that you have to take actual expenses. If you use your car for business and pleasure you have to allocate between business and personal use.

Remember to keep a log of how much you drove everyday, including beginning and ending mileage.

As this is your first time maybe see a professional.

Taxi, how in the world would you do that? How can you estimate that? There are so many things to consider, and that will vary.

You can estimate your income for the year and make equal estimated payments, or compute the actual income every quarter and make exact estimated payments based on that.

problems with the IRS, and they will tax you what THEY think you should be making. Is that true?

I don't think so.

how are taxes handled in that regard?

Your taxi stuff would probably go on Schedule C (unless you formed and LLC or corporation for it). Other income goes on the other lines of form 1040.

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Taxi, how in the world would you do that? How can you estimate that? There are so many things to consider, and that will vary.

problems with the IRS, and they will tax you what THEY think you should be making. Is that true?

No. Instead, you will be assessed a penalty for underpayment of estimated taxes. The penalty, which is really a kind of interest charge, runs from the date the estimated tax payment was due to the original due date of the tax return -- April 15 of the following year

-- or the date the payment was made, whichever comes first. There are several exceptions to the penalty. For example, if you have paid in equal quarterly installments (due April 15, June 15, and September 15 of the tax year and January 15 of the following year) at least as much as your total tax liability for the preceding year, there will be no estimated tax penalty.

how are taxes handled in that regard?

You will get a W-2 from your employer and enter the income on Line 1 of your Form 1040.

Katie in San Diego

Just a note. The penalty is based on your tax, which is based on your income. So if you made 50k, no estimated tax payments, your tax after deductions exemptions credits might be something like 3k. The penalty is a fraction of 3k, currently .02383 according to form 2210 (it changes every year). If your prior year was only 1k, the penalty is actually a fraction of 1k -- in general, the penalty is a fraction of the smaller of this year's tax and last year's tax (or perhaps last year's tax times 110% or 66%).

I'm not aware that the IRS will impute your income, but there was a thread here that the California FTB will do this, more to spur you into actually doing your tax return.

how are taxes handled in that regard?

Line 1 of 1040-EZ, line 7 of 1040. If you have a Schedule C you must use 1040.