Common Tax Questions, Answered

W-2 (Employee): Your employer withholds federal, state, Social Security, and Medicare taxes from every paycheck. Filing is simpler, and you may qualify for benefits like health insurance, paid time off, and unemployment.

1099 (Independent Contractor): No taxes are withheld — you're responsible for paying them yourself, including ~15.3% in self-employment tax. The upside: you can deduct business expenses (mileage, supplies, home office, phone) to lower your taxable income.

Which is better? W-2 wins on stability and simplicity. 1099 wins on flexibility and write-offs — but you'll need to set money aside for taxes and stay organized year-round.

An ITIN (Individual Taxpayer Identification Number) is a tax ID issued by the IRS for people who need to file taxes but aren't eligible for a Social Security Number.

Who qualifies: non-resident filers, undocumented workers earning U.S. income, and foreign spouses or dependents listed on a return.

How to apply:

1. Complete IRS Form W-7.
2. Attach your federal tax return.
3. Provide proof of identity and foreign status (passport is easiest).
4. Submit through a Certified Acceptance Agent — Pedro can help.

Kids can mean serious savings at tax time. The main credits:

• Child Tax Credit: up to $2,000 per qualifying child under 17.
• Credit for Other Dependents: $500 for older kids, parents, or relatives you support.
• Earned Income Tax Credit (EITC): a major refund booster for working families with low to moderate income.
• Child & Dependent Care Credit: helps cover daycare or after-school costs while you work.

Smart, legal moves that shrink what you owe:

• Retirement contributions: Traditional IRA, 401(k), or SEP-IRA (great for self-employed).
• Buy a home: mortgage interest and property taxes are deductible if you itemize.
• Business write-offs: home office, mileage, supplies, phone, and internet for self-employed and 1099 workers.
• HSA contributions, charitable donations, education credits.

Note: loans themselves aren't taxable income, but interest on certain loans (mortgage, student) can be deductible.

Taxable income includes: wages, 1099 income, tips, side gigs, rental income, investment gains, unemployment benefits, and gambling winnings.

Generally NOT taxable:

• Gifts under $18,000/year per giver (2024 limit)
• Inheritances (at the federal level)
• Life insurance payouts to beneficiaries
• Child support
• Most scholarships used for tuition
• Qualified Roth IRA withdrawals

California has its own income tax (1%–13.3%) on top of federal — and the rules don't always match.

• CA taxes more aggressively: capital gains are taxed as regular income, and SDI is withheld from paychecks.
• CA doesn't follow all federal deductions: for example, HSA contributions aren't deductible on a CA return.
• CA-only credits: CalEITC, Young Child Tax Credit, and the Renter's Credit can put money back in your pocket.