This thread has been incredibly helpful! I'm dealing with a similar K-1 situation and wanted to add one more consideration that might be relevant for some folks here. If your partnership is involved in oil, gas, or other natural resource activities, some of those box 13, code W expenses might actually be depletion-related costs that could be handled differently. I learned this the hard way when I assumed all my box 13 expenses were the same suspended miscellaneous deductions. Also, for anyone tracking these expenses for future deductibility after 2025 - make sure you're also keeping records of any AMT adjustments related to these items. Some partnership expenses that aren't deductible for regular tax purposes might still affect your alternative minimum tax calculations, and you'll want that documentation if the rules change again. One last tip: if you're working with a tax professional, bring them the entire K-1 instructions booklet that came with your K-1, not just the form itself. Those instructions often contain partnership-specific explanations for the various codes that can be really helpful in determining the exact nature of your box 13 items.

This has been such an educational thread! As someone who's been wrestling with these same box 13, code W expenses from my real estate partnership K-1, I wanted to share what I learned from my state tax research. For those asking about state deductibility - it's really worth checking your specific state's conformity rules. I'm in Illinois, and while IL generally conforms to federal tax changes, they specifically chose NOT to suspend miscellaneous itemized deductions for state purposes. So I was able to deduct my $6,200 in management fees on my IL-1040, saving me about $310 in state taxes. The key is understanding that each state made its own decision about whether to conform to the TCJA changes. States like California, New York, Pennsylvania, and Illinois maintained these deductions, while others followed the federal suspension. Don't assume either way - check your state's specific rules or consult their tax website. Also, for those tracking these expenses for future years - I created a simple spreadsheet with columns for the tax year, partnership name, amount, and notes about the specific nature of the expenses. When 2026 rolls around and these become federally deductible again, you'll have a clean record of everything you've accumulated over the years. One more thing - if you're in a state that still allows these deductions, make sure you're actually itemizing on your state return. Some states require you to itemize state even if you take the standard deduction federally, which could make these partnership expenses valuable even if your other itemized deductions aren't high enough to beat the federal standard deduction.

Has anyone used TurboTax to handle something like this? I'm in a similar situation but worried it won't handle the home sale loss correctly.

I'm dealing with a very similar situation right now - bought my house 10 months ago and need to sell due to my company relocating me. The advice here about primary residence losses not being deductible is spot on, but I wanted to add something that might help with your basis calculation. Make sure you're including ALL the costs that can be added to your basis, not just the obvious closing costs. Things like title insurance, recording fees, transfer taxes, and even some of the loan origination fees can be added to your purchase basis. On the selling side, realtor commissions, title fees, and other selling expenses reduce your realized gain (or increase your loss). Since you mentioned you're at around a $25k total loss after all expenses, you're definitely in personal loss territory that won't be deductible. But at least documenting everything properly will ensure you're not accidentally creating a taxable gain when you shouldn't have one. The job transfer angle mentioned by others is definitely worth exploring for the partial exclusion, even though you probably won't need it given your situation.

Stupid question maybe but do the rules change if you have a multi-member LLC instead of single-member? My partner and I just formed one and now I'm confused about quarterly payments.

This is such a common source of confusion for new LLC owners! I went through the same thing when I started my consulting business. The key thing to remember is that even though you got an EIN (which was smart for banking and other business purposes), your single-member LLC is what the IRS calls a "disregarded entity" by default. This means for tax purposes, it's like the LLC doesn't exist - all the income and expenses flow through to your personal tax return on Schedule C. So when you make quarterly estimated payments, you're essentially making payments toward your personal income tax liability (including self-employment tax), which is why you use your SSN on Form 1040-ES. Your EIN is still valuable though! You'll need it for business banking, if you ever pay contractors over $600 (for 1099 reporting), and potentially for state tax filings depending on where you're located. Just remember: EIN for business stuff, SSN for your actual tax payments to the IRS.

Just a heads up - make sure you're also considering any potential late filing penalties for these prior year 1099 NECs. The penalty ranges from $50 to $280 per form depending on how late they are and whether the IRS considers it intentional disregard. If you have a reasonable cause for filing late, include a statement explaining the circumstances. The IRS can waive penalties if you can show reasonable cause for not filing on time.

For the 1099 NEC forms, you can also check with local office supply stores like Staples or OfficeDepot - they sometimes carry prior year tax forms in stock, especially during tax season. I found 2021 forms at my local Staples last year when I was in a similar situation. Regarding penalties, if you're filing these 1099s now for 2021 and 2022, you're definitely looking at late filing penalties. However, since your contractor already reported the income on their tax returns, this works in your favor for penalty abatement. The IRS is more lenient when the income was properly reported by the recipient even if the 1099 was filed late. When you submit the forms, include a letter explaining that this is your first time filing 1099s as a small business owner, you've been working to get compliant, and the recipients have already properly reported the income. This reasonable cause explanation can help reduce or eliminate penalties. Also, double-check that you actually need to issue 1099 NECs - you only need them if you paid $600 or more to non-corporate contractors during the tax year. If your contractor was incorporated, you generally don't need to issue a 1099 NEC at all.

As a tax preparer who's seen this exact scenario play out many times, I want to emphasize something that's been touched on but deserves more attention: the IRS has gotten much more sophisticated at detecting these patterns through automated systems. What you're describing - transferring assets just under the Kiddie Tax threshold to multiple children followed by quick sales - is essentially a textbook example of what their algorithms flag for review. Even if everything is technically legal, you're setting yourself up for scrutiny that's just not worth the minimal tax savings. I've had three clients in the past two years who tried variations of this strategy. All three ended up spending more on professional fees during their audits than they saved in taxes. The IRS agents specifically mentioned that custodial account activity is one of their focus areas right now. If you're really looking to reduce your tax burden while helping your kids, consider more straightforward approaches: 529 plans (as mentioned), direct educational expense payments (which don't count against gift limits), or even just holding the investments until you qualify for long-term capital gains rates. Sometimes the most boring strategy is also the smartest one.

New member here, but this discussion has been incredibly valuable as I was considering a very similar strategy for my two kids. The warning about IRS algorithms specifically flagging custodial account patterns is exactly what I needed to hear. I'm curious about one thing that hasn't been fully addressed - for those who mentioned 529 plans as the better alternative, are there any downsides to be aware of? I know the money has to be used for qualified education expenses, but what happens if my kids decide not to go to college or get full scholarships? Also, @CosmicCruiser mentioned that direct educational expense payments don't count against gift limits - could you elaborate on how that works? Does that mean I could pay tuition directly to the school without it counting against the annual gift tax exclusion? Thanks for saving me from what would have clearly been a mistake. Sometimes the "too good to be true" strategies really are just that.