This thread has been incredibly helpful for understanding DREs! I'm in a similar situation to many of you - considering setting up a single-member LLC for my freelance graphic design work. One thing I haven't seen mentioned yet is the timing aspect. If I'm planning to start my LLC in the middle of the tax year, do I need to do anything special for that first partial year? Like, if I form the LLC in July, do I report the January-June income from my freelance work as sole proprietor income and then July-December as DRE income on the same Schedule C? Or does it all just get lumped together since it's the same person either way? Also, I keep seeing people mention quarterly estimated taxes - does having a DRE change how you calculate or pay those compared to just being a regular sole proprietor? I've been paying estimated taxes as a freelancer already, but want to make sure I don't mess anything up when I transition to the LLC structure.

This discussion has been incredibly enlightening! I'm a tax professional and want to add a few important points that might help newcomers to DREs. First, while everyone's correctly noting that DREs provide liability protection, remember that this protection isn't absolute. You're still personally liable for your own professional negligence or wrongful acts - the LLC primarily protects your personal assets from business debts and certain types of claims. Second, for those worried about complexity, DREs are actually one of the simplest business structures from a compliance standpoint. No board meetings, corporate resolutions, or complex record-keeping requirements like you'd have with a corporation. Just keep good financial records and maintain that separation between personal and business finances that @Demi Lagos mentioned. One thing I'd emphasize for the web designers and freelancers here: consider getting professional liability insurance even with your DRE. If a client claims your work caused them financial harm, that personal liability I mentioned earlier could still apply. Finally, remember that you can always elect out of DRE status later if your situation changes (like if you want to be taxed as an S-Corp to potentially save on self-employment taxes as your income grows). The flexibility is one of the best features of the LLC structure!

Sofia, I'm really sorry to hear about your situation - losing a business is incredibly stressful both financially and emotionally. The good news is that you have some options that could help significantly with your tax burden. Based on what you've described, you'll likely be dealing with multiple forms and tax treatments. Your real estate loss will probably be treated under Section 1231, which means it would be an ordinary loss that can fully offset your $95k in capital gains from stocks. For the business assets, each category gets treated differently - equipment losses might be ordinary losses after accounting for any depreciation recapture, while inventory losses are typically ordinary as well. One thing to keep in mind is timing - if you're confident that these losses will provide substantial tax benefits this year (which they likely will), there may not be a strong reason to delay the closing. The ability to offset your capital gains could result in significant tax savings that might outweigh any potential benefits of spreading things across tax years. Since your accountant is unavailable, you might want to consider getting a second opinion from another tax professional before the closing, especially given the complexity and the amounts involved. This isn't the kind of situation where you want to guess - getting proper categorization of each asset could make a difference of thousands of dollars in your final tax liability.

Sofia, I completely understand the stress you're going through - business failures are tough both financially and emotionally. The silver lining here is that your losses could actually provide significant tax relief for your capital gains situation. From what you've described, you're looking at around $140k in combined losses that will likely be categorized in ways that favor you tax-wise. Your real estate loss ($75k) will probably qualify as Section 1231 property, which means it gets treated as an ordinary loss that can directly offset your $95k in stock gains. That alone could eliminate most of your capital gains tax liability. For the business assets ($63k loss), the treatment will depend on the specific items - equipment might involve some depreciation recapture calculations, but much of it will likely also qualify for ordinary loss treatment. Inventory losses are typically ordinary losses as well. Given that you have substantial capital gains this year that these losses can offset, I'd lean toward proceeding with the sale rather than delaying. The tax benefits of recognizing these losses in 2025 when you have gains to offset them could be substantial - potentially saving you $20k+ in taxes depending on your bracket. However, with amounts this large, I'd strongly recommend getting a consultation with another tax professional before closing if your regular accountant isn't available. The proper categorization and timing of these transactions could make a significant difference in your final tax outcome.

Before you file, make sure you really understand what deductions and credits you're eligible for in each tax year. The rules change frequently! For example, 2021 had some unique COVID-related credits that don't exist anymore. And if you had kids or were in school, the rules for those credits have changed over the years too. This is honestly why I think it's worth paying a professional when dealing with multiple years of unfiled taxes. They know what to look for in each specific tax year. It might cost a few hundred bucks, but they might save you thousands.

One thing that might help ease your stress - the IRS is generally more interested in getting you back into compliance than in punishing you. They see situations like yours all the time, especially after the chaos of the past few years. When you're gathering documents, don't forget about things like state tax refunds you might have received (those can be taxable income), unemployment benefits, or any side gig income from apps like Uber, DoorDash, etc. These smaller income sources are easy to forget but can add up. Also, if you moved during those years, make sure you're filing in the correct states. Some states have no income tax, others do, and you might owe taxes in multiple states depending on when you moved and where you worked. The key is just to start. Pick one year (I'd suggest 2020 since it's the oldest) and focus on getting all the documents together for just that year first. Once you see how the process works for one year, the others will feel much more manageable. You've got this!

Your collections experience is actually extremely valuable in the private sector! I made the transition from Revenue Officer to a boutique tax law firm about 2 years ago and it's been amazing. Your background with business tax liabilities and asset seizures gives you insights that most private sector professionals simply don't have. I found that law firms specializing in tax controversy work were particularly interested in my collections experience. They specifically wanted someone who understood the IRS collection process from the inside - what triggers enforcement actions, how the IRS prioritizes cases, and what negotiation strategies actually work with Revenue Officers. This knowledge is gold when you're representing taxpayers with collection issues. Your experience with payment agreements and working with financially distressed taxpayers also translates well to tax resolution companies and even some CPA firms that handle IRS problems for their clients. The fact that you've worked with high-net-worth individuals with complex financial situations is especially marketable to firms that serve affluent clients. I'd also suggest looking at corporate compliance roles, particularly at companies that have had past tax issues. Many larger corporations specifically seek former IRS collections officers for their tax departments because you understand enforcement priorities and can help them avoid collection actions in the first place. The salary increase was substantial for me - about 70% more than my government salary. Don't underestimate the value of your collections background. It's actually quite specialized and highly sought after when positioned correctly!

One area that hasn't been mentioned yet is state and local tax (SALT) consulting. With the increasing complexity of multi-state tax issues and the SALT cap limitations, there's huge demand for professionals who understand tax compliance and enforcement from the government perspective. I transitioned from being an IRS Agent to a SALT practice at a regional CPA firm about 18 months ago. While my federal experience didn't directly translate to state tax rules, my understanding of audit procedures, documentation requirements, and government enforcement priorities gave me a significant advantage. State tax departments often model their audit processes after IRS procedures, so your institutional knowledge is incredibly valuable. The work involves helping multi-location businesses navigate compliance across different states, handling state tax audits, and advising on nexus issues. Many of the skills you've developed - analyzing complex tax situations, working with business records, and understanding audit risk factors - apply directly to state tax work. What's particularly appealing about SALT is that it's one of the fastest-growing areas in tax due to the Wayfair decision and remote work complications. The demand far exceeds the supply of qualified professionals, which means excellent job security and strong salary growth potential. My compensation increased by about 55% from my IRS salary, and I'm seeing consistent raises as I build expertise in this specialized area. If you're looking for something that leverages your federal tax background while offering new challenges and growth opportunities, SALT consulting is definitely worth considering!

Don't forget about quarterly estimated tax payments if you start making decent money from your books! I didn't do this my first year and got hit with penalties. If you expect to owe more than $1,000 in taxes from your publishing income, you need to make quarterly payments. The IRS Form 1040-ES helps calculate these. The deadlines are April 15, June 15, September 15, and January 15 of the following year. Also, remember you'll be paying self-employment tax (15.3%) on top of your regular income tax rate. This catches a lot of new authors by surprise!

Great advice throughout this thread! As someone who's been self-publishing for a few years, I'd add one more important point: consider opening a Solo 401(k) for your publishing business income. Since you're already earning W-2 income from your day job, you can still contribute to a Solo 401(k) based on your self-employment earnings from book sales. This allows you to shelter a significant portion of your publishing profits from taxes - you can contribute up to 25% of your net self-employment income (or 20% if you calculate it precisely). For 2025, the contribution limit is $70,000 total, though most new authors won't hit that. The Solo 401(k) is especially powerful because contributions reduce your taxable income dollar-for-dollar. So if you make $10,000 profit from book sales, you could potentially contribute $2,000 to the Solo 401(k), reducing your taxable self-employment income to $8,000. You still pay self-employment tax on the full amount, but you save on income tax. Just make sure your publishing activity qualifies as a legitimate business (sounds like yours does) and that you're showing a profit motive. The IRS wants to see that you're trying to make money, not just pursuing a hobby.