Totally agree. We went through this last year. Had a proper valuation done by a third party that cost about $3,500 but saved us way more in the long run. IRS is really scrutinizing partnership transactions these days.

This is such a valuable point about timing! I'm new to partnership taxation and didn't realize the 754 election had such strict deadlines. When you say "due date including extensions" - does that mean if the partnership files an extension to October 15th, they have until then to make the election? Or does it have to be done by the original March 15th deadline? Also, regarding the depreciation benefits you mentioned - would this apply even to a service business like consulting that might not have a lot of traditional depreciable assets? I'm wondering if things like computer equipment or office furniture would qualify for the additional depreciation deductions.

This is really helpful advice! I'm actually in a similar situation and wondering - what happens if one roommate consistently pays late or sometimes skips a month? Should I still pay the full bill on time to protect my credit/avoid late fees, or does that create any weird tax implications if I'm essentially covering their portion temporarily? Also, do you think it's worth having roommates sign some kind of simple agreement about utility responsibilities? Not trying to be overly formal, but want to protect everyone involved.

Definitely pay the full bill on time to protect your credit and avoid late fees - those are much more expensive than temporarily covering a roommate's portion! There are no tax implications for temporarily covering someone else's share as long as you're still only collecting reimbursements (not making a profit). A simple written agreement is absolutely worth it! Even just a one-page document outlining who pays what, when payments are due to you, and what happens if someone is consistently late. It doesn't need to be legally complex, but having everyone's expectations in writing prevents a lot of drama later. For chronically late payers, consider asking for their portion a few days before the bill is due, or even having them pay you their estimated share at the beginning of each month. You can always adjust if the actual bill is different. This way you're not fronting money for unreliable roommates.

This is such solid advice! I'm dealing with this same situation and was worried I was missing something tax-wise. The payment history benefit is something I hadn't thought about - that's actually a nice side perk of being the "utility person" in the house. Quick question though - if I'm keeping all these records (bills + roommate payments), is there a specific time period I should hold onto them? Like is this a "keep for 3 years" situation in case of audit, or just until we all move out? I'm trying not to become a digital hoarder with screenshots and PDFs everywhere!

This is actually a common scenario with some tricky implications. When an employee makes an 83(b) election and then forfeits unvested shares upon departure, they've essentially paid taxes on income they never fully received. The employee can claim a capital loss (not an ordinary income deduction) when they forfeit the shares. However, this loss is limited to the amount they actually paid for the shares, not including any taxes they paid on the phantom income through the 83(b) election. From the employer reporting perspective, you don't need to issue any corrected tax forms. The original income reporting was correct at the time of the 83(b) election. The employee's capital loss is handled on their personal tax return in the year of forfeiture.

Thanks for the clarification! That makes sense but feels a bit unfair to the employee. Sounds like they're basically stuck with having paid taxes on income they ultimately never received, since a capital loss deduction is typically less valuable than an ordinary income deduction. Is there any way to structure our RSA program to mitigate this risk for employees, or is this just an inherent downside of making the 83(b) election?

Unlike ISOs (which require Form 3921) or ESPPs (which require Form 3922), there's no special information return required for RSA grants. The income is simply reported on Form W-2 when the tax event occurs (either at grant with an 83(b) election or at vesting without one). However, if the RSAs are being granted to non-employees like consultants or board members, you would report the income on Form 1099-NEC rather than a W-2.

Thanks! That's actually simpler than I expected. So just to be crystal clear - for a standard employee RSA grant with no 83(b) election, we just add the value of the vested shares to their W-2 as they vest, and there's no additional filing required?

This is exactly the kind of comprehensive explanation I was hoping to find! The "constructive receipt" concept really helps clarify why the financing method doesn't affect basis calculation. I'm curious about the timing aspect you mentioned - if I purchase equipment in December but it doesn't get delivered and placed in service until January of the following year, which tax year do I claim the depreciation in? Does the purchase date or the "placed in service" date determine when I can start taking depreciation deductions?

Great question about timing! The "placed in service" date is what matters for tax purposes, not the purchase date. So in your example, if you buy equipment in December but it's not delivered and operational until January, you'd start depreciation in the January tax year. The IRS defines "placed in service" as when the asset is ready and available for its intended use. For equipment, this typically means it's delivered, installed, and ready to be used in your business operations - not just when you sign the purchase agreement or make payment. This timing rule can actually be strategically important for tax planning. If you're having a high-income year and want to maximize current-year deductions, you might push to get equipment delivered and operational before December 31st. Conversely, if you expect higher income next year, you might delay the "placed in service" date until after January 1st. Just make sure you have documentation showing when the asset was actually placed in service - delivery receipts, installation records, or the first date you used it in business operations. The IRS can be picky about this timing if they audit.

18 Does that rule apply if multiple related corporations collectively own more than 50%, but individually own less? Like if my corp owns 30% and our sister company owns 25%?

Yes, related corporations are generally aggregated for purposes of the majority interest taxable year rule. If your corporation and the sister company are considered related (typically meaning one owns 50% or more of the other, or they have common ownership), then your combined 55% ownership would trigger the majority interest rule. However, there are some nuances here. The "majority interest taxable year" is determined by looking at the partners who have the same tax year and collectively hold more than 50% of partnership capital and profits interests. So if both your corporations have the same fiscal year end, then yes, the partnership would generally need to adopt that fiscal year. This gets complex quickly, so you'd want to review IRC Section 706(b) and the related regulations, or consult with a tax professional familiar with partnership tax year rules if you think this might apply to your situation.

This is really helpful advice about maintaining the character of income. I'm dealing with a similar situation and hadn't considered how Section 1231 gains would flow through differently. Do you happen to know if there are any special rules for how depreciation recapture from the partnership gets reported on the corporate return? Our partnership owns rental properties and I want to make sure we're handling any depreciation recapture correctly when it eventually gets triggered.