Anyone know if reporting income from a 1042-S affects your eligibility for the Foreign Tax Credit? I have both 1042-S and 1099-INT forms this year and I'm trying to figure out if I can claim FTC for both income types since some tax was withheld on the 1042-S.

I went through this exact same situation two years ago when I transitioned from F-1 student status to permanent resident. The key thing to remember is that you're absolutely on the right track - you do need to report this income on your Form 1040 even though you received a 1042-S. One thing I learned the hard way is to make sure you check if your bank has your updated residency status on file. Since you're now a resident, you should submit a new W-9 to replace any W-8BEN they have on file. This will ensure you get proper 1099-INT forms next year instead of dealing with this 1042-S situation again. Also, don't forget that if you had any tax withheld earlier in the year when you were still a non-resident (from other sources), you can claim credit for those withholdings on your 1040. The timing of your status change matters for determining what credits you're eligible for throughout the tax year.

One thing that hasn't been mentioned - make sure you're charging each other a reasonable interest rate! If it's too low (below the Applicable Federal Rate), the IRS can recharacterize part of the loan as a gift and create tax headaches. But if it's too high, your parents might face usury law issues depending on your state. When my parents loaned me money for my house, we set the rate at exactly the mid-term AFR for the month we signed the paperwork, which was around 2.5% at the time. The IRS publishes these rates monthly, so it's easy to find the appropriate rate.

Has anyone mentioned that you need to actually record the mortgage or deed of trust with your county for this to work? My wife and I did a similar loan with her parents and we skipped that step thinking the promissory note was enough. BIG mistake - we got audited and lost the entire mortgage interest deduction for that year!

Have you considered speaking to your brokerage firm? I had a similar issue with excess contributions and my brokerage (Fidelity) had a specific department that handled excess contribution removals. They calculated the attributable earnings for me and could process the removal in a way that was properly coded for the IRS. Also, don't forget that if you're using the money for qualified education expenses as you mentioned, you might qualify for an exception to the 10% early withdrawal penalty on any earnings (though you'd still owe income tax on those earnings). This is separate from the 6% excise tax issue, but could help reduce the overall financial impact.

I'm really sorry to hear about this stressful situation, but you're not alone - many international students make this mistake because the IRA rules aren't always clearly explained when you open accounts. A few additional points that might help: 1) Since you mentioned you're an F1 student, make sure you understand your tax treaty benefits if your home country has one with the US. Some treaties have provisions that could affect how penalties are calculated, though this probably won't eliminate the excess contribution issue. 2) Consider timing your withdrawal strategically. If you're planning to graduate and potentially work in the US (OPT, etc.), you might want to coordinate the withdrawal with a year when you'll have some US income to potentially offset the tax impact of any earnings withdrawal. 3) Keep detailed records of everything - all your contribution dates, account statements, and any correspondence with the IRS or your brokerage. This will be crucial if there are any questions later. 4) Don't let this discourage you from retirement planning once you do have eligible earned income! You clearly have good financial instincts, just got tripped up by the eligibility rules. The $6K in penalties is painful but manageable, and fixing this now will prevent it from getting worse. You've got this!

Just wanted to chime in as someone who went through this exact same confusion when I started my LLC two years ago! The advice here is spot-on - your initial capital contribution definitely isn't income to the business. One thing I'll add that helped me a lot: keep a simple "capital account" record somewhere. I just use a basic spreadsheet with the date and amount of each contribution I make. This becomes really useful not just for taxes, but also for understanding your true return on investment as your business grows. Also, since you mentioned you're keeping track of everything already (which is great!), make sure you're categorizing your expenses properly from day one. Some things like equipment might need to be depreciated over several years rather than fully deducted in year one, depending on the cost. But software subscriptions, office supplies, and most other operating expenses can usually be deducted fully in the year you pay for them. The fact that you're asking these questions early shows you're on the right track. Way better to get it right from the start than have to go back and fix things later!

This is exactly the kind of question I had when I started my single-member LLC for graphic design! The confusion is totally understandable, but you're getting great advice here. Just to reinforce what others have said - that $12,500 you put in is definitely not income to your business. Think of it this way: if you took $12,500 out of your savings account and put it in a different savings account, you wouldn't consider that "income" to the second account, right? Same principle applies here. One practical tip that saved me a lot of headaches: when you do get that business bank account set up, make the very first transaction a clear transfer of your initial capital contribution. I literally wrote "Initial Capital Contribution" in the memo line when I transferred my startup funds. This creates a crystal clear paper trail showing exactly where your business funds came from. Also, since you mentioned you're keeping track of everything (which is awesome!), consider using a simple bookkeeping app or even just a spreadsheet to categorize expenses as you go. It'll make Schedule C preparation so much easier when tax time rolls around. The key categories are usually things like office supplies, software subscriptions, marketing, professional services, etc. You're asking the right questions early - that's going to save you so much stress later on!

Same situation here! Filed in January, amended in March, and just got the 810 freeze code last week. It's so frustrating not knowing exactly where we stand in the process. I've been checking my transcript obsessively but it's hard to decode all these codes. The waiting is definitely the hardest part - especially when you're expecting a refund and have bills to pay. Hang in there, hopefully we'll both get some movement soon! 🤞

I'm in almost the exact same timeline as you! Filed in January, amended in April, and just saw the 810 freeze code appear on my transcript this week. The not knowing is driving me crazy - like you said, the anxiety about the wait time is real. I've been reading that some people's amended returns get processed faster than the 20-week estimate, but it seems pretty hit or miss. Really hoping we both get some movement on our accounts soon! Keep us posted if you see any changes on your transcript 🤞