Based on my experience with private foundation compliance, I'd strongly recommend avoiding the personal guarantee approach altogether. The self-dealing rules under Section 4941 are intentionally broad, and the IRS tends to interpret them strictly when it comes to any financial arrangements between disqualified persons and private foundations. Even if a personal guarantee might technically be defensible, the risk isn't worth it. The excise taxes can be substantial (as Elijah mentioned), and unwinding these arrangements later is costly and time-consuming. For your building renovation project, consider these alternatives: 1. Use foundation assets as collateral instead of personal guarantees 2. Explore grants from other foundations (as Ana suggested) 3. Consider a capital campaign targeting non-disqualified donors 4. Break the project into phases to reduce the loan amount needed The key is finding financing that keeps disqualified persons completely out of the transaction chain. It might take longer or cost more upfront, but it's much safer from a compliance perspective. Have you looked into whether your foundation's current assets could serve as sufficient collateral for the loan?

I've been through a similar situation with our family foundation, and I want to emphasize how important it is to get this right from the start. The self-dealing rules are one area where the IRS doesn't give you much wiggle room. From what I've learned through our foundation's compliance journey, personal guarantees by disqualified persons create exactly the kind of indirect benefit arrangement that the IRS scrutinizes heavily. Even though you're trying to help the foundation, the guarantee provides something of value (your creditworthiness) that could be seen as an extension of credit. One approach that worked well for us was working with a community development financial institution (CDFI) that specializes in nonprofit lending. They often have more flexible collateral requirements and understand the unique constraints that private foundations face. Some CDFIs will accept investment portfolios as collateral without requiring personal guarantees from board members. Also, don't overlook the possibility of securing bridge financing from a bank while you pursue grant funding for portions of the project. This could reduce the total loan amount needed and make it easier to secure financing based solely on foundation assets. The peace of mind from knowing you're fully compliant is worth the extra effort to structure the financing properly. Good luck with your renovation project!

I'm a little confused by some of the responses here. The $5,000 threshold is just about whether you get a 1099-K form, not whether you need to report the income. ALL income is taxable regardless of amount or whether you got a tax form. The only exception would be if you're selling personal items at a loss (like used clothes for less than you paid for them). That's not taxable because there's no profit. But if you're making and selling crafts on Etsy, that's income even if it's just $50. The honest answer to the question is "yes" you received payments through a third party network.

Is nobody going to mention the hobby loss rule? If this is truly a hobby (not a profit-seeking activity), you can report the income but you CANNOT deduct any expenses against it anymore. The Tax Cuts and Jobs Act eliminated hobby expense deductions. If you're regularly trying to make money from your Etsy store, it might be better to treat it as a business so you can deduct your expenses. Otherwise you're paying tax on the full $875 with no deductions for your supplies.

If you do decide to cash out, make sure you set aside the money for taxes immediately! I cashed out a similar amount last year and spent it all, then got destroyed at tax time because I didn't have money set aside to cover the bill. The 20% they withhold often isn't enough depending on your tax bracket.

I completely understand the financial pressure you're facing right now - being laid off and struggling with bills is incredibly stressful. However, I'd strongly encourage you to explore every other option before cashing out your 401k. At your $11,000 balance, you're looking at roughly $1,100 in penalties (10%) plus federal and state taxes on the full amount. Depending on your tax bracket, you could end up with only $7,000-8,000 after everything is said and done. Have you looked into these alternatives yet? - Emergency assistance programs through your township (utility assistance, food banks, etc.) - Gig work or temporary side jobs for immediate cash flow - Negotiating payment plans with creditors - Local emergency financial assistance programs - Credit union emergency loans (often have better rates than credit cards) If you absolutely must access retirement funds, ask your plan administrator about hardship withdrawals - some qualify for penalty exemptions if they meet specific IRS criteria like preventing eviction or paying medical bills exceeding 7.5% of your income. The compound interest you'll lose over the next 20+ years by cashing out now will cost you tens of thousands in retirement. I know that feels abstract when bills are due today, but there might be other solutions that can get you through this rough patch without derailing your future financial security.

Is anybody else confused by the fact that these non-deductible expenses reduce capital accounts even though they don't affect taxable income? I thought the whole point of capital accounts was to track what each partner has "invested" in the business. Why would a non-deductible expense like the disallowed 50% of meals reduce that investment?

Great question about capital accounts! I just went through this exact same process last month and it was definitely confusing at first. The key thing to understand is that tax-basis capital accounts are meant to track each partner's economic interest in the partnership - not just their tax consequences. So when the partnership spends money on non-deductible expenses, that's still real money leaving the partnership that reduces the overall value available to partners. For your specific questions: - Yes, the non-deductible 50% of business meals gets included in the total - You're absolutely right about mortgage principal - that's not an expense at all, it's just moving money from cash to equity in the property One tip that helped me: think of it as tracking "book" capital accounts that reflect economic reality, while the tax return tracks the tax effects separately. The non-deductible expenses bridge that gap by ensuring your capital accounts stay aligned with the actual economic position of each partner. Since you have 3 equal partners, at least the allocation is straightforward - just split everything 33.33% each. But definitely get this right because it affects basis calculations for distributions and sales down the road.

I messed this up on my 2022 taxes and got a CP2000 notice from the IRS saying I double-deducted my mortgage interest. Had to pay back about $1,200 plus interest. Don't make my mistake!

Just wanted to share my experience as someone who went through this exact situation last year! I had a similar duplex setup (65/35 split) and was terrified of making a mistake after reading horror stories online. Here's what I learned that might help: The key is being absolutely meticulous about your documentation. I created a simple spreadsheet tracking every expense and its allocation percentage. For the mortgage interest specifically, I made sure to clearly note on my tax return that the Schedule E amount represented only the rental portion. One thing that really helped me was creating a "property allocation worksheet" where I documented how I calculated my 70/30 split (square footage, rooms, whatever method you used). Keep this with your tax records because if you ever get audited, the IRS will want to see your methodology was reasonable and consistent. Also, pro tip: if you're using the same allocation method for multiple expenses (mortgage interest, property taxes, insurance, etc.), make sure you're applying it consistently across all of them. The IRS looks for consistency in your reporting. You're asking all the right questions - being cautious about double-dipping shows you're thinking about this correctly!