This is exactly the kind of breakdown I needed! I've been putting off starting my consulting business because the tax situation seemed so overwhelming, but seeing the actual numbers makes it much more manageable. One thing I'm still confused about - if someone has both W-2 income and self-employment income in the same year, how does that affect these calculations? Does the self-employment tax still only apply to the business income, or does having W-2 income change the brackets you fall into for the income tax portion? I'm considering leaving my day job mid-year to go full-time freelance, so I'd have both types of income for 2025. Trying to figure out if that makes the tax situation more complicated or if it's basically just adding the two income streams together.

This thread has been incredibly educational! As someone who's been freelancing for about 6 months now, I was doing the classic mistake of thinking I'd owe 37%+ on everything. One thing that's really helping me is keeping detailed records throughout the year. I use a simple spreadsheet to track income, expenses, and set aside that 25-30% mentioned earlier. But I also track things like: - Mileage for business trips - Home office expenses (utilities, internet, etc.) - Professional development courses - Business meals (50% deductible) - Equipment purchases The QBI deduction alone has been huge for me - I didn't even know it existed until my accountant mentioned it last year. For anyone just starting out, definitely look into that 20% deduction on qualified business income. It can make a significant difference in your final tax bill. Also, don't sleep on retirement contributions! SEP-IRAs and Solo 401(k)s let self-employed people contribute way more than traditional employees can, which further reduces your taxable income. I'm contributing about 15% of my net business income to a SEP-IRA, which knocks my taxable income down even more.

For your Schedule K-1 (1065) adjusted basis, I think you're getting confused between capital account and outside basis. They're different things! Your capital account can go negative (as yours has) but your basis can never go below zero. Since you got your interest as a bonus, your initial basis was probably the value included in your income. If that was zero, then your starting basis was zero. Since your basis starts at zero, you can't deduct any of the partnership losses now. They get suspended and carry forward until you get more basis (either by contributing money/property to the LLC or by the LLC generating income that's allocated to you). For the tax software, you're correct to enter zero as your starting basis if it was already zero last year. Make sure you track your suspended losses somewhere though - those are important for future years!

Dealing with Schedule K-1 (1065) adjusted basis calculations can be a nightmare! I'm a partner in 3 different LLCs and finally figured out how to handle negative capital accounts. The key thing to understand: your adjusted basis and your capital account are calculated differently. Your capital account can go negative, but your tax basis cannot. When you receive a partnership interest as compensation (like you did), your initial basis equals the amount included in your income. If you didn't include any amount in income, your initial basis was zero. With a starting basis of zero and no additional contributions, you can't claim any of the $3,800 loss this year. But those losses aren't gone! They're suspended and can be used in future years when you have basis. For tax software, enter zero as your beginning basis, then show your share of loss, but the software should limit your loss deduction to zero.

Another common mistake I see with ESPP calculations is forgetting about commission fees. When calculating your total gain/loss, don't forget to factor in any fees you paid when selling the shares. For example, if you sold at $250 but paid a $5 commission, your actual proceeds would be $245. This affects both your ordinary income calculation (since it's based partly on actual proceeds) and your capital gain calculation.

Great discussion here! I wanted to add a few points that might help others dealing with ESPP calculations: 1. **Record keeping is crucial** - Create a detailed spreadsheet for each purchase lot that includes offering date, purchase date, FMV on both dates, purchase price, sale date, sale price, and all fees. This will save you hours during tax season. 2. **Watch out for same-day sales** - If you sell ESPP shares on the same day you purchase them, the tax treatment can be different. The entire discount may be treated as ordinary income rather than going through the qualifying/disqualifying disposition analysis. 3. **State tax considerations** - Don't forget that your state may have different rules for ESPP taxation. Some states don't recognize the federal preferential treatment for qualifying dispositions. 4. **Multiple brokers** - If your company switched brokers during the year, make sure you're getting all the necessary 1099-B forms. I've seen people miss reporting sales because they forgot about shares held at a previous broker. The original calculation looks mostly correct once you use the purchase date FMV for the discount calculation as Jean Claude pointed out. Just double-check that you're accounting for all fees and that your company isn't already reporting any of this on your W-2.

One thing to be aware of with McDonald's franchises that affects your taxes - McDonald's typically owns or controls the real estate and leases it to you as the franchisee. This is different from some other franchise systems. The lease payments are tax-deductible business expenses, but it also means you're not building equity in the real estate (which can be a major asset).

Great question! I work in tax preparation and see this confusion a lot with new franchise owners. Each McDonald's franchise is indeed a separate business entity that files its own tax returns - you're not part of McDonald's corporate tax return at all. When you buy a McDonald's franchise, you're purchasing the right to operate under their brand and systems, but you're running your own independent business. You'll typically form an LLC or corporation, get your own EIN, and file separate tax returns. The royalty fees you pay to McDonald's corporate (currently around 4% of gross sales) are just business expenses you deduct on your return. One key thing to consider early - many multi-unit franchise owners I work with wish they had structured their business entities better from the start. If you're planning to eventually own multiple locations, talk to a CPA about whether to set up separate entities for each location or use a holding company structure. It can save you headaches and money down the road. Also worth noting that franchise tax situations can get complex with things like equipment depreciation, building improvements, and the real estate lease arrangements that McDonald's typically uses. Definitely budget for a good accountant who understands franchise businesses - they'll more than pay for themselves in tax savings and compliance.

One other tip from another F1 student: for state residency in FreeTaxUSA, after selecting "non-resident," make sure you're only reporting income that was earned in that specific state. The software should limit taxation to state-source income, but sometimes you need to verify this manually. In my case, I had a summer internship in a different state from where my university is located. Had to file as a non-resident in both states, but only report the income earned in each respective state.

As someone who went through this exact same confusion last year, I completely understand your frustration! The lack of clear guidance for international students in tax software is really frustrating. Based on what others have shared and my own experience, you should definitely select "non-resident" for Massachusetts. Since you're on an F1 visa and have only been in the US for 15 months, you're considered a non-resident alien for federal tax purposes, and Massachusetts generally follows that determination. One thing I learned the hard way is to double-check that FreeTaxUSA is only taxing your Massachusetts-source income (like your campus job) and not trying to tax any income from other sources. The software should handle this automatically when you select non-resident, but it's worth verifying. Also, don't forget about Form 8843 that someone mentioned - it's required for F1 students even if you don't owe any taxes. FreeTaxUSA can help you prepare it, but you have to look for it specifically in the foreign income section. Good luck with your filing! The first year is definitely the most confusing, but it gets easier once you understand your status.