Quick heads up - something nobody mentioned yet is that if you go the Solo 401k route, once your account balance hits $250,000, you'll need to file Form 5500-SF annually. Not a huge deal but something to be aware of for future planning.

One thing I'd add that might be helpful - if your consulting income varies significantly year to year (like yours does between $55k-$105k), you might want to consider making quarterly estimated tax payments that include your retirement contributions. This helps with cash flow management and ensures you're not scrambling at year-end. Also, since you're already with Vanguard, their Solo 401(k) has really low fees and good investment options. When you call them, ask about their "Individual 401(k)" - that's what they call their Solo 401(k) product. They'll walk you through the whole process and can even help you figure out the optimal contribution strategy based on your projected income. One last tip: keep detailed records of all your business expenses from the consulting work. The more legitimate business expenses you can deduct, the higher your net profit will be, which means you can potentially contribute more to the retirement account (since it's based on that 25% of net self-employment income calculation).

Be careful about ignoring the partnership angle. I tried to treat a similar situation as just "helping a friend" and splitting profits, and ended up with an audit. Since there was a profit-sharing agreement, the IRS deemed it a partnership regardless of what we called it. Their position was that when two or more people join together to purchase/improve property with the intent to make money, that's a partnership for tax purposes - even without formal documentation. The safest approach is filing Form 1065 and issuing K-1s. If you really don't want to do that, at minimum document everything clearly and have a written explanation ready if questioned. Whatever you do, don't just have one person report everything and pay the other under the table - that's asking for trouble!

I'm dealing with a very similar situation right now - bought a property with my cousin, only my name on the deed, verbal 50/50 agreement, and we just sold it. After reading through all these responses, I'm leaning toward filing Form 1065 and issuing K-1s. One thing I haven't seen mentioned is the importance of documenting your agreement NOW if you haven't already. Even though the sale is complete, having a written record of your original 50/50 agreement (even if it's just an email or text message confirmation) will be crucial if the IRS ever questions the arrangement. Also, make sure you're both on the same page about which approach you're taking. My cousin and I initially had different ideas about how to handle this, and it could have created a mess if we'd filed inconsistent returns. The partnership route with K-1s ensures you're both reporting the same information in the same way. The Form 1065 might seem like overkill for a one-time deal, but it's actually the cleanest way to document what actually happened - two people investing together to make a profit. Better to do it right the first time than deal with complications later.

Has anyone tried TurboTax for figuring this stuff out? I used it last year and it seemed pretty clear that pet expenses weren't deductible, but I'm wondering if the premium version might have more options for finding other deductions to make up for it?

I've been dealing with massive vet bills too - my cat needed emergency surgery twice this year totaling about $4,800. After reading through all these comments, I decided to try both taxr.ai and Claimyr since everyone seemed to have good experiences. The taxr.ai analysis was really thorough and while they confirmed my vet bills weren't deductible (as expected), they found several business expense deductions I had completely overlooked since I do some freelance work. Saved me about $900 in taxes which definitely helps with the vet bill sting. Then I used Claimyr to get through to an actual IRS agent to double-check some of the more complex deductions taxr.ai had identified. Got connected in maybe 25 minutes and the agent was incredibly helpful - even walked me through proper documentation requirements so I wouldn't have issues if audited. Between the two services, I feel much more confident about my tax situation this year. Sometimes you just need professional help to navigate all the rules properly, especially when you're dealing with significant unexpected expenses like vet bills.

Has anyone used TurboTax with a 1099-G? Does it automatically figure out if the state refund is taxable or not? I'm in the same boat as the OP but don't want to mess it up when I enter it.

I went through this exact same situation last year and it was so confusing at first! The key thing to remember is that the 1099-G is issued based on when you RECEIVED the refund, not when you filed the return that generated it. So if you got a state refund in 2024 (even if it was from your 2023 tax return), you'll get a 1099-G reporting that refund. The question is whether you need to report it as income on your 2024 federal return. Since you mentioned you typically take the standard deduction, you're probably in the clear. The state refund is only taxable if you itemized deductions on the federal return for the tax year that generated the refund AND you actually received a tax benefit from deducting state taxes paid. Keep the 1099-G with your tax records, but if you took the standard deduction on your 2023 federal return, you can ignore it for tax purposes. The state has to send these forms to everyone who received a refund over a certain amount, regardless of whether it's actually taxable to the individual recipient.

One thing to be careful about - if you're claiming an exception to the 10% penalty, make sure you're using the right code! I messed this up last year and had to file an amended return. The IRS has specific codes for different exceptions (medical expenses is code 05, first-time home purchase is 09, etc). Also, some free software might let you fill out Form 5329, but won't guide you through figuring out if you qualify for exceptions. That's where I got tripped up - I ended up paying the 10% penalty when I actually qualified for an exception.

I went through this exact same headache last year! After trying multiple "free" services that all wanted to charge me for Form 5329, I ended up using the IRS Free File Fillable Forms directly from the IRS website. It's definitely not as polished as the commercial software, but it's completely free and includes all the forms you need. The interface is pretty basic - it's essentially just fillable PDFs - but it does the calculations for you and e-files directly to the IRS. You'll need to be a bit more careful about entering everything correctly since there's less hand-holding, but for Form 5329 it's pretty straightforward. Another tip: before you file, double-check if you qualify for any exceptions to the 10% penalty. I almost paid the penalty unnecessarily until I realized my medical expenses qualified for an exception. The Form 5329 instructions on the IRS website list all the exception codes - it's worth spending a few minutes reviewing them to see if any apply to your situation. Paper filing is always an option too if you're comfortable with that route. Sometimes the old-fashioned way is the most reliable!