As a newcomer to this community, I'm incredibly grateful for this comprehensive discussion! I'm in a similar situation with my consulting LLC showing losses while I had gains from selling some long-term investments this year. This thread has been absolutely invaluable - covering everything from basic offset mechanics to sophisticated strategic considerations I never knew existed. The insights about material participation documentation, hobby loss rules, NIIT thresholds, and timing strategies have completely transformed my understanding of this situation. I'm particularly concerned about proper documentation since my LLC has been operating at a loss for about 2 years now. Based on the experiences shared here, I'm going to immediately start maintaining a detailed business diary of hours worked and profit-seeking activities. One question that's come up for me: if I'm expecting my business to turn profitable next year, would it make sense to use only a portion of my current losses to offset this year's capital gains and carry forward the rest? From the discussion about rate arbitrage, it seems like saving losses for future ordinary income (potentially taxed at higher rates) versus using them all against capital gains (taxed at preferential rates) could be a strategic decision. Also, given the complexity discussed around state tax implications, should I be consulting with a tax professional who understands both federal and state rules, or are the general online services mentioned sufficient for most situations? Thank you all for sharing such detailed experiences - this community is an amazing resource for navigating these complex tax situations!

As a newcomer to this community, I'm absolutely amazed by the depth and quality of discussion in this thread! I'm facing a very similar situation - my small web development LLC has been operating at losses for about 3 years while I recently had substantial gains from selling some tech stocks. This comprehensive discussion has been incredibly educational, covering everything from basic offset mechanics to complex strategic considerations I never would have thought of. The insights about material participation documentation, the 3-out-of-5-years hobby loss rule, NIIT implications, strategic timing decisions, and state tax differences have completely changed my approach to this situation. I'm particularly grateful for the practical advice about maintaining detailed business records and the audit experiences shared. Given that I'm in year 3 of losses, the documentation requirements for proving legitimate business purpose are clearly critical. I'm going to start immediately with the business diary approach and formal documentation of my profit-seeking activities. One thing I'm wondering about: my LLC losses are primarily from hosting costs, development tools, marketing expenses, and professional development as I've been building my client base. Would it be beneficial to accelerate some planned business expenses into this tax year to maximize the offset, or should I be more conservative given the multi-year loss history and potential hobby loss scrutiny? Also, I noticed the discussion about excess business loss limitations - since my losses are well under the $289,000 threshold, I assume this won't affect my situation, but I want to make sure I understand all the applicable rules. Thank you all for creating such an invaluable resource - this community discussion has been far more helpful than anything else I've found!

Not sure if anyone mentioned this yet, but you should file Form 3949-A with the IRS to report your employer for suspected tax fraud. Not filing W-2s for multiple employees over multiple years is almost certainly intentional - they were probably pocketing the tax money they withheld from your paychecks. That's theft!

This is a serious red flag situation that you need to handle carefully. As others have mentioned, the POA request is highly suspicious - there's no legitimate reason a company's CPA would need power of attorney from you to fix their own filing obligations. Here's what I'd recommend doing immediately: 1. **Document everything** - Save all communications with the CPA, keep copies of your pay stubs, W-2s, and the IRS notice 2. **Get your transcripts** - Request both Wage & Income and Account transcripts from the IRS online for all affected years 3. **Don't sign anything** - Absolutely do not give them POA or sign any documents The fact that this spans multiple years and involves withholding 45% from your severance suggests they may have been mismanaging payroll taxes for a long time. If they withheld taxes from your pay but never remitted them to the IRS, that's essentially theft. You might also want to check if other former employees are having similar issues - if this is affecting multiple people, it strengthens the case for deliberate non-compliance rather than an administrative error. Consider consulting with your own tax professional who can help you navigate this without any conflicts of interest. The company's CPA is looking out for the company, not for you.

Wait, I'm confused about the timing. If the kid lived with you for 15 months, that means they lived with you for all of last year plus a few months of the previous year, right? So you DEFINITELY qualify under the residency test (which requires 6+ months). Did you provide more than half their support too? Food, clothing, shelter, medical, etc?

The 15-month timeline definitely works in your favor for the residency test! Since your niece has been living with you for over a year, you clearly meet the requirement that the child lived with you for more than half the tax year. For a niece to qualify as your dependent, she needs to meet either the "qualifying child" or "qualifying relative" tests. As your niece, she can be a qualifying relative if: (1) she lived with you all year OR is related to you (which she is), (2) her gross income was less than the exemption amount ($4,400 for 2023), (3) you provided more than half her total support, and (4) she's not filing a joint return with someone else. The swing from owing $3k to getting a $1,900 refund makes perfect sense - that's likely the Child Tax Credit and possibly the Additional Child Tax Credit kicking in, which can be worth up to $2,000 per qualifying child. Your processing delay is almost certainly just the IRS being overwhelmed rather than any red flags. Returns with refundable credits (especially involving dependents) routinely take longer to process because they undergo additional verification. The fact that you filed exempt on your W-4 shouldn't impact your dependent claim at all - these are completely separate determinations.

Wouldn't it be easier to just not give your SSN and instead just call it a reimbursement? If you give them your w9 your gonna have to deal with the 1099 and the whole back and forth with the IRS. Seems like more trouble than its worth for $600.

I'm dealing with a similar situation right now with my HOA. They're requiring a W-9 for reimbursing special assessment overages, and I was confused too. After reading through all these responses, it sounds like the consensus is to provide the W-9 but include clear documentation that it's a reimbursement. One thing I'd add - keep copies of everything. Your original receipt for the $750 mold test, all emails with the builder, and especially any response you get when you explain this is a reimbursement. If they do mistakenly send a 1099 later, you'll have a complete paper trail to support your position that this wasn't taxable income. Also, given all the construction issues you mentioned with multiple units affected, this reimbursement might be part of a larger settlement pattern. Document everything in case it becomes relevant for the HOA's legal action against the builder.

There's actually another strategy no one has mentioned yet - if you have self-employment income or active business income (not from the rental), you might be able to offset some of the gain by increasing retirement contributions in the year of sale. Maxing out a SEP IRA, Solo 401k, or defined benefit plan can create substantial deductions.

Based on my experience dealing with similar depreciation recapture situations, I want to emphasize something important that wasn't fully covered - the timing of when you recognize your passive losses matters significantly. If you've been unable to use passive losses from your other rental property due to the passive activity loss limitations, those losses are "suspended" and carry forward. The key thing to understand is that when you dispose of your entire interest in a passive activity (like selling your rental property), ALL of your suspended passive losses from that specific property become fully deductible against any type of income - including active income, portfolio income, and yes, even depreciation recapture. However, suspended losses from OTHER properties you still own can only offset passive income, not the depreciation recapture. So if your current rental showing losses this year hasn't generated suspended losses yet, those current year losses likely won't help with your recapture tax. I'd strongly recommend reviewing your passive loss carryforwards from the property you're selling - you might have more tax relief available than you realize. The IRS Form 8582 from previous years will show your suspended losses by property.