As someone new to this community and currently exploring private school options for my kids, this thread has been absolutely invaluable! I had completely written off any possibility of tax benefits for private K-12 education, assuming it was just a financial burden we'd have to bear without any relief. The 529 plan strategy for K-12 expenses is something I definitely need to research for my state. The fact that you can contribute and withdraw almost immediately while still potentially getting state tax deductions is a game-changer I never knew existed. I'm also really intrigued by the Educational Improvement Tax Credit programs mentioned earlier. The concept of redirecting state tax liability to scholarship organizations while getting dollar-for-dollar credits sounds like something worth investigating, especially if it's available in my area. One thing that's become clear from reading everyone's experiences is the importance of being proactive about documentation and understanding your specific state's programs. It seems like there are legitimate opportunities out there, but they require some research and organization to take advantage of properly. Thanks to everyone who shared their real experiences and specific examples - this kind of practical advice from people who've actually navigated these programs is so much more helpful than trying to figure it out from government websites alone!

This thread has been incredibly enlightening! I'm in a similar situation with my two kids at a Catholic school costing about $20,000/year combined. Like many others here, I had completely given up on finding any tax relief for K-12 private education. The 529 plan strategy really caught my attention - I had no idea the rules changed to allow K-12 withdrawals. The fact that you can contribute and withdraw almost immediately while still potentially getting state tax benefits is something I need to explore right away for my state. I'm also fascinated by the various state-specific programs people have mentioned. It's clear that doing a deep dive into what my particular state offers could uncover opportunities I never knew existed. The Educational Improvement Tax Credit programs sound particularly interesting. One practical question - for those who've successfully implemented multiple strategies, how do you keep track of everything during tax season? It sounds like good organization and documentation are crucial for making sure you don't accidentally double-count expenses across different programs. Thanks to everyone who shared their real experiences rather than just theoretical advice. This community has been more helpful than hours of research on government websites! I'm definitely motivated to stop accepting these tuition payments as a complete tax loss and start exploring what options are available.

One more thing to consider - state taxes! I found out that while my settlement wasn't taxable federally, my state had different rules. Double check your specific state's treatment of personal injury settlements.

Hey Chloe! I went through something similar a few years ago after a slip and fall accident. You're absolutely right to be cautious about the tax implications - it's smart to get this figured out before you spend any of the money. From my experience and what I learned, personal injury settlements for physical injuries are generally NOT taxable at the federal level. Since you mentioned this was from being hit by a car while walking (clearly a physical injury situation), the portion of your settlement compensating you for medical bills, pain and suffering, and physical injuries should be tax-free. However, keep an eye out for any parts of your settlement that might be taxable: - Any interest earned on the settlement amount - Compensation specifically for lost wages/income - Punitive damages (if any) - If you previously deducted medical expenses related to this accident on past tax returns and are now being reimbursed My advice would be to get a detailed breakdown of your settlement from your attorney showing how the money is allocated across different categories. This will make it much easier to determine what (if anything) needs to be reported as taxable income. Also don't forget about potential health insurance subrogation - if your health insurance paid for any of your medical treatment, they might have a claim against your settlement. It won't affect the tax treatment, but it could reduce what you actually keep. Hope this helps and congrats on getting through what I'm sure was a stressful situation!

Has anyone used a tax professional specifically for this? I tried asking my regular accountant and she seemed really uncertain about how to implement this correctly, which doesn't give me much confidence.

This is exactly the kind of question I had when I started my LLC! One thing I learned the hard way is that you absolutely need to establish legitimate job duties and pay rates BEFORE you start paying them. The IRS looks for whether this is a real employment relationship or just a way to shift income to your kids. I recommend creating written job descriptions that match what they're actually doing, setting up regular work schedules (even if it's just a few hours after school), and paying them consistently - not just random amounts when you feel like it. The phone answering and filing work you mentioned is perfect because it's clearly legitimate business tasks. Also, make sure you're familiar with child labor laws in your state. Most states have restrictions on how many hours minors can work during school periods, and you want to stay within those limits even though they're your own kids. The payroll vs. 1099 question is important - definitely go with payroll as others have mentioned. Your children working under your supervision in your business are employees, not independent contractors.

Thanks everyone for the detailed responses! This is incredibly helpful. I've been stressing about this since the sale went through in January. Based on what you've all shared, it sounds like I have two main options: 1. Split the payments equally across four quarters (~$65k each for federal, plus the Washington state portion) 2. Use the annualized income installment method since all my gains happened in Q1 I'm leaning toward the annualized method since it seems more accurate for my situation, but I'm definitely going to keep detailed documentation as @StarGazer101 mentioned. One follow-up question - for the Washington state capital gains tax that @Yara mentioned ($73,500 on the amount over $250k), do they follow the same quarterly schedule as federal? And can I use the annualized method for state taxes too? Also going to check out both taxr.ai and potentially use Claimyr to get official IRS confirmation. With amounts this large, I'd rather be 100% certain I'm doing everything correctly. Better safe than sorry!

Welcome to the community! Just wanted to add another perspective as someone who went through a similar large capital gains situation. One thing that really helped me was setting up a separate savings account specifically for the tax payments and transferring the estimated amounts immediately after the sale. With $1.3M in gains, you're looking at roughly $260k federal + $73.5k Washington state = ~$333k total. Having that money physically separated from my regular accounts prevented any temptation to spend it and gave me peace of mind. Also, since you mentioned this is your only income for 2025 during your sabbatical, make sure you're not missing any deductions you might be eligible for. Things like investment advisory fees, safe deposit box fees, or other investment-related expenses might help reduce your taxable gains slightly. The annualized method definitely sounds right for your Q1 sale situation. Just remember that even though it's more complex, it can save you from having large amounts tied up in overpayments to the government throughout the year. Good luck with everything!

I just want to echo what others have said - you're definitely not alone in this confusion! The W-4 changes really threw a lot of people off, and it sounds like your situation is textbook for what happened to many folks. One thing I'd add that I don't think anyone mentioned yet - when you do fill out that new W-4, make sure to use the IRS withholding calculator on their website (irs.gov) if you want to get really precise. It takes into account your specific pay frequency, current withholding amounts, and will tell you exactly what to put on the form. I used it last year after having a similar issue and it was spot-on. Way better than just guessing at how much extra to withhold. Plus it walks you through each step of the new W-4 format, which honestly still confuses me compared to the old allowances system. The fact that you went from getting $2,300 back to owing small amounts actually shows the system is working better for you now - you're just getting your money throughout the year instead of giving the government a free loan. A small adjustment should get you right where you want to be!

I'm glad to see so many helpful responses here! Just wanted to add one more perspective as someone who works in payroll. The transition from the old allowance-based W-4 to the new system has been a nightmare for both employees and employers. Many payroll systems had to be completely updated, and some companies are still working out the kinks years later. What you're experiencing is super common - the old "claim 0" strategy doesn't translate directly to the new system. The new W-4 tries to be more accurate by having you enter actual dollar amounts rather than allowances, but it requires you to be more hands-on with the calculations. A couple of practical tips: - When you fill out your new W-4, don't just leave everything blank thinking it's the same as claiming 0 - If you're single with one job and no dependents, you might actually want to check the box in Step 2(c) for "single or married filing separately" jobs - And definitely add that extra withholding amount others mentioned - even $10-15 per paycheck should solve your problem The good news is once you get it figured out with the new system, it should be much more accurate going forward. The old system was really just a rough estimate, but the new one can be more precise if you take the time to fill it out properly.