Has anyone else successfully charged between their own business entities like OP is considering? I'm in a somewhat similar situation with a consulting business and a rental property, and I sometimes do consulting work that benefits the rental. Never thought about actually charging between them.

This is a really nuanced situation that requires careful handling. Based on what you've described, you're actually in a decent position to maintain business classification despite the recent losses. For your first question about the vacation rental paying your advertising business - this is absolutely legitimate as long as you treat it like any other business transaction. Create proper invoices, document the services provided, and charge fair market rates. This can actually help your Schedule C business show some income while providing a legitimate deduction for your rental property. Regarding the hobby classification concern - don't artificially inflate profits by not reporting expenses. Instead, focus on documenting your profit motive. Since you've had profits for most of the 20 years, that's strong evidence in your favor. Make sure you're documenting: - Your business plans and efforts to return to profitability - Marketing activities to drum up new clients - Any changes you've made to improve operations - Your expertise and time invested in the businesses The IRS looks at the totality of circumstances, not just recent losses. Your long history of profitability combined with documented efforts to improve the struggling business should support your business classification. The fact that you're actively trying to get new clients for the low-revenue business is particularly important to document. Consider keeping detailed records of your business development activities, client outreach efforts, and any strategic changes you're implementing. This demonstrates the businesslike manner and profit motive the IRS looks for.

I went through this exact same confusion last year! The key thing to understand is that "effectively connected with U.S. trade or business" has a very specific meaning - it's not just about having a bank account in the US while you're here temporarily. For your situation, Exception 1(a) is almost certainly the right choice. Since your bank gave you a letter stating the account is subject to IRS information reporting, and you're just keeping savings there (not running a business), this falls under passive income reporting. Exception 1(b) would only apply if you were actually operating a business in the US and the bank account was directly related to that business activity. Just being temporarily in the US with a savings account doesn't qualify. I'd recommend going with Exception 1(a) and including your bank's letter as supporting documentation. The IRS is pretty clear that any interest-bearing account subject to their reporting requirements qualifies under this exception, regardless of how much interest you're actually earning.

I just wanted to add my experience since I went through this exact same situation about 6 months ago. Like you, I was completely confused about which exception to choose, and I ended up making it more complicated than it needed to be. After reading through all the IRS instructions multiple times and calling my bank for clarification, I learned that the key question is really simple: Are you using this bank account for business purposes or personal savings? Since you mentioned you're just keeping savings there while temporarily in the US, Exception 1(a) is definitely the right choice. The "effectively connected with U.S. trade or business" language in Exception 1(b) is very specific - it means you're actually running a business or engaged in commercial activity in the US, not just maintaining a personal account. My bank's letter was similar to yours - it just stated that the account was subject to IRS information reporting. That's all you need for Exception 1(a). The IRS approved my application in about 8 weeks with no issues. One tip: Make sure to include a copy of your bank's letter with your W-7 application as supporting documentation. It directly supports your choice of Exception 1(a) and shows the IRS exactly why you need the ITIN. Good luck with your application! You're overthinking it - Exception 1(a) is the way to go for your situation.

Has anyone done the math on approximate costs for setting up each option? I'm a web developer making around $140k and currently operating as a single-member LLC. My CPA suggested considering C corp status but wasn't clear on whether I should file the election or do a full conversion.

For someone at your income level ($140k), the tax election route is probably your best bet initially. I made a similar transition last year as a freelance consultant earning about $130k. The key consideration at your revenue level is that you're likely not retaining massive amounts in the business yet, so the main benefits you're looking for are probably the self-employment tax savings and ability to deduct health insurance premiums. With the LLC taxed as C corp election, you'll pay yourself a reasonable salary (I do about $85k of my $130k through payroll) and take the rest as distributions. This saves you roughly $2,400 annually in self-employment taxes compared to straight LLC taxation. Plus you get the health insurance benefits others mentioned. The conversion to actual C corp makes more sense when you're planning to retain significant earnings in the business or need the formal corporate structure for investors. At $140k, you're probably taking most profits out anyway, so the simpler LLC structure with corporate tax treatment gives you 90% of the benefits with way less hassle and cost. My advice: start with the tax election, see how it works for a year or two, then reassess if you need full conversion as your business grows.

Another option: if your spouse was from a country that has a tax treaty with the US, check if there are any special provisions that might help. My wife is from Canada and there were specific rules that applied to our situation when she got her green card.

I went through this exact same situation two years ago when my husband got his green card in July. The key thing to understand is that without making the 6013(h) election, your wife would be considered a "dual-status alien" for 2024 - meaning she'd be a non-resident for the months before getting her green card and a resident afterward. This creates a really complicated filing situation where you'd have to file separately, and she'd need to file a dual-status return (which is basically two tax returns stapled together). The 6013(h) election lets you treat her as a US resident for the ENTIRE year, so you can file jointly and simplify everything. A few important things to keep in mind: First, once you make this election, you can't revoke it for that tax year. Second, as others mentioned, ALL of her worldwide income for the full year becomes taxable in the US. Third, you'll need to attach a statement to your return specifically stating you're making the 6013(h) election. We found it was definitely worth it in our case because the tax savings from filing jointly more than offset the additional income inclusion. But definitely run the numbers both ways to be sure!

This is absolutely infuriating and unfortunately more common than it should be. I went through something very similar two years ago when our payroll system "upgraded" and somehow lost my 401k election entirely. The key thing to understand is that your employer's obligation here isn't just moral - it's legally mandated. When they accept fiduciary responsibility for administering a 401k plan, they're required to implement valid participant elections. Period. Their failure to do so creates what the IRS calls an "operational defect" that must be corrected. What really bothers me about your benefits team's response is that they're essentially punishing you for their own mistake. The whole point of a QNEC is to put you in the position you would have been in if they had done their job correctly the first time. One thing I'd add to the excellent advice already given - make sure you document the timeline of when you discovered this error and when you notified them. The IRS correction procedures have different requirements depending on how long the error went uncorrected, and you want to make sure they use the most favorable correction method available. Also, don't let them try to just give you a "bonus" or other taxable payment instead of a proper QNEC. The tax treatment matters enormously here - a QNEC maintains the pre-tax status and grows tax-deferred in your account, while a regular bonus would be fully taxable. Stay persistent on this. You're 100% in the right, and they know it.

I work as an ERISA attorney and have handled dozens of cases exactly like yours. Your employer is absolutely required to make a QNEC - their benefits team's response shows they fundamentally misunderstand the law. Under ERISA Section 404(a)(1), plan fiduciaries must act solely in the interest of participants and follow the plan document. When you made a valid deferral election and they failed to implement it, they breached their fiduciary duty regardless of the reason. The IRS correction under EPCRS isn't optional - it's mandatory when operational defects like this are discovered. Your employer faces significant penalties if they don't correct this properly, including potential plan disqualification which would create taxable events for ALL participants. Here's what I'd recommend: Send a formal demand letter to your CEO and CFO (not just benefits) citing ERISA Section 404, IRC Section 401(k), and Revenue Procedure 2021-30. Include a calculation showing the QNEC amount owed plus lost earnings. Give them 30 days to respond. If they refuse, file a complaint with the Department of Labor's EBSA and consider an ERISA lawsuit for breach of fiduciary duty. Most employers cave quickly once they realize the legal exposure - the cost of making you whole is nothing compared to potential plan disqualification. Document everything and don't let them pressure you into accepting anything less than a proper QNEC with full tax advantages. You have the law completely on your side here.