Don't forget that if you work remotely for a Colorado company but decide to travel to other states, you might need to track the days you work in each state. Some states (like New York) are super aggressive about taxing even a single day of work performed in their state. I learned this the hard way when I worked in 3 different states last year. Had to keep a detailed calendar of which days I worked where. It was a pain but saved me from potential audits.

This is a really complex situation that trips up a lot of people! Based on what you've described, you'll likely need to file in both states since you have income earned in Colorado but your domicile (permanent legal residence) is still in Arizona. Here's what I'd recommend: **For Colorado**: You'll file as a nonresident since you're just working there temporarily. Colorado will tax the income you earned while physically working in the state, regardless of where your permanent address is. **For Arizona**: Since your driver's license, voting registration, and permanent address are all there, Arizona considers you a resident and will want to tax all your worldwide income. However, you'll get a credit for taxes paid to Colorado to avoid double taxation. The key thing to remember is that "residency" for tax purposes isn't just about where you get mail - it's about where your life is actually centered. Since you're living in hotels/Airbnbs temporarily for work, you haven't established Colorado residency yet. Make sure to keep detailed records of your work dates in Colorado, as you'll need this for your tax filings. Most tax software can handle multi-state returns, but given the complexity of your situation, it might be worth consulting with a tax professional to make sure you're handling everything correctly. Also double-check that your employer is withholding the right amount for Colorado - you don't want to get hit with underpayment penalties!

Something important that hasn't been mentioned yet - check your sale agreement carefully. Often there are tax provisions specifically addressing this situation. In my case, we had a "tax true-up" clause that required the company to make a distribution to departing shareholders specifically to cover tax liabilities attributable to undistributed profits. If your agreement has language about tax distributions, tax true-ups, or tax withholding related to shareholder exits, you may have contractual recourse against your former partners.

The timing of your sale creates a unique issue. If you sold mid-year 2024 but the transaction completed in 2025, there's a possibility that your income allocation on the K1 isn't properly pro-rated for the period you actually owned shares. S Corps are required to allocate income based on per-share, per-day calculations when ownership changes mid-year. Did your K1 reflect owning shares for the entire year or just the portion you were an actual owner?

As a tax preparer, I see this scenario frequently with my travel healthcare clients. One thing not mentioned yet - sometimes these certified letters are just identity verification notices (Letter 5071C or 4883C). The IRS has been sending more of these as fraud prevention measures, especially for people who file from multiple states/addresses. The verification letters often don't show up immediately in the IRS system when representatives check your account. If it is an identity verification letter, it's nothing to worry about - just a security measure.

Has anyone mentioned it might not be from the IRS at all? There are a lot of scams that use fake "certified IRS letters" to try to get personal information. Real IRS letters have specific formatting and will include your taxpayer ID number (last 4 of SSN). If your family member can check, look for these verification elements.

is it possible that the IRS notice is about something besides the extra withholding? sometimes they send W-4s for other reasons too like if your allowances are way off from what they think you should claim. did the notice mention anything specific?

I've been through this exact situation! Got a similar notice when I increased my withholding by about $40 per paycheck. The IRS notice can be scary at first, but it's really just their way of confirming you made the change intentionally. What you did is totally normal and smart - having extra withholding helps ensure you don't owe money at tax time. The IRS automated system flagged the change because it was different from your previous withholding pattern, not because you did anything wrong. Make sure to read the notice carefully for response instructions. Usually they just want you to confirm that you authorized the W-4 change. You can typically respond by phone or mail. Don't stress about it - this is more of a security check than anything punitive. Keep doing the extra withholding if it works for your financial planning!

Are property taxes and mortgage interest part of the "closing costs" we're talking about for basis calculation? I paid about $3k in prorated property taxes at closing when I bought my house in 2021. It's a rental now as of last month.

Just want to add my experience for anyone else dealing with this situation. I converted my personal residence to a rental in 2022 and was also confused about the basis calculation. After consulting with my CPA, I learned that you definitely CAN include those original closing costs (real estate commission, title insurance, attorney fees, etc.) in your depreciable basis, even though the property wasn't initially purchased as a rental. The key thing to remember is that when you convert to rental use, your basis is the LOWER of either your adjusted basis (original cost plus improvements minus any casualty losses) OR the fair market value at the time of conversion. So if your property appreciated significantly, you might be limited by the FMV rather than your original costs. I kept all my original closing documents from 2019 and my CPA was able to add about $8,000 in closing costs to my basis calculation. Make sure you have documentation for everything - the IRS will want to see proof of those costs if they ever audit your depreciation schedule.