Make sure you explore all possible deductions/credits to offset some of this conversion income! Unemployment often makes people eligible for credits they wouldn't normally get. Check if you qualify for the Earned Income Credit, education credits if you took any classes, or increased medical expense deductions (threshold is lower when income drops). Also, since you were laid off, don't forget to deduct any job search expenses that might be eligible. Every little bit helps when facing a big tax bill from Roth conversions!

I'm really sorry to hear about your situation - getting hit with unemployment and a massive tax bill at the same time is incredibly stressful. Since you can't undo the conversion, here are a few additional strategies to consider: First, if you haven't already, make sure you're maximizing your 2023 deductions. Since you were unemployed for part of the year, you might qualify for larger medical expense deductions (they need to exceed 7.5% of AGI), and any charitable contributions you made could help offset some of the conversion income. Second, consider whether you have any capital losses in taxable investment accounts that you could harvest to offset some of the ordinary income from the conversion. While capital losses primarily offset capital gains, you can use up to $3,000 per year to offset ordinary income, with any excess carrying forward to future years. Finally, when you do speak with the IRS, emphasize your unemployment situation. They're often more willing to work with taxpayers facing genuine financial hardship. Document everything about your job search efforts and financial situation - this will support any hardship claims. The combination of an installment plan, penalty abatement if you qualify, and maximizing all possible deductions should help make this more manageable. Hang in there!

Great thread! I'm in a similar boat with my vacation rental and wanted to share what I've learned after going through this process twice now (we have two properties). One thing I haven't seen mentioned is the importance of documenting the business purpose for your decor purchases. The IRS wants to see that these items are necessary for your rental business, not personal use. I keep a simple log noting things like "purchased artwork and throw pillows to enhance guest experience and improve booking photos" or "added area rug to reduce noise complaints from downstairs neighbors." Also, regarding QuickBooks setup - I created separate sub-accounts under Fixed Assets for different categories: "Furniture-Major" (beds, couches), "Furniture-Decor" (artwork, rugs, lamps), and "Supplies-Replaceable" (throw pillows, small decorative items under my de minimis threshold). This makes it super easy to generate depreciation reports and track what's being expensed vs. depreciated. One last tip: if you're buying items that could arguably be used personally (like nice artwork), keep photos showing them installed in your rental property along with your purchase receipts. This helps establish the business use if you're ever audited.

I'm dealing with this same issue for my first Airbnb property! Reading through all these responses has been incredibly helpful. I'm particularly interested in the de minimis safe harbor election that several people mentioned - it sounds like that could really simplify things for smaller decorative items. One question I haven't seen addressed yet: what happens if you replace decor items during the year? For example, if I buy throw pillows in January for $80, then replace them with different ones in June for another $80 because the first set got damaged by guests. Do I treat both purchases the same way, or is there a different approach for replacement items? Also, I'm curious about how everyone handles items that serve dual purposes. Like, I bought some nice storage baskets that are decorative but also functional for guests to store their belongings. Are these considered decor/furnishings, or would they fall into a different category since they have a practical storage function? Thanks for all the great advice in this thread - this community has been so helpful as I navigate my first year of rental property ownership!

Jean Claude, I see you've gotten some great advice already! Just wanted to add one more perspective since I work in payroll and see these Box 18/19/20 issues frequently. When Box 18 has an amount but 19 and 20 are empty, it's often because your employer's payroll system is set up to report local wages for informational purposes but doesn't actually withhold the local tax - either because it's not required to be withheld at source, or because there was a setup error. For Philadelphia specifically (since you mentioned working there), the city requires employers to withhold the local wage tax, so if Box 19 is truly empty, that's likely an employer error. You should definitely contact your payroll department to get this corrected, as you'll want proper withholding going forward. In the meantime, for your current filing, "Philadelphia" or "PHILADELPHIA CITY" should work in Box 20. Most tax software will accept either format. And yes, you'll likely owe the local tax that wasn't withheld, but at least you'll know for next year! Hope this helps clarify things from the employer side of the equation!

Just wanted to chime in with another angle that might be helpful - if you're working with tax software that's giving you trouble with the locality field, you might want to try switching to a different software temporarily just to see how they handle this issue. I had a similar situation last year where TurboTax kept rejecting my locality entry, but when I tried the same information in FreeTaxUSA, it went through without any issues. Sometimes different software packages have different validation rules for local tax fields. Also, if you're really stuck on what to enter for Box 20, you can always call your city's tax office directly. Most local tax departments are actually pretty helpful during tax season and can tell you exactly what format they expect to see on returns. For Philadelphia, their tax office might even be able to confirm whether your employer should have been withholding or if you're responsible for paying the full amount when filing. One last tip - if this ends up being an employer error and you get it sorted out, ask your payroll department to send a memo to all employees explaining the local tax setup. You're probably not the only person dealing with this confusion!

Has anyone used TurboTax Business to file their final S-Corp return? Wondering if it handles all the dissolution specifics properly or if I should use a CPA for the final year.

One thing I'd add is to make sure you handle any depreciation recapture properly when distributing those laptops to yourself. If you claimed depreciation on them over the years, you'll need to calculate the recapture amount and include it in your final tax calculations. The fair market value of the laptops when distributed minus their adjusted basis could result in ordinary income treatment for the depreciation portion. Also, since you mentioned this is your first business closure, consider keeping all your corporate records for at least 7 years after dissolution. The IRS can still audit closed corporations, and you'll want documentation of how you handled the final distributions, asset valuations, and dissolution process. Better to have the paperwork and not need it than the other way around!

The 1099-K threshold changing to $600 for 2024 is going to be a nightmare for casual sellers! I've heard people say they're going to stop selling online altogether because of it. Does anyone know if there's a difference between selling on eBay vs local cash sales through Facebook Marketplace? Like if I sell stuff locally for cash does that somehow avoid all this tax reporting headache?

This is exactly why I keep detailed records of everything I sell online, even though it's a pain. I use a simple Google Sheet with columns for: item description, original purchase price/date, sale price, sale date, and whether it was personal or business. For personal items I can't remember the exact purchase price for, I research what similar items cost when I would have bought them and use that as a reasonable estimate. The key is being consistent and reasonable - the IRS isn't expecting you to remember that you paid $23.47 for a shirt in 2019, but they do want to see that you made a good faith effort to establish your basis. One thing that helped me was going through old credit card and bank statements to find purchases for higher-value items I sold. Most banks let you download several years of transaction history, and searching for store names or amounts can help you piece together purchase records you thought were lost forever.