Something nobody mentioned yet - don't forget about the safe harbor provisions! If you pay 100% of last year's tax liability (or 110% if your AGI was over $150,000), you won't face underpayment penalties even if you end up owing more. This has saved me many times when my side income fluctuated unpredictably. I just take my total tax from last year, make sure my regular job withholding plus quarterly payments hit that threshold, and don't worry about the exact calculations until filing time.

One thing I learned the hard way - if your side income is consistent, consider adjusting your W-4 at your main job to have additional withholding taken out each paycheck instead of making separate quarterly payments. I just calculated roughly what my freelance tax would be annually, divided by pay periods, and added that amount to line 4(c) on my W-4. Saves me from having to remember quarterly payment dates and writing separate checks. Plus my employer already withholds state taxes too, so it handles everything in one go.

Has anyone actually filed taxes yet with these new Section 174 rules? What software are you using? I tried entering my split domestic/foreign R&D expenses in TurboTax Business and it doesn't seem to have a way to separate them properly. It's just asking for a total R&D amount without any way to specify 5-year vs 15-year portions.

This is exactly the kind of complex situation where having proper documentation becomes critical. From what I've seen in practice, the IRS is paying close attention to Section 174 compliance, especially with the domestic vs. foreign split. A few practical tips for your situation: First, create a detailed spreadsheet that breaks down each R&D expense by contractor/employee and tracks where the work was physically performed. For your European contractors, get written confirmation of where they were located while working on your project. Second, for the mixed work scenarios others mentioned, request time logs or work location records from contractors when possible. The key is being able to demonstrate a reasonable basis for your allocation. I've found that contemporaneous records (created at the time the work was done) carry much more weight than reconstructed documentation later. Even if you can't get perfect records, document your methodology and the information you relied on to make the split. One more thing - consider having a tax professional review your allocation before filing. The penalties for getting Section 174 wrong can be significant, and this is one area where the upfront cost of professional review often pays for itself in avoided issues down the road.

I was confused by the same thing last year! Just wanted to add that the reason this is all so confusing is that the $5,000 FSA limit hasn't been updated in decades while childcare costs have skyrocketed. It's ridiculous that the tax code hasn't kept up with real costs. For my family, even using both the FSA and the tax credit, we only get tax relief on about a third of what we actually spend on childcare. I wish they'd update these limits to reflect what childcare actually costs in 2025!

This is such a helpful discussion! I'm in a similar boat but with slightly different numbers. I have one child and spent $8,000 on daycare last year. I put the full $5,000 into my dependent care FSA, so I have $3,000 in remaining expenses. From what I'm understanding here, since I only have one qualifying child, my maximum eligible expenses for the Child and Dependent Care Credit would be $3,000. But I need to subtract my $5,000 FSA contribution from that $3,000 limit... which would give me a negative number? Does this mean I can't claim ANY additional expenses for the tax credit since my FSA already exceeded the $3,000 single-child limit? Or am I misunderstanding how this works?

Carmen, I went through something very similar when my daughter moved to the UK with her mother two years ago. Here's what I learned from my experience and research: You can likely claim your kids as dependents since they're US citizens and you're providing over half their support with those $1,650 monthly payments. The key is documenting everything - keep those bank transfer records, tuition payments, and any other support you provide. For the Child Tax Credit, it's more restrictive. The IRS typically requires children to live with you in the US for more than half the year. Since your kids moved to Spain permanently (not temporarily), you probably won't qualify for the full CTC. However, you might still be eligible for other credits or deductions. One important thing to check: make sure your ex isn't also claiming them as dependents on her US return if she's still required to file here. That would create a conflict. Also, since you mentioned she moved to Spain, look into whether the US-Spain tax treaty affects your situation - it has specific provisions about dependent claims in cross-border situations. Given the complexity and the potential tax savings involved, I'd honestly recommend getting a consultation with a tax professional who specializes in international situations. The peace of mind and potential refund increase would likely cover the consultation cost, especially with $1,650/month in support payments at stake.

Carmen, I've been following this thread and there's some excellent advice here. I want to add a practical perspective as someone who went through IRS scrutiny on a foreign dependent situation. The key thing that saved me during my audit was having a comprehensive support calculation worksheet. You'll want to document not just what you pay, but estimate the total cost of supporting each child for the year. This includes housing (their portion of rent/utilities in Spain), food, clothing, medical expenses, education, transportation - everything. Then you show that your $1,650/month ($19,800/year) plus direct tuition payments represent more than 50% of that total. The IRS agent actually appreciated that I had done this math upfront rather than just pointing to my bank transfers. One thing I haven't seen mentioned yet - if your kids visit you in the US during the year, document those stays too. While it probably won't change the Child Tax Credit eligibility since they're permanent residents of Spain, it does help establish the ongoing parent-child relationship for dependency purposes. Also, make sure you have their current Spanish address documented. The IRS sometimes wants to verify where dependents actually live, especially in international cases. Having utility bills or school enrollment documents with their Spanish address can be helpful if questioned. The investment in getting this right is definitely worth it - between the dependency exemption and any partial credits you might qualify for, you're looking at potentially significant tax savings.

I'm confused about one thing - what if part of your liability insurance covers personal protection too? My policy has some coverage that extends to me personally as the business owner, not just business-related incidents.

This is really helpful information! I'm dealing with a similar situation for my consulting business. My liability insurance policy also includes some coverage for equipment and data breach protection. Based on what everyone's saying, it sounds like as long as all the coverage is related to my business operations, I can deduct the full premium amount. I've been overthinking this for weeks trying to figure out if I needed to break down every single line item on my policy. It's reassuring to know that the insurance company's internal breakdown doesn't necessarily dictate how we handle the tax deduction - what matters is whether the coverage is for business purposes. Thanks Dylan for asking this question - I'm sure there are lots of small business owners who have the same confusion about insurance deductions!