One thing nobody has mentioned yet is that regardless of which state you choose, you'll need to be aware of "foreign qualification" requirements. If you're "doing business" in a state other than where your LLC is formed, you technically need to register as a foreign entity there. The definition of "doing business" varies by state, but generally includes having employees, office space, or conducting in-person services in that state. As an expat with an online business, this probably won't affect you if you truly have no physical presence in any state. But something to keep in mind if your situation changes!

Great question! I went through this exact process about 18 months ago as an expat living in Germany. After a lot of research, I ended up choosing Delaware for my LLC, even though I had no prior connection there. Here's what I learned: Delaware has excellent legal precedent for business law, reasonable fees ($90 annual franchise tax for most small LLCs), and their Court of Chancery is specifically designed for business disputes. While states like Wyoming and Nevada get a lot of attention for zero state income tax, Delaware's legal framework is incredibly well-established. The key thing is that as an expat, you'll be paying federal taxes regardless of which state you choose, and since you're using FEIE, the state income tax differences matter less than they would for a US resident. What matters more is ease of maintenance, legal protections, and banking relationships. I used a registered agent service in Delaware for about $150/year and was able to open a business account with Chase online using my EIN and passport. The whole process took about 3 weeks from start to finish. One tip: make sure you understand the difference between your LLC's state of formation and where you'll actually owe taxes. As an expat with FEIE, your federal tax situation is more complex than the state choice.

Quick question - I'm in a similar situation but I'll be renting my house for 3 years while I'm working abroad. Do the same deduction rules apply for longer rental periods? Anyone know if there are different considerations for longer-term rentals?

One thing I'd add that hasn't been mentioned - make sure you're keeping detailed records of everything! The IRS loves documentation for rental properties. I learned this the hard way during an audit a few years back. Create separate folders (physical or digital) for each type of expense: repairs, maintenance, insurance, property management, etc. Take photos of any work done on the property with timestamps. Keep all receipts, even small ones like supplies from Home Depot. Also, since you're planning to move back in March 2025, start a calendar now marking the exact dates the property was available for rent vs. when you lived there. This becomes crucial for prorating expenses and will save you headaches later when preparing your taxes. The depreciation everyone mentioned is huge - don't skip it! Even if you don't claim it, the IRS assumes you did for recapture purposes when you eventually sell. So you might as well get the tax benefit now.

Question - does anyone know if providing snacks/drinks in the office counts under this exception? We spend about $500/month on office snacks and coffee. Is that considered employee recreation under §274(e)(4) or something else?

Great thread everyone! As someone who's dealt with this exact issue, I wanted to add that timing can also matter for these deductions. The IRS looks at whether the event was held during or reasonably close to the business year you're claiming the deduction. Also, one thing I haven't seen mentioned is the "all employees" requirement. Under §274(e)(4), the recreational activity needs to be available to employees generally - you can't just treat executives or a select group and claim the full deduction. If you're doing tiered events (like a nice dinner for managers and pizza for everyone else), that could complicate your deduction. For your specific activities @CosmicCommander, make sure your team dinners aren't too frequent or lavish, as the IRS might view regular expensive meals as compensation rather than recreation. The escape room and company picnic sound perfect for the exception though!

Has anyone mentioned the at-risk rules yet? Even if you could somehow get around the passive activity loss limitations, you'd still need to have "at-risk" basis in the LLC to claim the losses. Did you or your wife actually contribute cash or property to the LLC, or personally guarantee any loans? Without at-risk basis, you can't take the losses even if they weren't passive.

Just to add another perspective on this - make sure you're also considering the state tax implications carefully. I had a similar situation with an out-of-state LLC and ended up owing more in nonresident state taxes than I expected because the state where the property was located didn't allow the same loss carryforward rules as the federal return. Also, keep detailed records of all your suspended passive losses. I use a simple spreadsheet to track mine year over year, including the original source and any partial usage. It becomes really important when you eventually dispose of the property or generate passive income to offset against. The IRS doesn't send you a reminder of what you have suspended, so it's on you to track it properly. One last thought - if this hunting property ever generates rental income (like seasonal hunting leases), that would be passive income that could be offset by your suspended losses. Might be worth discussing with the family whether monetizing the property could help everyone's tax situation.

I'm dealing with this exact situation right now and it's so stressful! Filed my missing 2021 return in January and still waiting for my 2023 refund to release. Reading through everyone's experiences here is actually really helpful - at least I know I'm not alone in this waiting game. @Monique Byrd thanks for the specific IRM reference, that's exactly the kind of official guidance I was looking for. @Jackie Martinez I'm going to start watching for that TC290 code you mentioned. Does anyone know if there's a way to tell if your prior year return has actually been processed vs just received? My transcript still shows "no record of return filed" for 2021 but I got a confirmation when I e-filed it 6 weeks ago.

I went through this same situation two years ago and it was absolutely maddening! I had 570/971 codes on my 2021 return because I hadn't filed 2020 (long story involving a move and lost documents). What really helped me was understanding that there are actually TWO separate processing queues - one for the missing return and one for releasing the hold on your current year refund. My timeline was: Filed missing 2020 return on January 15th → saw it post to transcript February 28th → hold released on 2021 return March 14th. So about 8 weeks total, but only 2 weeks after the prior year actually posted to my account. One thing I wish someone had told me earlier: don't panic if you see additional transaction codes appear during the waiting period. I saw a 766 code show up that scared me, but my tax preparer explained it was just part of the normal processing flow. The key milestone to watch for is when your missing year actually appears on your transcript with a 150 code - that's when you know the countdown to hold release has really started!