Wait, I think I've been doing this wrong for years then... I've been skipping some business deductions because I thought I couldn't claim them unless I itemized! So you're saying even with standard deduction I can still write off all my business expenses on Sch C?

This thread has been incredibly helpful! I had the exact same confusion when I started my consulting business last year. The key insight that finally clicked for me is thinking of it as two completely separate "buckets": **Business Bucket (Schedule C):** All your legitimate business expenses go here - office supplies, equipment, travel, professional services, etc. This reduces your business profit before it even touches your personal tax situation. **Personal Bucket (Schedule A vs Standard):** This is where you decide between listing personal deductions like mortgage interest and charitable donations OR just taking the standard deduction. The magic is that these buckets don't interfere with each other at all! Your business expenses reduce your business income on Schedule C, and then that reduced net profit flows to your personal return where you make a completely separate choice about standard vs itemized deduction. I wish someone had explained it this simply when I was first starting out - would have saved me so much stress and confusion!

I understand the confusion about filing for a "dormant" entity, but think of Form 5471 like this: it's not just about reporting business income - it's about transparency. The IRS needs to know about ALL foreign entities controlled by US persons, even if they never operated. Your client was legally the owner/director of a Belize corporation from the moment it was incorporated until it was dissolved. That relationship triggers the filing requirement regardless of activity level. The good news is that most schedules will be straightforward since there were no transactions, funding, or operations to report. The penalty for not filing starts at $10,000 and can increase, so it's definitely not worth the risk. Plus, having a complete filing actually protects your client by creating a clear paper trail showing the entity's brief, inactive existence should the IRS ever have questions down the road.

Based on my experience with similar situations, your client definitely needs to file Form 5471. I had a client who formed an Irish company that never operated, and we initially thought we could skip the filing since there was no business activity. Big mistake - the IRS sent a notice about the missing form and we had to go through the reasonable cause process to avoid penalties. The key thing to remember is that Form 5471 is an information return, not just a tax return. It's required whenever a US person has the required ownership/control relationship with a foreign corporation, regardless of activity level. For your client's situation with the Belize corporation, even though it's being dissolved in the same year with zero operations, the filing is still mandatory. The silver lining is that with no funding, no business operations, and no income, most of the schedules will be very simple to complete. Just make sure to get proper dissolution documentation from Belize as others have mentioned, and file the 5471 with the client's personal return. It's much easier to file a simple 5471 now than deal with penalty notices later.

This might be a dumb question, but wouldn't it just be easier to call FreeTaxUSA support? I had this exact same issue last year and their customer service walked me through the exact screens where I needed to indicate I was withdrawing contributions and not earnings.

I went through this exact same situation last year with a Code J distribution from my Roth IRA. The key thing to remember is that with Roth IRAs, the IRS assumes you're withdrawing contributions first (this is called the "ordering rules"), so as long as you haven't exceeded your total contribution basis, you should be fine. When you get to the FreeTaxUSA screen for entering your 1099-R, make sure you select "Roth IRA" as the account type. Then there should be a series of questions about whether this is a qualified distribution, early distribution, etc. Look for the question that asks if you're withdrawing contributions - this is where you indicate that your $5,000 came from contributions rather than earnings. The software should automatically generate Form 8606 Part III for you once you indicate this is a contribution withdrawal. Just make sure you have documentation of your total contributions over the years to verify that $5,000 doesn't exceed what you've put in. If you're unsure about your contribution history, check with your IRA provider - they usually track this information.

Has anyone run into issues with banking or business operations by not having a Partnership Representative? We're trying to decide if we should just pay a US person to serve as our PR instead of opting out of BBA.

I've been through this exact situation with my EU-based business partner last year! The BBA opt-out was definitely the right choice for us, and it's much simpler than it initially appears. Just to add to what others have mentioned - when we opted out, we didn't face any complications with our tax treaty benefits. Our accountant confirmed that the opt-out actually made things cleaner since it eliminated the need for ongoing PR correspondence with the IRS. One thing I'd recommend is double-checking that your partnership income is properly classified. Since you mentioned having income from outside the US, make sure you understand whether any of it constitutes "effectively connected income" (ECI). If it's not ECI, you likely won't need to file individual Form 1040-NR returns, which simplifies things considerably. Also, keep good records of your opt-out election. We created a simple file with copies of Schedule B and Schedule B-2 from our 1065 filing, along with notes about why we qualified for the election. It gives us peace of mind for future years. The whole process ended up being much more straightforward than we anticipated. With your simple financial situation, you should be able to handle this without too much difficulty once you understand the opt-out mechanics.

Have you considered section 280A limitations? This limits your deductions to the gross income from the rental activity when you're renting part of your personal residence. This might affect your ability to claim a loss.

Great question about Schedule C vs Schedule E treatment! You're absolutely right that the classification matters here. Since you're running this as a short-term rental business (less than 7 days average stay), it should be reported on Schedule C as business income, not Schedule E as rental property income. This is actually good news for you because Schedule C businesses aren't subject to the Section 280A limitations that restrict home office deductions to the income generated. However, you do need to be careful about the business use vs personal use allocation. One thing to double-check: make sure you're consistently treating this as a business. Keep detailed records of your advertising efforts, guest communications, cleaning schedules, and any business improvement activities. The IRS likes to see that you're operating with a profit motive, especially in the first few years when losses are more common. Also consider whether you qualify for the Section 199A QBI deduction on any future profits from this business - it could provide additional tax benefits down the road.