If you're having S-corp basis issues, PLEASE get professional help. I tried to handle this myself in 2023 and ended up with an unexpected $18k tax bill because I didn't understand how suspended losses work when your basis is insufficient. A good CPA will charge you way less than the mistakes will cost you.

I've been dealing with S-corp basis issues for my tech consulting business and want to share what I've learned about non-deductible expenses specifically. You're right to be confused - this is one of the trickier areas! The key insight is that non-deductible expenses like your excess meals, parking tickets, and club dues actually DON'T reduce your tax basis directly. Here's why: when your S-corp prepares its Form 1120-S, these non-deductible expenses get "added back" to calculate the final ordinary business income that flows through to your K-1. Since they're already being treated as non-deductible (meaning they don't reduce the S-corp's taxable income), they don't get to reduce your basis either. Think of it this way: if an expense reduced both your taxable income AND your basis, you'd be getting a double benefit. The tax code prevents this by having different treatment for truly deductible expenses versus non-deductible ones. For your $45k initial investment, that becomes your starting stock basis. Each year it increases by your share of the S-corp's income (which already has those non-deductible expenses added back in) and decreases by distributions and actual deductible losses. I'd strongly recommend setting up a simple spreadsheet to track this annually - it's much clearer than trying to rely on general accounting software for tax basis calculations.

Bit confused about something - I'm also a UK citizen who did work for a US company. On my W8BEN I put Article 14 rate 0% like suggested here, but they still withheld 10% of my payment for US taxes?? Did I do something wrong or can they just ignore the form?

As someone who's been through this exact situation multiple times, I can confirm that Article 14 is correct for UK freelancers doing remote work for US companies. The key thing to remember is that you need to be very clear about the nature of your work when filling out the form. One thing I'd add to the excellent advice already given - make sure you submit the W8BEN BEFORE they process your payment if possible. Some companies have automated systems that will withhold taxes if they don't have the form on file, and getting refunds later can be a real hassle. Also, double-check that you're using the most current version of the W8BEN form from the IRS website. I made the mistake once of using an outdated version I found online and the company rejected it, which delayed my payment by weeks. The 0% withholding rate under Article 14 is correct as long as you performed all the work while physically in the UK and don't have a permanent establishment in the US. Keep copies of everything for your records!

Has anyone addressed the state tax implications here? Since OP lives in a different state than where the horse races, there might be nonresident state filing requirements too. I had horses racing in 5 different states one year and had to file returns in each state where purse money was earned. Something else to consider!

This is a complex situation that highlights why proper documentation is so critical in horse racing partnerships. From what you've described, you're likely in a de facto partnership regardless of whether the main owner acknowledges it formally. A few key considerations: 1. **The deceased horse loss**: Document everything - purchase agreements, vet bills, training expenses, insurance claims if any. This should be deductible as an ordinary business loss if you can demonstrate business intent (which the fact that you immediately purchased another horse helps establish). 2. **Partnership vs. Schedule C**: While technically this sounds like a partnership, if the majority owner refuses to file partnership returns, you may need to report your share on Schedule C. Keep meticulous records of all expenses, income, and communications showing your active involvement in business decisions. 3. **Travel expenses**: These are generally deductible if the primary purpose is business-related (checking on your investment, meeting with trainers, evaluating performance). Keep detailed records of the business purpose for each trip. 4. **Documentation strategy**: Even without formal partnership papers, create a written agreement outlining ownership percentages, profit/loss sharing, and decision-making authority. This helps establish legitimate business intent. Consider consulting with a tax professional who has experience with horse racing activities - this isn't a DIY situation given the complexity and potential audit risk.

I just want to clarify something about capital gains for non-US citizens since there seems to be some confusion. In most cases, non-resident aliens (non-US citizens who don't live in the US) are NOT subject to US capital gains tax on stock sales, regardless of whether you've filed a W-8BEN. The W-8BEN is primarily for establishing your status for withholding on US-source income like dividends. The fact that you don't have dividend-paying stocks means you won't have withholding issues, but filing the form is still important for establishing your non-US status with the broker. The exception to this is if you're considered to have a US "tax home" or if the gains are effectively connected with a US trade or business. But for most foreign investors just buying and selling stocks, US capital gains tax typically doesn't apply.

This is a great question that many foreign investors struggle with! I'm also a European investor in US stocks and went through this same confusion last year. Even though your stocks don't currently pay dividends, you'll still need to submit the W-8BEN form to your broker. This form serves as your certification that you're a non-US person for tax purposes, and most brokers require it regardless of whether your current holdings pay dividends or not. The reason is that the form establishes your tax status for your entire investment account. Your stocks might start paying dividends in the future, or you might buy dividend-paying stocks later. Having the W-8BEN on file from the beginning prevents any complications down the road. For capital gains when you sell, the good news is that as a non-US resident, you generally won't owe US capital gains tax on your stock sales. This is typically covered by the tax treaty between your European country and the US. You'll only need to report and pay taxes on those gains in your home country according to your local tax laws. I'd recommend getting the W-8BEN filed sooner rather than later - it's valid for 3 years and will give you peace of mind that your tax status is properly established with your broker.

I've been wfh full time for 3 years and have a side freelance thing too and let me tell u, the IRS sucks with these rules. like my neighbor has his transportation to work covered as a business expense for his corporate job but i cant deduct someone to help with my kids so i can work more??? makes no sense 🙄

I totally get your frustration! I'm in a similar boat with my consulting business. What I ended up doing was getting creative with legitimate business expenses that actually helped free up time. For example, I now deduct meal delivery services when I'm working late on client projects (business meals), upgraded to a business phone line that handles scheduling automatically, and hired a virtual assistant who only does actual business tasks like client follow-ups and invoice processing. While I can't deduct my house cleaner directly, maximizing these legitimate business deductions gave me more cash flow to afford the household help anyway. Sometimes you have to work within the system rather than fight it. The key is making sure every deduction you take is genuinely business-related and well-documented.