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I think everyone's overlooking the fact that your situation doesn't sound that complicated yet? Like if you're just trying to maximize deductions and prepare your taxes correctly with a small business and rental income, you probably just need a good tax preparer or maybe a CPA if your situation is more complex. Tax attorneys are EXPENSIVE ($300-500/hour in most places). Save the tax attorney for when/if you get a scary letter from the IRS saying you owe them tens of thousands. Until then, it's like using a sledgehammer to hang a picture.
I disagree - preventative planning with the right professional can save thousands. I waited too long to consult a professional and ended up with a huge tax bill that could have been avoided with proper structure. Better to spend a bit upfront than deal with problems later.
I've used both over the years. My CPA handles my normal taxes, business filings, and helps with planning. Only needed a tax attorney once when I got hit with an incorrect $42k IRS bill for unreported income (was actually my ex-wife's but they came after me). Attorney cost more but had the expertise for that specific legal situation. If you're just trying to get your taxes done right and plan properly, start with a CPA. If the IRS is threatening liens, levies, or criminal charges, then you need an attorney. A good CPA will tell you when it's time to bring in legal help.
Don't forget about state capital gains taxes too! Depending on where the property is located, your parents might owe state taxes on that gain as well. For example, in California they'd pay an additional 9.3% on top of the federal 15%. Might want to factor that into your calculations.
That's a really good point I hadn't considered! The property is in Tennessee - do you know if they have a state capital gains tax there?
Tennessee is actually one of the better states for this situation. They don't have a state income tax that applies to capital gains from real estate sales. Your parents will only need to worry about the federal capital gains tax of 15% on their profit. This is quite different from states like California, New York, or Minnesota where you'd pay significant additional state taxes on the gain. So at least that's one less tax concern for your situation!
Has anyone considered the possible tax implications if the house was truly a "gift" but never properly transferred? The IRS might view this differently depending on how everything was documented. Was there an official gift declaration filed when they "gave" you the house but kept it in their name?
This is a really important point! If it was intended as a gift but the title was never transferred, there could be gift tax implications or questions about beneficial ownership. The IRS looks at substance over form in these situations.
I actually work in accounting (not giving tax advice, just sharing info) and want to point out that there are several types of IRS payment plans: 1. Short-term payment plan (180 days or less) - no setup fee 2. Long-term payment plan with direct debit - $31 setup fee online 3. Long-term payment plan without direct debit - $130 setup fee online Interest still accrues on all plans (currently about 7%), but the failure-to-pay penalty is reduced from 0.5% to 0.25% per month when you're on a plan. Make sure you keep making payments even if you don't get a monthly statement! The IRS systems sometimes have delays in sending notices.
Is there any income requirement for these payment plans? Like what if someone owes $15k but only makes $35k a year?
There's no specific income requirement for standard payment plans, but your income and expenses do factor into what the IRS considers a reasonable monthly payment amount for larger debts. For situations like owing $15k on a $35k income, the IRS may ask you to complete Form 433-F (Collection Information Statement) to determine what you can reasonably pay each month based on your income and necessary living expenses. If your ability to pay is severely limited, you might qualify for an offer in compromise or currently not collectible status, which are different programs for taxpayers experiencing financial hardship. In complicated cases like this, it's often worth consulting with a tax professional who specializes in IRS collections.
Has anyone had experience with amending their return before setting up a payment plan? I realized I made a mistake on mine and it might reduce what I owe, but I'm not sure if I should wait for the amendment to process or set up the payment plan now based on what I currently owe.
I'd recommend setting up the payment plan for what you currently owe, then filing the amendment. If your amendment is accepted and reduces your balance, the IRS will adjust your payment plan automatically or you can contact them to modify it. Amendments can take 16+ weeks to process, and you don't want penalties and interest accruing while you wait.
Don't forget about repairs vs. improvements! This tripped me up last year with my partial rental. Repairs (fixing something broken) are fully deductible in the year you pay them (at your rental percentage). But improvements (making something better than before) need to be depreciated. Example: Fixing a leaky faucet = repair. Installing a brand new shower = improvement. Also, if you provided any furniture for the rental room, you can depreciate that over 5 years. And keep track of mileage if you ever drive to buy supplies specifically for the rental portion!
What about painting? I repainted the bedroom I rent out before my tenant moved in. Is that a repair or improvement? And can I deduct cleaning supplies I use when tenants move out?
Painting is generally considered a repair if you're just maintaining the property - so that's deductible in the year you paid for it. Since it was specifically for the rental room, you can deduct 100% of that cost rather than just your rental percentage. Cleaning supplies used specifically for tenant turnover are absolutely deductible! Keep receipts for everything. I created a separate credit card just for rental expenses to make tracking easier at tax time. Anything that's "ordinary and necessary" for your rental activity qualifies as a deduction.
Quick question - I'm using TurboTax and I'm not sure where to enter all this partial rental stuff. Does it go under "Rental Property" even though it's my primary residence too? The software keeps asking if this is my "primary residence" or a "rental property" and I don't know which to select since it's both!
You'll want to select "Rental Property" and then there should be a question asking if you also use the property personally. In TurboTax, look for the Schedule E section. It'll walk you through entering the percentage used for rental. Enter all expenses at 100%, then the software will apply your rental percentage to calculate the deductible portion.
Victoria Scott
Another option nobody's mentioned is just going with Credit Karma Tax (now Cash App Taxes). It's completely free for federal AND state, and handles HSAs just fine. I've used TurboTax, FreeTaxUSA and Credit Karma over the years. TurboTax: most user-friendly but WAY overpriced FreeTaxUSA: good balance of features and price Credit Karma/Cash App: totally free but slightly less polished For simple returns with an HSA, all three will work fine. No reason to pay $110 for TurboTax unless you really need hand-holding through the process.
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Benjamin Johnson
ā¢Does Cash App Taxes handle investments well? I have some stock sales and crypto transactions. TurboTax charges extra for that but claims their system makes it easier.
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Victoria Scott
ā¢Cash App Taxes handles basic investment reporting fairly well. It's fine for standard stock sales where you have clear purchase and sale information. However, for crypto transactions, it's more limited. If you have numerous crypto trades or complex situations, TurboTax's premium features might be worth the cost. Cash App Taxes requires more manual entry for crypto, which can be time-consuming if you have many transactions. FreeTaxUSA falls somewhere in the middle - better than Cash App for investments but still more affordable than TurboTax.
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Zara Perez
One thing to consider that hasn't been mentioned - FreeTaxUSA saves your returns indefinitely for free. TurboTax only gives you access to previous years' returns if you keep paying them every year or if you pay extra to download a PDF. This became a huge issue for me when I needed my tax returns from 3 years ago for a mortgage application. I had switched from TurboTax to FreeTaxUSA 2 years prior and couldn't access my old TurboTax returns without paying again. With FreeTaxUSA I can log in anytime and access all my previous returns.
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Daniel Rogers
ā¢You can actually request tax transcripts directly from the IRS for free! Go to irs.gov and search for "Get Transcript" - they'll send you official records of previously filed returns. Saved me when I needed proof of income for an apartment application.
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