Has anyone used TurboTax to figure this out? I'm in literally the same situation (26, lived with parents most of 2024, made under the threshold) and the software keeps giving me conflicting answers about my status when I try different paths.

I went through this exact situation two years ago! The key thing that helped me was creating a detailed support calculation spreadsheet. I tracked everything - rent value for the months I lived with my parents, groceries they bought, utilities, even car insurance they paid. What surprised me was that the "fair rental value" of living at home was way higher than I expected - like $800/month in my area. When I added up ALL the support (not just cash), my parents had definitely provided more than half my total support for the year, even though I was working. The good news is you have options here. Even if you qualify as a Qualifying Relative, your parents can choose not to claim you if that works better for your family's overall tax situation. But as others mentioned, you'd still need to check the box saying you CAN be claimed. I ended up having my parents claim me because their tax savings were bigger than what I would have gotten filing independently, and they shared some of that savings with me. My advice: sit down with your parents, calculate the actual numbers for both scenarios, and make the decision that benefits your family most overall.

Don't forget to check if you took any loans against the policy! If you did, that complicates things. Any outstanding loans at surrender are considered part of your distribution, even though you don't actually receive that money (since the loan is satisfied when the policy is surrendered).

This thread has been incredibly helpful! I'm actually in a very similar situation - inherited a whole life policy that my uncle had been paying into for about 20 years before he passed. I was planning to just surrender it and report the full amount as taxable income, but after reading through all these comments, I realize I need to get the complete premium payment history first. The tips about using Claimyr to get through to the right department at the insurance company seem really valuable. I've been dreading dealing with customer service, but it sounds like getting to their "policy services" or "tax basis research" team makes all the difference. One question though - since I inherited this policy rather than received it as a gift while my uncle was alive, does that change how the basis is calculated? From what I understand, inherited policies get a "stepped-up basis" to fair market value at death, but I want to make sure I'm not missing anything before I surrender.

This sounds a lot like what the IRS calls "not engaged in for profit" activities. I'm not a tax pro, but I've dealt with this. To be blunt, I think your accountant's advice is questionable. The key issue is whether your LLC has a genuine profit motive as its primary purpose. The fact that you're using it to increase your W-2 income rather than generate its own profit is problematic. The IRS usually expects to see a profit in 3 out of 5 consecutive years. You might want to consider restructuring this arrangement - maybe have your LLC bill your employer directly for the marketing services? That would establish a clearer business purpose and direct income stream.

I think everyone is missing that this is actually a Schedule C issue, not really an LLC issue. Since a single-member LLC is a disregarded entity, you're filing a Schedule C with your personal return. The real question is: can you deduct these business expenses on Schedule C when they're indirectly increasing your W-2 income rather than generating Schedule C income? The answer is complicated. You'd need to prove you have a legitimate business (not a hobby) with a clear profit motive. The fact that you intend to eventually serve these clients directly might help establish that. But I think there's a more immediate problem: the expenses you're incurring need to be ordinary and necessary for YOUR business. If your business doesn't have income yet, the IRS might question how these expenses are necessary for a non-existent business rather than just supporting your employment.

Something nobody mentioned yet - even if your husband doesn't need to file Form 3520, if the inheritance includes any foreign financial accounts that he has signature authority over, and the aggregate value exceeds $10,000 at any point during the year, he'll need to file an FBAR (FinCEN Form 114). Also, depending on the total value of foreign financial assets, he might need to file Form 8938 (Statement of Specified Foreign Financial Assets). This has different thresholds depending on your filing status and whether you live in the US or abroad. So while you might avoid Form 3520, there could still be other foreign reporting requirements to consider.

Careful about focusing just on Form 3520! When my mom got an inheritance from her brother in Spain, we thought we were fine since it was under $100k, but we still had to deal with: 1. Reporting the income from the foreign property on Schedule B 2. Filing an FBAR for the foreign bank account that came with it 3. Dealing with basis calculations when she later sold the property The IRS penalties for failing to report foreign assets are CRAZY high, even if you owe zero tax. Just missing an information return can be $10k+ in penalties! Make sure you get solid advice specific to Colombia and document everything. Keep records of the current fair market value and any valuations you get.

One aspect that hasn't been mentioned yet is retirement planning. The higher your W-2 income, the more you can contribute to retirement accounts like a Solo 401k. At $800k business income, you might want to consider maxing out your retirement contributions, which would require a higher salary to maximize the employee contribution portion. For 2025, you could potentially put away $23,000 as an employee contribution plus around 25% of your salary as the employer contribution, up to a combined limit of $69,000. This is another factor to consider when determining your reasonable compensation.

This is a great discussion and really helpful to see everyone's perspectives. I'm actually dealing with a similar situation but at a smaller scale - my S-Corp is on track for about $450k this year in IT consulting. What's concerning me is that I've been paying myself only $120k in salary, which after reading this thread seems way too low. The challenge is that most of my clients are on annual contracts, so my income can be pretty lumpy - some quarters are much better than others. Does anyone have advice on how to handle reasonable compensation when your income isn't steady throughout the year? Should I be adjusting my salary quarterly based on performance, or is it better to estimate conservatively at the beginning of the year and then true up with a bonus at the end? Also, @Chloe Taylor makes a great point about retirement planning. I hadn't considered how my salary level affects my 401k contribution limits. That's definitely another factor to weigh when determining the right compensation level.