That's a really good suggestion about the percentage-based withholding! I never even considered that possibility. Since the amount does seem to be consistently around 0.25% of his gross pay, that explains why it's so weirdly consistent. I'll have him specifically ask HR about this tomorrow. If they entered 0.25 when they meant 25, that's a massive error affecting everyone's taxes!

Glad I could help! This is exactly the kind of data entry error that can slip through, especially if the payroll person isn't carefully reviewing the resulting withholding amounts for reasonableness. If multiple employees are having the same issue, it strongly suggests a system-wide problem rather than individual W-4 issues. One more thing - make sure your husband documents all communications with HR about this. If the IRS questions the underwithholding or assesses penalties, having proof that you identified and tried to correct an employer error can help with penalty abatement.

Yes! Request a First Time Penalty Abatement if you haven't had tax issues in the prior 3 years. The IRS is generally pretty reasonable with this, especially if you can document that the error was with your employer's payroll system and not your withholding choices.

Thanks for the info! I didn't know about the First Time Penalty Abatement option. We've always filed and paid on time before this, so sounds like we should qualify. Gonna call the IRS tomorrow and request this.

Can you explain that a bit more? I'm confused about how to calculate this. My itemized deductions were $27,300 last year (including $10k SALT cap) and standard would have been $25,900. My state refund was $3,400.

Sure! In your situation, you itemized and got $27,300 in deductions when the standard would have been $25,900. This means itemizing gave you an additional benefit of $1,400 ($27,300 - $25,900). Since your state refund was $3,400, but you only benefited by $1,400 from itemizing, only $1,400 of your refund would be taxable on this year's return. The remaining $2,000 of your refund isn't taxable because it didn't actually provide you any tax benefit last year. This assumes that your $10k SALT deduction included the maximum allowed state income taxes. If you had a mix of property tax and income tax making up that $10k, the calculation gets more complex.

In my experience, TurboTax asks questions about your previous year's deductions but doesn't automatically account for the SALT cap impact on refund taxability. You need to manually adjust the taxable portion of your state refund. H&R Block's software actually handled this better for me last year.

That's really helpful - I wasn't even thinking about tax treaties. Do you know where I can find a simple explanation of what the US-Singapore tax treaty actually covers and doesn't cover? The IRS publications on this stuff are virtually unreadable.

The IRS has a page listing all tax treaties at irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z, which includes links to the full text of each treaty. The US-Singapore treaty is relatively limited compared to some others. For Singapore specifically, the treaty mainly covers withholding taxes on dividends, interest, and royalties, but doesn't provide much relief for capital gains. Your best approach is still going to be the foreign tax credit on Form 1116. If you need a more readable explanation, the IRS Publication 901 (U.S. Tax Treaties) gives a decent overview, though it's still pretty technical.

I used FreeTaxUSA this year and was able to e-file with Form 1116 no problem. TurboTax and H&R Block also support e-filing with foreign tax credits, but you usually need their premium or deluxe versions which aren't free.

Smart move with the separate card. I've been taking photos of receipts with notes about which client was there and what we discussed. My tax guy said that's enough documentation in case of an audit. Do you do anything else besides the separate card?

Did she have any alcohol purchases questioned specifically? That's what I'm most concerned about with my client meetings.

She did have some wine purchases for client meetings, and the auditor did ask about them. They were approved without issue because she had noted the specific clients, meeting purpose, and business discussions on her calendar and in her expense tracking system. The auditor was more concerned with making sure the food/drink was actually for client meetings rather than personal consumption than they were about the type of refreshments provided.

Isn't that risky though? I heard that family businesses get extra scrutiny from tax authorities. How do you document everything properly to avoid problems?

It's not risky if done properly. The key is treating family exactly like any other employee or contractor. We maintain detailed job descriptions, contracts, time tracking, and regular payments based on market rates for the work performed. Documentation is crucial - we keep records of work produced, emails about projects, and regular performance reviews. My spouse handles all our marketing and social media with measurable deliverables, while my son manages our e-commerce fulfillment with clear metrics. Having tangible outputs makes it much easier to justify in case of questions.

You need to be careful with this approach. Your corporation may be taxed based on where management decisions are made, not just where you're incorporated. If you're physically living and working in BC but incorporated in Alberta, you could face complications with provincial tax authorities.