Has anyone here done the math on whether it's better to max 401k or do some in 401k and some in a Roth for this income level? I'm trying to figure out the best split now that my income is higher.

Congratulations on your promotion! I went through a similar situation a couple years ago when my income jumped significantly. One thing that really helped me was calculating my estimated effective tax rate vs marginal rate - the effective rate increase isn't as scary as it first seems. With your combined income of $215k, you're right that some will hit the 32% bracket, but your effective rate will still be much lower. At your income level, definitely consider maxing the 401k ($23,000 for 2024) - every dollar you put in saves you 32 cents in taxes on the portion above $182,100. Also worth noting: make sure to update your W-4 with HR soon. The withholding tables might not automatically adjust properly for such a big jump mid-year, and you don't want to be surprised with a big bill next April. The IRS withholding calculator someone mentioned earlier is really helpful for this. One more tip - if you have an HSA option through your health plan, definitely max that out too ($4,300 individual/$8,550 family for 2024). It's the only triple tax advantage account we have!

One thing to consider - if you don't file your taxes with this 1099-NEC income reported, and your family member already submitted it to the IRS, you're gonna get a lovely letter from the IRS eventually asking why the income they know about doesn't match what you reported. Trust me, you don't want that headache!!

The bottom line is you need to report this income since your family member is treating it as payment for services (which it sounds like it was - you mentioned doing "odd jobs" for them). The $8,000 you received is definitely over the $600 threshold that requires a 1099-NEC. Since they've already filed their taxes and issued the 1099, the IRS has a record of this income being paid to your SSN. If you don't report it on your return, you'll get an automated notice from the IRS asking about the discrepancy, and that usually comes with penalties and interest. The good news is that as a contractor, you can deduct legitimate business expenses - things like gas to get to their place, tools you bought for the work, etc. This can significantly reduce what you actually owe in taxes on that $8,000. Don't panic about being behind on filing - the IRS would much rather you file late and pay what you owe than not file at all. You might face some penalties for late filing, but it's way better than ignoring it completely.

I'm using H&R Block instead of FreeTaxUSA and don't see this exact question. Is there something similar I should be looking for? Getting my first 1099-NEC this year and don't want to miss anything important.

As someone who's been doing contract work for a few years, I can confirm what others have said - the answer is "Yes" for your situation. This question trips up so many people because it sounds way more complicated than it actually is for most US-based contractors. The "effectively connected" language comes from international tax law, but tax software has to ask everyone. Since you're physically in the US, working for a US company, and receiving a 1099-NEC, your business activity is definitely effectively connected with US trade or business. I remember being terrified of this same question my first year filing as a contractor. The IRS isn't trying to trick you - they just need to know if your business income should be subject to US taxation, which it absolutely should be in your case. You're not going to trigger an audit by answering "Yes" to this question when you're clearly a domestic contractor.

My brother-in-law went through an audit last year and it was like trying to fill a swimming pool with a teaspoon - endless requests for more documents. They questioned his rental property expenses and asked for everything from repair invoices to tenant communications. He thought he was prepared with a shoebox of receipts, but they wanted digital copies of bank statements showing the exact transactions. By the end, he spent more on the accountant helping him than the tax difference in question! The moral of the story: keep EVERYTHING, and organize it like your financial life depends on it.

This is such valuable insight for your research paper! I went through a correspondence audit in 2022 after claiming the Child Tax Credit. They specifically requested: - Birth certificates for both kids - School enrollment records - Medical records showing the kids lived with me (pediatrician visits, etc.) - Proof of address (utility bills, lease agreement) - My ex-wife had to sign a Form 8332 releasing her claim to the exemption What struck me most was how the IRS letter made it sound like I was being investigated for fraud, when really they just needed to verify my kids qualified. The whole process took about 5 months, but once I provided everything they asked for, they accepted my return as filed. One thing that might be interesting for your paper - the audit seemed triggered by the fact that my income increased significantly from the previous year (job promotion), but I was still claiming the same credits. The IRS computers probably flagged it as unusual. Makes you wonder how many legitimate taxpayers get audited just because their circumstances changed!

Wait I'm confused about something here. Doesn't the original mortgage create complications? If the bank released the frontage lot from the mortgage, wouldn't that be considered debt relief and potentially taxable? Or does the 1031 exchange override that somehow?

This is a really helpful discussion! I'm dealing with a somewhat similar situation where I subdivided investment property for a 1031 exchange, though mine was commercial land rather than residential. One thing I learned from my tax attorney is that you should also consider whether any of your closing costs from the original purchase can be added to your basis. Things like title insurance, legal fees, and survey costs from when you bought the 26-acre parcel can often be included in your adjusted basis calculation, which would reduce your taxable gain. Also, since you mentioned fighting a tax levy - if those legal fees were related to defending your title to the property or protecting your investment, they might also be added to basis rather than treated as a current deduction. The FMV allocation method you're using sounds correct, but definitely document everything thoroughly. The IRS tends to scrutinize subdivided land transactions more closely, especially when there are significant value differences between parcels like highway frontage vs. wetlands. Good luck with Form 8824 - it's definitely one of the more complex forms to navigate!