Has anyone successfully done what the OP is suggesting with delayed financing? I'm considering a similar strategy but worried about IRS scrutiny. How detailed does the "clear tracing" of funds need to be?

This is a great discussion thread! I've been dealing with a similar situation and want to add a few practical points from my experience with Form 4952. First, regarding your $2.7M house strategy - you're absolutely correct that stock dividends count as investment income for Form 4952 purposes. I've successfully used this approach with my own investment portfolio. One thing I learned the hard way: timing is crucial for the delayed financing approach. The IRS has specific rules about when borrowed funds are considered "used for investment." You generally have 30 days from receiving the loan proceeds to invest them, and another 30 days to allocate the interest expense properly on your books. Also, keep meticulous records! I created a dedicated investment account solely for the borrowed funds and documented every transaction. This made my tax preparation much smoother and gave me confidence if the IRS ever questions the deduction. For your situation with potentially $108k in deductible interest, make sure you have sufficient net investment income to absorb it all. Any excess investment interest expense carries forward to future years, which is helpful but means you don't get the immediate tax benefit. One last tip: consider consulting with a tax professional before implementing this strategy, especially given the dollar amounts involved. The savings can be substantial, but the documentation requirements are strict.

Just to add to what others have said about the hobby vs business distinction - if you decide to treat your glassblowing as a business (which sounds like your best option tax-wise), make sure you're also tracking all possible business expenses! Some people miss deductions for: - Home office space if you do any work at home - Mileage for all business-related driving (studio, supply shopping, delivering pieces) - Phone/internet portion used for business - Marketing costs (business cards, website fees) - Education (any classes or books about improving your glassblowing) - Tools under $2500 can usually be deducted immediately Also, keep in mind that if you make over $400 net profit, you'll need to pay self-employment tax (15.3%) on that profit. But the good news is you can deduct half of that tax on your return.

One thing nobody has mentioned yet - if you sell more than $600 worth of items on platforms like eBay, PayPal, Etsy, etc., they'll likely issue you a 1099-K form starting this year. This doesn't change your tax liability, but it means the IRS will know about that income. For your arcade machine example, even though it's a personal item sold at a loss (which isn't taxable), you might still get a 1099-K if you sell it through an online platform. If that happens, you'll need to report the sale on your return to match the 1099-K, but then show that it was a personal item sold at a loss so it doesn't create taxable income. The 1099-K threshold used to be much higher, but now it's just $600, so a lot more casual sellers are getting these forms than in previous years.

honestly if ure under like 12k for the year u probly dont owe any fed taxes anyway bc of the standard deduction so it might not matter. but def call ur job to make sure its not a mistake

Based on your income level and the fact that this was seasonal summer work, there's a good chance no federal tax withholding was actually required. The IRS withholding tables are designed to project your annual income, and if that projection falls below the standard deduction threshold, employers may not withhold federal taxes. However, I'd still recommend taking a two-step approach: First, contact your employer's payroll department to confirm they processed your W-4 correctly and that the blank field isn't a clerical error on the W-2. Second, when you file your return, you'll likely find that with only $8,750 in income, you're well below the $13,850 standard deduction for 2023, meaning you probably won't owe any federal income tax anyway. The key thing is to file your return even if you don't owe taxes - this creates a proper record with the IRS and ensures you receive any refundable credits you might be eligible for. Don't stress too much about this; seasonal workers with lower incomes commonly see zero federal withholding, and it's usually not a problem as long as the documentation is accurate.

I just want to add that if you do hit a big jackpot (usually $1,200+ for slots), the casino will withhold 24% federal tax and issue you a W-2G form right there. But that doesn't mean you're done with taxes on that win! You'll still need to report it on your tax return, and depending on your tax bracket, you might owe more or potentially get some back if your actual tax rate is lower than 24%. Also, some states have their own withholding requirements for gambling winnings. In my state they take an additional 6% right away.

One thing that might help clarify the confusion is understanding that gambling taxes follow the same principle as other income - you're taxed on net profit, not gross winnings, but the reporting process can be tricky. In your example with the $1250 bet and $1500 win, you're absolutely right that your actual profit is only $250. The key issue is whether you can effectively deduct that $1250 loss against the $1500 win on your tax return. If you itemize deductions, you can deduct gambling losses up to the amount of your gambling winnings for the year. So you'd report $1500 as income but deduct $1250 as a gambling loss, leaving you taxed on the $250 profit - which is correct. The problem arises when the standard deduction is better for your situation. In that case, you'd pay taxes on the full $1500 without being able to deduct the $1250 wager, which creates exactly the scenario you described where you lose money despite "winning." This is why many casual gamblers end up paying more in taxes than they should, and why keeping detailed records of all gambling activity throughout the year is so important - it helps you determine whether itemizing might be beneficial.

The structuring point is really important - that's something you definitely need to discuss with your tax attorney. If you were making regular deposits just under $10k, that could escalate this beyond a simple underreporting issue. But here's what I want you to focus on right now: you're taking all the right steps. You're getting professional help, you're willing to be honest, and you're prepared to make things right. That puts you in a much better position than someone who tries to hide or fight it. I went through something similar a few years back (not as much money involved, but still scary). The anticipation and anxiety were honestly worse than the actual resolution. The IRS worked with me on a payment plan, and while I paid penalties, it wasn't the life-ending disaster I thought it would be. Document everything you can remember about your deposits - dates, amounts, which clients paid you. Your attorney will help you organize this properly. And try to get some sleep - I know it's hard, but you'll need to be clear-headed for your meeting.

You're in a tough spot, but try not to spiral into worst-case scenarios. Based on what you've described - deposit amounts between $200-2,000 from legitimate work - this doesn't sound like the kind of case that leads to criminal prosecution. The fact that you had a regular W-2 job and were doing honest work (just underreporting) works in your favor. The IRS sees a big difference between someone running an illegal business versus someone who did legitimate work but messed up their taxes. Your attorney meeting tomorrow is crucial. Come prepared with whatever documentation you can gather - even text messages with clients can help establish the legitimate nature of your work. Be completely honest about everything, including how disorganized you were with record-keeping. One thing that might help your case: if you can demonstrate that some of those bank deposits were business expenses being reimbursed (materials, gas, etc.) rather than pure profit, that reduces your actual unreported income. Your attorney can help you figure out what's reasonable to claim. The waiting and uncertainty are brutal, but you're handling this the right way. Most people in your situation end up with payment plans and penalties, not prison time.