You make a good point about the psychological aspect. I hadn't considered that angle before. But regarding business expenses - couldn't those be handled separately from personal taxation? Like keep business deductions but simplify personal taxes? And for charitable giving, I wonder if people would still donate without the tax incentive...

That's a really interesting question about separating business and personal tax structures. It could work in theory, but then you'd still need a complex system for business taxation. Most economists think there should be symmetry between personal and business tax structures to prevent gaming the system. As for charitable giving, studies have shown that tax incentives do influence donation behavior significantly. While people would still give to causes they care about, the research suggests overall giving would decrease by 25-40% if the deduction was eliminated. This would hit smaller local charities the hardest since they rely more on middle-class donors who are more tax-sensitive.

A well-designed flat tax would still have a basic exemption amount. So maybe the first $25,000 or $30,000 isn't taxed at all, then everything above that is taxed at a single rate like 15% or 20%. That would protect low-income earners while simplifying the rest of the system.

What about Medicare premiums? I'm retired but also have some self-employment income from consulting. Are those deductible too? TurboTax never seems to ask me about this.

Medicare premiums (Parts B and D) are indeed deductible as part of the self-employed health insurance deduction if you have self-employment income! This is a commonly missed deduction. The key is that you can only deduct premiums up to the amount of your net self-employment income. If you're using TurboTax, you'll need to look in the self-employment section and find where you enter your health insurance. There should be an option to include Medicare premiums there. If your consulting income is reasonably substantial, this could be a significant tax savings for you.

I used IRS Free File through one of their partners last year and it was actually pretty straightforward about insurance premiums. It specifically asked about self-employed health insurance in a separate section and had clear explanations. Much more direct than the commercial versions where they hide things in weird places.

This is super helpful. They've had the S-Corp for about 20 years, and it was always an S-Corp (never a C-Corp), so maybe the passive income concern isn't an issue? Do you think it would be better for them to just dissolve the S-Corp after the asset sale and create a new LLC specifically for the rental property? Or would that trigger immediate taxation on the asset sale proceeds?

You're right that the passive income concern wouldn't apply if they've always been an S-Corp, so that's good news. That issue primarily affects companies that converted from C to S status. Creating a new LLC after dissolving the S-Corp could be a better long-term solution. However, the dissolution would still trigger taxation on the asset sale proceeds - you can't avoid that tax by changing entities afterward. The tax is due when the sale occurs while still in the S-Corp. If they're set on the rental property approach, they might consider selling the business assets, distributing the after-tax proceeds to themselves personally, and then purchasing the rental property in their own names or through a new LLC. This gives them a clean break from the business entity and often provides better tax treatment for rental properties, especially regarding potential future benefits like step-up in basis for heirs.

Would the reverse 1031 exchange work in their situation? I'm curious because I'm facing a similar issue where I need to acquire a new property before my current one sells.

Does that UBTI issue affect me if I'm just holding these in my regular Robinhood account? Not in an IRA or anything. Still learning all this stuff.

No, UBTI is only an issue in tax-advantaged accounts like IRAs or 401ks. In a regular taxable Robinhood account, you just have to deal with the complexity of the K-1 reporting, but there's no extra UBTI tax. The main disadvantage in a regular account is just the administrative hassle and possibly having to file multiple state tax returns if the MLP operates across different states. Plus, the tax treatment of MLP distributions is different from regular dividends - they're often partly tax-deferred as "return of capital" which lowers your cost basis instead of being immediately taxable.

Is there a minimum amount before you need to file in those states? I can't imagine filing in 12 states for a small investment would be worth it.

I've heard mixed things about Cash App Taxes - doesn't it have limitations on which forms it supports? I need to file some investment forms and I think I read somewhere that they don't support all of them. Have you used it with any complex investing situations?

You're right that it does have some limitations. It works for most common investment forms (1099-B, 1099-DIV, etc.), but doesn't support some of the more obscure forms. I have fairly standard investments and it worked fine for me. They don't support foreign income, multiple state filings, or K-1 forms for partnerships. If you need any of those, it wouldn't work for your situation. Their website has a complete list of supported forms that's worth checking against your specific needs before you invest time in entering all your data.

CalFile is great but they have income limits and other restrictions. Worth checking if you qualify first: https://www.ftb.ca.gov/file/ways-to-file/online/calfile/qualifications.html Not everyone will be eligible unfortunately!