That sounds like a lot of extra steps... is it really worth the hassle just to get a tax deduction? Wouldn't you lose money on the resale compared to just donating the rewards directly?

You're absolutely right that it involves extra steps and might not be worth it for smaller amounts. You'd definitely lose some value in the resale process - typically 10-30% depending on what you're selling and where. I only recommend this approach if you're someone who itemizes deductions and is close to the standard deduction threshold. In that specific case, pushing yourself over the threshold with legitimate deductions might save you more in taxes than the value lost in the conversion process. For most people though, direct donation of the rewards cards is simpler and still does good, even without the tax benefit.

Thanks for pointing that out! I was about to use my Verizon points for exactly this purpose. Do you know if there's a way to donate the rewards directly to a charity instead of going through CharityChoice to avoid the admin fee?

I don't believe Verizon offers a direct donation option unfortunately. However, if you have a charity you specifically want to support, you might consider redeeming for regular gift cards that the charity needs (like office supply store cards, etc.) and donating those directly. That way 100% goes to the charity. Just call the charity first to check if they accept gift cards as donations. Many do for operational expenses, but policies vary. And remember, you'd still face the same tax deduction limitations we've been discussing.

What happens when you hit year 5? Do you automatically become a resident for tax purposes or is there something you can do to maintain nonresident status?

When you hit year 5, you generally can no longer claim exemption from the substantial presence test as a student. This means you'll likely be considered a resident alien for tax purposes if you meet the regular substantial presence test (which most international students easily do). There are some exceptions though. If you have no intention of residing permanently in the US and have closer connections to a foreign country, you might qualify for the "closer connection exception." Some tax treaties also have provisions that can override the 5-year limit for students from specific countries. These exceptions require additional forms and documentation beyond the 8843.

OMG this tripped me up too! I had a 2-week winter program in Dec 2022 and didn't realize that counted as a whole calendar year for this form. Almost answered wrong.

Yep it's super confusing! The IRS doesn't care about semesters or academic years - they only look at whether you were present in the US for ANY part of a calendar year under student/teacher/trainee status. So even a short winter break program or summer session counts as a full "calendar year" for this question. That's why it's so important to track ALL your entries and exits precisely.

That's a really good point! We initially chose partnership taxation because our accountant said it was simpler for our first year, but I've been wondering if S-Corp might be better long-term. Are there big differences in the reporting requirements between the two? And if we wanted to switch to S-Corp status, is that complicated?

The reporting requirements are somewhat different. Partnerships file Form 1065 with K-1s for partners, while S-Corps file Form 1120-S with K-1s for shareholders. The bigger difference is how you're taxed - with an S-Corp, you can pay yourself a reasonable salary (subject to employment taxes) and take remaining profits as distributions (not subject to self-employment tax). This can save on taxes. Switching isn't too complicated. You file Form 8832 to elect to be taxed as a corporation, then Form 2553 to elect S-Corp status. The timing is important though - generally you need to file within 2 months and 15 days from the beginning of your tax year for it to be effective for the current year. Otherwise, it takes effect the following year.

Did you have to amend your operating agreement to specify those allocations more clearly? Our agreement just says "50/50" for everything but I've heard the IRS wants more specific details about how different types of income and special allocations are handled.

We didn't have to formally amend our operating agreement, but our accountant recommended creating an addendum that specifically addressed tax allocations. We documented how we handle different income types, guaranteed payments, and special allocations for tax purposes. The IRS does want to see that your allocations have "substantial economic effect" - basically that they reflect actual economic reality and aren't just done to avoid taxes. For a simple 50/50 partnership, you're probably fine as long as you consistently apply that split to all financial aspects of the business.

That's concerning to hear about your brother's experience. Do you know how much he owed in total? My balance is only $1,100 so I'm hoping that's small enough that they won't escalate to collections if I'm making consistent payments. Would hate to deal with a levy situation.

He owed about $7,500, so quite a bit more than your $1,100. The IRS typically doesn't take aggressive collection actions for smaller amounts if you're making regular payments. Their resources are limited and they generally focus on larger balances or people making no payments at all. For your amount, as long as you're making consistent payments and will have it paid off within a relatively short time (your 4-5 month timeline is very reasonable), you should be fine. Just keep documentation of all payments you make. If you do get any notices, respond to them promptly by calling and explaining your payment history. Lower balances like yours usually get more flexibility.

You can avoid the processing fee if you use the direct bank account option instead of a card! I've been doing that for my quarterly estimated tax payments and it's free to process that way.

I use QB for my pottery business. It can track COGS but you have to set it up correctly first! Make sure you classify your items properly as inventory items rather than non-inventory, and enable the inventory tracking feature. Then when you purchase materials, you'd post to inventory asset accounts, not expense accounts. When you sell, QB will automatically calculate COGS.