That's a really good point I hadn't considered. I'm in Minnesota, and I have no idea how they handle capital gains from partnership sales. Will definitely add this to my list of questions for the CPA!

Minnesota does tax capital gains at the same rate as ordinary income, which can be quite high depending on your income bracket. They don't have a separate preferred rate for capital gains like the federal government does. One thing to ask your CPA about is whether structuring the buyout over multiple tax years could help reduce the overall tax impact. Sometimes spreading a large gain across tax years can keep you in lower brackets. This gets complicated with partnerships though, so definitely get professional advice.

This is super important! I got burned on this exact issue. Thought I was getting all capital gains treatment but ended up with a portion as ordinary income because of inventory and accounts receivable. Nasty surprise at tax time.

Thanks for mentioning this! I was actually confused about whether we'd get the full credit amount since our actual expenses are pretty minimal. Our caseworker mentioned something about this but I wasn't sure how it worked with the tax side of things. Do we need any special documentation to prove it was a foster adoption?

You're welcome! For documentation, you'll need your final adoption decree and possibly the determination letter that classified the adoption as special needs (though this is automatic for most foster adoptions). Your adoption agency or state agency should provide documentation stating it was a foster care/special needs adoption - this is what the IRS would want to see. The great thing is you don't need to document actual expenses since you automatically qualify for the maximum credit. Just make sure to file Form 8839 with your tax return next year, and check the box indicating it was a special needs adoption. This tells the IRS you're eligible for the full credit amount regardless of your actual out-of-pocket costs.

This is actually brilliant. We're doing something similar with our adoption credit. Just make sure you calculate the conversion amount carefully so you don't push yourself into a higher tax bracket accidentally. We're converting just enough each year to maximize the credit usage without increasing our marginal rate.

Thank you for this suggestion! I think I have one pay stub somewhere in my mess of papers. Do I need to attach any documentation to Form 4852, or just the form itself with my best estimates?

You just need to submit the form itself with your best estimates. You don't need to attach documentation to the form, but definitely keep any supporting documents (like that pay stub) with your tax records in case the IRS has questions later. If you use tax preparation software, they'll usually have a section for missing W-2s where you can enter this information. The software will generate the Form 4852 for you as part of your return. Just make your estimates as accurate as possible based on what you remember and any records you have.

This is actually a really important point. Your bank statements are valid supporting documentation for income. I've used them before when I lost a W-2. Just add up all the deposits from that employer.

They actually paid me in cash each night at the end of my shift. I think I deposited most of it, but probably spent some right away too. I'll check my bank statements though - that's a good idea to see what I actually put in my account!

Thanks for the advice! I've been keeping all my receipts but I haven't been great about noting which stream each one was for. Is there a specific format or system you recommend for documenting this? Should I create some kind of spreadsheet that links each receipt to a specific stream URL?

A spreadsheet is exactly what I recommend to my clients! Create columns for date, vendor, amount, stream link/title, and a brief description of how it relates to your business. Then scan or take photos of all receipts and name the files to match your tracking system. Also consider creating a business-only credit card or bank account if you haven't already. This creates a clear separation between personal and business expenses which is huge for proving business intent to the IRS.

That's not how it works - forming an LLC doesn't change the actual tax treatment of expenses. The IRS looks at the nature of the expense, not just who technically paid for it. The same deduction rules and limitations apply whether you're a sole proprietor or operating through an LLC. The LLC provides liability protection but doesn't magically make otherwise limited deductions fully deductible.

Does FreeTaxUSA also let you file state taxes for free? I'm in California and the state filing is what keeps me using TurboTax even though I hate their limitations.

FreeTaxUSA is free for federal filing including extensions, but they do charge about $15 for state filing. Still way cheaper than TurboTax's $50+ for state filing. Their interface isn't as slick as TurboTax but it gets the job done and doesn't hide features from free users. For me the savings and not dealing with the upsell tactics was worth the slightly less polished experience.

I thought about doing this but wasn't sure if it would cause problems when I eventually file my full return through TurboTax. Will the IRS system know I already filed an extension?