Our operating agreement doesn't have anything specific about debt allocations, just the standard profit/loss percentages. Does that mean we default to allocating based on the guarantees? And what if a member who guaranteed the debt has a negative capital account - does that change anything?

Without specific debt allocation provisions, you'll default to the general tax rules which typically assign recourse debt basis to those bearing the economic risk of loss - meaning your guarantors. A negative capital account doesn't change the debt allocation rules, but it's actually a good sign that the member might need that debt basis. The debt allocation essentially helps prevent a partner from going too negative in their capital account. This is why guarantors often want that debt basis - it gives them more ability to take losses without triggering basis limitations.

Is the guarantee fee tax deductible to the LLC? And how do the guarantors report that income? As ordinary income or something else?

Thanks for this perspective! One question though - does the storage area need to be COMPLETELY exclusive to inventory? Like, I keep most of my supplies in plastic bins that are stacked against one wall of the spare bedroom. The room is maybe 200 sq ft total, but the storage probably only takes up about 40 sq ft. Can I deduct just that portion?

The general rule is that the space needs to be used exclusively for business, but there's a special exception for inventory storage. If you're selling products as your business (which you are), and your home is the only fixed location of that business, you can deduct the space used for inventory storage even if it's part of a room. In your specific case, you could potentially deduct the 40 sq ft used for storage, not the entire 200 sq ft room. You'd calculate what percentage that 40 sq ft is of your entire home's square footage. So if your home is 2,000 sq ft total, you'd be deducting 2% (40 ÷ 2,000) of your eligible home expenses.

Can you do both in the same year though? Like use regular home office deduction for the storage space, but also use Augusta Rule to rent your living room to your business for a few days for meetings?

Thanks for mentioning the treaty! I'll look into that. Regarding the FEIE, my accountant originally suggested using Foreign Tax Credits instead because the Dutch tax rates are higher than US rates, so I'd potentially get more benefit from the credits. Does that sound right, or should I reconsider using the FEIE?

Your accountant's reasoning about FTC vs FEIE is generally sound. When foreign tax rates are higher than US rates, the Foreign Tax Credit usually provides better results since it directly offsets your US tax liability dollar-for-dollar and can generate excess credits to carry forward. However, there's a potential hybrid approach worth considering: use the FEIE for your employment income and then use FTC for your investment income. This sometimes creates a more favorable tax situation, especially when dealing with the basketing limitations. The key advantage is that by excluding your earned income entirely from US taxation with the FEIE, the remaining investment income might fall into lower tax brackets, potentially reducing your overall US tax liability.

Yes, I completed streamlined last year with this exact issue. The key is to be consistent across all three tax years you're filing. Make sure your approach to categorizing income in the different baskets follows the same methodology for each year. In my certification statement (Form 14653), I specifically mentioned that I was uncertain about certain aspects of Form 1116 basketing but had made good faith efforts to comply based on my understanding of the rules. The IRS accepted my submission without any questions.

Thank you so much for this suggestion! I didn't know the SSA would have that information. Do they show the tax withholding amounts too or just the total income? And how quickly does that information get updated?

The SSA only shows your total earnings, not the withholding amounts. So it will help confirm your income, but you'll still need to estimate your federal and state tax withholding from the pay stubs you have. It typically gets updated a few months after the end of each quarter, so there might be some lag. But it's a good way to verify your total earnings when you don't have complete records. Even partial confirmation is better than nothing when you're filing a substitute W-2 form.

This is definitely an option, but there can be a significant delay. W-2s aren't required to be filed with the IRS until January 31st, and then it takes time for them to be processed and appear in your transcript. If the company closed and never filed them at all (which sounds possible in OP's case), they won't show up at all.

Would it be better to file as a Schedule C business loss or just take the casualty loss directly? Does it make a difference tax-wise? I'm in a sorta similar situation with my small side business.

You'll definitely want to file Schedule C to report all your business income and expenses, including the equipment that was destroyed. The casualty loss is reported on Form 4684, but since these were business assets, the loss ultimately flows to your Schedule C. Filing the business loss on Schedule C is generally more advantageous than taking a personal casualty loss because personal casualty losses are highly restricted under current tax law (only federally declared disasters qualify). Business casualty losses don't have these same limitations and can offset your other income.

The key difference between a hobby and a business isn't whether you made money yet, but whether you had a reasonable expectation of making a profit and were operating it in a businesslike manner. Plenty of legitimate businesses have losses in their first year or even several years.