Would you need to fill out a new W-4 form for this? Or can you just ask payroll to withhold an additional specific amount each paycheck? I've never adjusted my withholding before and don't want to mess anything up.

You would need to submit a new W-4 form to your employer. There's a section on the form (Step 4c) where you can specify an additional amount you want withheld from each paycheck. You don't necessarily need to complete the whole form again. Many employers will let you just indicate the additional amount you want withheld. I'd recommend using the IRS Tax Withholding Estimator on the IRS website to calculate how much extra you should have taken out based on this new income. It's much better to handle this now than to get surprised with a tax bill next April!

No, there's no requirement for employers to gross up the amount. It's completely at their discretion. But it's definitely not a favor if they're just converting the same dollar amount from non-taxable to taxable!

Thanks for clearing that up. I figured that was the case but wanted to check. Guess I'll be having a chat with my manager tomorrow with some calculations in hand!

I've considered that, but the inheritance left me really overweighted in just two sectors (finance and healthcare). The financial advisor at Vanguard recommended I diversify since these stocks now make up almost 30% of my total portfolio. I'm just trying to be smart about when and how I make the transition to minimize the tax hit.

I understand wanting to diversify, but consider doing it gradually over a couple of tax years instead of all at once. You could sell enough this year to stay in a lower tax bracket, then do the rest next year. Also worth checking if any of these companies offer dividend reinvestment plans (DRIPs). If they do, you could potentially shift some portion to those programs and slowly diversify without selling and triggering capital gains.

That's actually incorrect. The wash sale rule only applies when you sell at a LOSS and then rebuy within 30 days. OP is dealing with GAINS, so the wash sale rule isn't relevant here at all. Plus, what would be the point of selling at a gain, paying taxes, and immediately rebuying? That would just create a tax bill with no benefit.

I haven't run the full numbers yet. I was hoping to understand the principles first before diving into calculations. That's helpful to know about the self-employment tax being unaffected by filing status. The grant was specifically for childcare program enhancement, so I'll definitely look into whether it qualifies as tax-exempt. Hadn't even considered that possibility!

This is actually a misconception. Filing separately doesn't protect you from audit risk if the business is legitimately your spouse's. The IRS can still look at both returns regardless of filing status. What might help is filing for innocent spouse relief if there are unreported income issues.

This is incredibly helpful - I had no idea these options existed. Do these programs stop the levy process right away? And if I apply for an Offer in Compromise, how long does that typically take to process?

Yes, both applying for an Offer in Compromise or being placed in Currently Not Collectible status will stop the levy process immediately. The IRS can't continue collection actions while your offer is being evaluated or while you're in CNC status. The Offer in Compromise process typically takes 6-9 months from submission to decision. During this time, your collection statute (the 10-year period the IRS has to collect) is extended. If your offer is accepted, you'll typically need to pay the settlement amount within 24 months or in some cases as a lump sum within 5 months (which often results in a lower settlement amount).

This is only partly right. The 10-year clock doesn't start until the tax is actually assessed, which requires filing a return or the IRS creating a substitute return for you. For unfiled returns, that clock might not have even started yet!

Thanks so much for this info! The farm is indeed an S Corp. Would setting up a QSST require getting everyone in the family on board? And how exactly would it help with our tax situation? Sorry if these are basic questions, this farm tax situation is completely outside my experience.

Setting up a QSST would only involve your wife's shares, not the entire family structure. It creates a trust that holds her shares, which can sometimes provide more flexibility in how and when income is recognized. The main benefit would be potential income timing advantages and possibly some estate planning benefits as well. However, it does require proper setup by someone familiar with both trust law and agricultural tax issues. It's not a DIY solution, but depending on the value of the shares and ongoing income, it might be worth the setup costs.

My family uses income averaging and it's saved us thousands. But remember it only helps the active farmers (her brothers who run it), not passive shareholders. The original poster and his wife would still get the K-1 with the same amount of pass-through income regardless.