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Actually, there is a legitimate way for employees to adjust withholding temporarily, but it's not by claiming "exempt" for a week. They need to submit a new W-4 with additional deductions calculated to reduce withholding to the desired amount, then submit another updated W-4 afterward to return to normal withholding. The key is that they need to still have enough withholding throughout the year to meet their tax obligations. The IRS has a withholding calculator on their website that can help determine the right number to use.
That's helpful to know! So he could adjust his withholdings temporarily through a properly calculated W-4, but not completely eliminate them for a week unless he actually qualifies for exempt status? This makes more sense as a legitimate approach.
Exactly! He can adjust withholding by submitting a new W-4 with carefully calculated numbers, but not eliminate it for just one week unless he truly qualifies for exempt status (which is rare). The proper approach would be to use the IRS Tax Withholding Estimator tool to figure out exactly how to complete the W-4 to get close to the amount he wants withheld. Then after that pay period, he should submit another W-4 to return to his normal withholding amount to avoid owing a large sum at tax time.
I know employees think this is a good idea for quick cash, but as someone who did this, DON'T LET THEM DO IT!! I claimed exempt for 2 months when I had major medical bills. Felt great getting the extra money then, but at tax time I owed $4,200 I didn't have and got hit with penalties too. Had to set up a payment plan and it was a mess for years.
This is so true. I work at a tax prep office and see this mistake ALL THE TIME. People think they're just getting their money early, but forget the IRS wants penalties for underpayment. Plus, many don't save the extra money so they can't pay when the bill comes due.
Just wanted to share what I learned from my accountant about the "free inventory" situation. If you get inventory for free (like samples, gifts, etc.) but pay shipping, only the amount you actually paid (the shipping) becomes your cost basis. So for the original poster, that $20.45 is deductible as part of COGS. Also, there's a practical aspect to consider - if you're a small seller, the IRS generally doesn't care much whether you classify something as supplies vs. inventory as long as you're consistent and not trying to manipulate your income. Both methods ultimately lead to the same net income over time.
Is there a specific dollar amount where the IRS starts caring more about inventory vs supplies? I sell about $15k of products annually and have been lumping everything under supplies.
There's no specific dollar threshold where the IRS suddenly cares more about inventory vs. supplies classification. What matters more is your consistency and whether your method clearly reflects income. If you're selling $15k annually, you're still considered a relatively small business. However, if a significant portion of your business involves purchasing items for resale that you hold for any period of time, you should probably use inventory accounting. If you're concerned, consider talking to a tax professional about whether you should change your approach going forward.
Don't forget about Form 1125-A if you're reporting inventory! If you have inventory at the beginning or end of the tax year, the IRS generally wants you to file this form with your Schedule C. It's where you calculate your Cost of Goods Sold in detail.
I've never heard of Form 1125-A before. Is this something new for 2025? I've always just used the COGS section on Schedule C itself.
As someone who works in student loan counseling, just wanted to add some context on why married filing separately might make sense for student loans. If you're on an income-driven repayment plan like IBR, PAYE, or REPAYE, filing separately can sometimes result in lower monthly payments since they only count your income, not your spouse's (except for REPAYE which counts both regardless). However, you do lose some tax benefits like student loan interest deduction, certain education credits, and potentially higher tax brackets. It's always worth calculating both ways to see which filing status saves you more overall between tax savings and loan payment reductions.
Thanks for adding that context! Yes, that's exactly why I'm doing MFS - to keep my income-based payments manageable. I've done the math and even with losing some tax benefits, the monthly payment reduction over the year saves me more. Do you know if using TurboTax makes it easy to compare both scenarios before finalizing?
Yes, TurboTax makes it fairly easy to compare both scenarios. You can actually prepare your return both ways (filing jointly and filing separately) before you file to see the difference in tax liability. The software has a feature called "What If" scenarios where you can see how different choices affect your refund. You might need the Deluxe version or higher to access this, but it's worth it for your situation. Just remember to look at the total annual impact - combining both the tax difference and the student loan payment savings over 12 months to determine which filing status truly benefits you more.
I'm in a similar boat with student loans and MFS. Just a heads up - make sure you're actually saving money overall. I spent hours filing separately last year only to realize we would have saved more by filing jointly and just paying the higher student loan payments. There's a calculator called the "Married Filing Separately Calculator" by Student Loan Planner that helps figure this out.
Yeah, this is important! The tax penalties for MFS can be significant. You lose the student loan interest deduction, education credits, child and dependent care credit, and often have lower income thresholds for deductions and credits. Plus, if one spouse itemizes, the other MUST itemize too, even if taking the standard deduction would be better.
I literally just went through this exact situation with my 2019 taxes! The most annoying part was figuring out my exact income because my employer from back then shut down during COVID and I couldn't get a replacement W2. If you're having any trouble with missing documents, you can request a wage and income transcript from the IRS that shows all the info that was reported for you.
If you do end up owing a lot with penalties, don't panic. I was in a similar situation and qualified for first-time penalty abatement since I had a good filing history before my missed year. Saved me over $1,200 in penalties! You have to specifically request it though - they don't offer it automatically.
Hassan Khoury
Don't forget about the Section 1231 implications here! If your DJ equipment is considered Section 1231 property (which it likely is since you've been depreciating it), the character of the gain matters. If you sell at a gain while still a business, it could potentially be treated as capital gain rather than ordinary income in some situations, which would be taxed at a lower rate.
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Lucy Lam
β’What exactly qualifies as Section 1231 property? And does this still apply if the assets are fully depreciated?
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Hassan Khoury
β’Section 1231 property includes depreciable property used in a trade or business that's held for more than one year. So your DJ equipment would typically qualify if you've owned it for more than a year, which it sounds like you have. Even fully depreciated assets can still benefit from Section 1231 treatment. The fact that they're fully depreciated just means your basis is zero (or close to it), but the character of the gain can still benefit from potentially favorable capital gain treatment. However, be aware that depreciation recapture rules may cause some or all of the gain to be treated as ordinary income anyway, particularly with personal property like equipment.
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Victoria Stark
I strongly recommend getting an accountant to help with this! I tried to DIY my business dissolution last year and completely messed it up. Ended up with an audit and paid wayyy more than I would have if I'd just hired someone from the start.
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Benjamin Kim
β’What tax software were you using? I'm using TurboTax and wondering if it handles this situation correctly or if I need something more specialized.
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Victoria Stark
β’I was using H&R Block online, which I normally find pretty good for my basic tax needs. The problem wasn't really the software itself - it was that I didn't understand all the forms and steps needed for proper business dissolution. I missed filing Form 4797 for reporting the sale of business assets, and didn't properly document the conversion of business assets to personal use. No tax software can really help you make the strategic decisions about WHEN to sell assets versus when to convert them - it just processes the information you give it. That's why I suggest getting professional help for at least one session to map out your strategy before you start entering things into tax software.
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