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Just wanted to add a practical tip based on my experience: keep detailed records of your days in the US vs Canada. The substantial presence test is based on a formula: days in current year + 1/3 of days in previous year + 1/6 of days in year before that. When I moved to Canada, I thought brief trips back wouldn't count, but they do! Every day matters. I use an app to track my border crossings now because it got confusing fast. Also, the first year after moving is usually the most complicated tax year you'll have.
What app do you use to track your travel days? I've been using a spreadsheet but it's getting messy, especially with some quick weekend trips back to the US to visit family.
I use an app called "Travel Days Tracker" - it lets you log entries/exits by country and calculates your total days for tax purposes. Some people also use the Stride Tax app which has a location tracking feature that can automatically log when you cross borders. The spreadsheet works too, but I found having the app on my phone made it easier to log immediately when crossing borders. Whatever system you use, just be consistent. The IRS can request proof of your physical presence, and border crossing records can sometimes be incomplete.
Don't forget about state residency rules! They're totally separate from federal rules and can be even more complicated. Some states like California are super aggressive about claiming you're still a resident. When I moved to Canada, I had to file a partial year California return even though I was considered a US resident alien for the full year on my federal return. Had to provide proof I'd actually established domicile in Canada (driver's license, housing lease, utility bills).
This is a really good point. New York is just as bad as California. I moved to Toronto but kept an apartment in NYC that I use occasionally. NY claimed I was still a full-year resident even though I was physically in NY less than 90 days that year.
One thing nobody's mentioned yet - if your wife's business is still fairly new, it might be operating at a loss. If that's the case, filing jointly is almost definitely better because those business losses can offset your W2 income, potentially putting you in a lower tax bracket. Also, with a December baby, make sure you claim the Child Tax Credit - that's up to $2,000 for 2024 taxes. You qualify for the full amount with your income level.
Thanks so much for mentioning this! My wife's business is actually still in the investment phase and will probably show a small loss for 2024. I didn't even think about how that might offset my W2 income if we file jointly. Do you know if there are any limits to how much business loss can offset regular income? And yes, we'll definitely claim the Child Tax Credit!
There are some limits, but they probably won't affect you. The business loss can generally offset your other income, but if the loss is very large (over $270,000 for married filing jointly in 2024), it might be subject to the excess business loss limitation. For most small businesses with moderate losses, you can use the full amount of the loss to offset your W2 income. This is a huge advantage of filing jointly - if you filed separately, your wife's business loss could only offset her income, not yours.
Don't forget about self-employment taxes too! Your wife will need to pay those on her business profits (15.3% for Social Security and Medicare). That's on top of regular income tax. If her business isn't making much profit yet, the tax hit won't be bad. But once she starts making good money, you might want to look into forming an S-Corp instead of sole proprietorship to save on some of those SE taxes.
Yeah but S-Corps come with their own headaches. You have to run payroll, file more complicated returns, etc. I wouldn't recommend it until the business is making at least $40k in profit.
Have you tried reaching out to your congressional representative's office? Their constituent services department can sometimes get responses from federal agencies when individuals can't. I had a similar situation with comments I submitted about 1099-K thresholds, and my congressman's office was able to at least confirm my comments were received and included in the review process.
That's a great suggestion! I hadn't thought about involving my representative. Did you just call their local office? And how long did it take them to get back to you with information?
I called their district office, and they had me fill out a privacy release form so they could inquire on my behalf. The whole process took about 2 weeks before they got back to me with confirmation. Most congressional offices have staff dedicated to helping constituents navigate federal agencies. They won't necessarily get the IRS to change their mind on anything, but they can often get status updates and confirmations that regular citizens struggle to obtain directly.
I work in regulatory compliance (not for the IRS), and I can confirm what others have said - individual responses aren't provided for public comments. However, there is a "hack" to get more visibility: submit your comments through a relevant industry association if possible. Comments from recognized industry groups tend to get more directly addressed in the final rule publications. If you're a member of any professional organizations related to your business, check if they're submitting comments on the same proposed rules. Sometimes you can get your specific concerns included in their submission, which typically gets more detailed attention.
That's really helpful insider info! Do you know if most industry associations allow individual members to contribute to their formal comments? I'm part of the National Association of Tax Professionals but never thought to check if they were commenting on the same rules.
For trusts, understanding the throwback rules saved me multiple times. Also, the 65-day rule for distributions (ยง663(b)) is an extremely useful planning tool that many preparers miss. Remember that trusts have very compressed tax brackets compared to individuals, so distribution planning is critical. A distribution timing mistake can cost thousands in unnecessary taxes.
The most important thing I've learned in 10+ years of tax work is to step back and look at transactions in context. Tax doesn't happen in isolation - it's connected to business decisions, family situations, and long-term goals. When I get overwhelmed, I find it helps to sketch out the entity structures and money flows on paper. Literally drawing boxes for entities and arrows for transactions can make complex situations much clearer than trying to hold it all in your head. For partnerships specifically, I recommend reading through the IRS audit techniques guide for partnerships. It shows you exactly what the IRS looks for when examining returns, which helps you understand what's most important to get right.
This is such practical advice - thank you! I've never thought about using the IRS audit guides as learning tools. Do you think starting with those might help me identify my knowledge gaps more effectively than just trying to read the code?
Absolutely! The audit guides are written in much more accessible language than the code and regulations. They focus on practical application rather than technical language. Plus, they highlight the areas where mistakes commonly occur, which helps you prioritize what to learn. The partnership ATG specifically has great examples of what proper allocations, basis calculations, and distributions should look like. It also explains the economic substance doctrine in a way that's much clearer than most textbooks. Just remember that they're written from an enforcement perspective, so they emphasize areas of non-compliance rather than planning opportunities.
Mateo Warren
Don't forget that if you're paying a contractor (like your seamstress) more than $600 in a calendar year, you MUST issue them a 1099-NEC! This is separate from how you categorize the expense on your Schedule C. The deadline for providing 1099s to contractors is Jan 31st each year.
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Kaylee Cook
โขThanks for the reminder about the 1099-NEC! I did get her W-9 information, but I wasn't 100% sure about the $600 threshold. Do I need to issue the 1099 for payments made just for labor, or does it also apply if some of her invoices included materials she purchased?
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Mateo Warren
โขThe $600 threshold applies to the total payments to that contractor during the year, regardless of whether it's for labor, materials, or a combination. If your seamstress includes materials in her invoices and you pay her directly for everything as a lump sum, the entire amount counts toward the $600 threshold. Some contractors will separately itemize materials and labor on their invoices, but for 1099 purposes, you're reporting the total amount paid to that person or business during the tax year.
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Sofia Price
Just to add another perspective - I've been in the fashion business for 8 years and have always categorized my seamstress payments as Cost of Goods Sold rather than Contract Labor. My accountant said it depends on whether the work is directly tied to producing specific products for sale. For me, each piece they make becomes inventory, so it's COGS.
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Oliver Alexander
โขThis is actually a common misunderstanding. While it seems logical to put seamstress costs in COGS since they're making your products, the IRS is very specific about this distinction. Contract labor (like independent seamstresses) goes on line 11, while Cost of Goods Sold is primarily for materials and inventory-related costs.
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