If I do go to a CPA, what documents should I bring with me? I want to be prepared so I don't have to keep going back with more paperwork.

Bring the deed showing when you were added to the title, the closing documents from the sale, any documentation showing improvements made to the home that might affect basis, and anything showing the original purchase price when your father bought it. For the retirement accounts, bring all 1099-R forms, statements showing the withdrawals and deposits, and documentation from both the old and new retirement plan administrators. Also bring your last year's tax return and any correspondence you've had with the IRS. If you have documentation of any hardship that led to the withdrawals, that could be helpful too as it might qualify you for penalty exceptions.

Do they also need to worry about the Section 121 exclusion for primary residence? If they lived in the house for 2 of the last 5 years, couldn't they exclude some of the gain?

Does putting a rental property in an LLC actually save on taxes though? I thought LLCs are pass-through entities so the tax treatment is the same as individual ownership? Also doesn't it make the mortgage situation more complicated?

You're right that a single-member LLC is typically a pass-through entity and doesn't change the tax treatment by itself. I should have been more clear. The tax savings come from strategies you can implement once you have the proper structure in place, not just from having an LLC. The real benefits come when you combine the LLC with proper tax planning like implementing a management company structure or potentially electing S-corp taxation for your activities depending on your situation. And yes, transferring mortgaged properties into an LLC can trigger due-on-sale clauses in some cases, so that's exactly why I recommended consulting with both tax and legal professionals before making any moves.

What app do you use for storing receipts? I've been trying to find a good one that will organize by property and expense type.

That's a great point I hadn't thought about. So should I be submitting some kind of expense report to my own S-corp for reimbursement? Or is it enough to just document everything in my company records?

You should definitely be submitting formal expense reports to your S-corp for reimbursement. This creates the proper documentation that shows you're following an "accountable plan" which is critical for this arrangement to work properly with the IRS. The expense report should include the business purpose, dates of travel, locations, and calculation of the per diem amounts based on the State Department rates. Your S-corp should then reimburse you directly for these expenses. In your company records, these would be logged as business travel expenses, and on your personal taxes, the reimbursements wouldn't be considered income since they're under an accountable plan.

I tried using TurboTax for this last year and it was a nightmare. The software doesn't have clear guidance on foreign per diems. I ended up manually calculating everything and entering it as "other business expenses" with detailed notes. Not ideal but it worked.

This is solid advice! My employer uses UltiPro and I was able to log in and download my W2 even though I left the company in November. Totally forgot I had that access.

That's great to hear it worked for you! Many people don't realize these payroll portals often maintain your access for a period of time after employment ends, specifically for tax document purposes. If anyone else is trying this method, also check your email for any invitations to these portals when you were hired. Sometimes the login credentials or reset instructions are still valid. Even if your account appears inactive, customer service for these payroll providers can sometimes help former employees access just their tax documents.

Won't an extension delay my refund though? I'm counting on that money for some bills coming up in March.

Thanks for mentioning this! I had no idea about the self-employment tax being that high. Do I get any credit for the social security/medicare taxes I'm already paying through my W2 job? And for the mileage deduction, does driving to client meetings count?

There's a cap on Social Security tax (not Medicare) - if your W2 job already withholds the max Social Security tax ($9,932 for 2023, which happens at $160,200 of income), then you won't owe additional Social Security tax on your freelance income, just the Medicare portion. Driving to client meetings absolutely counts as deductible business mileage! Keep a log with dates, starting/ending mileage, and purpose of each trip. Commuting to a regular workplace isn't deductible, but since your freelance clients aren't a regular workplace, those trips qualify. You can also deduct trips to buy business supplies, attend work-related conferences, etc.

This is the best advice! I started doing this last year and it's been amazing for keeping things organized. I also set up a separate checking account for all my freelance income. My accountant was super impressed with how clean my books were.