Thanks for this advice. We do have a separate business account and have been keeping decent records. Do you think we need to get a CPA involved now or can we wait until we actually have some income to report?

You can probably wait on the CPA if money is tight right now. Focus on maintaining excellent records, tracking everything properly, and documenting your business activities. When you do start generating income or when your personal tax situation gets more complex, that would be the time to bring in a professional. In the meantime, you could look into more affordable tax guidance options like the ones mentioned above, or even free resources through your local Small Business Administration. They often offer workshops on tax planning for creative entrepreneurs.

I had a friend who got audited for this exact issue with his band. Basically, the IRS disallowed all his business expense deductions from previous years and he had to pay back taxes plus penalties. The key was that he hadn't shown any profit in 7 years and couldn't demonstrate serious efforts to become profitable. He didn't have a business plan, proper bookkeeping, or separate accounts. It was a mess.

Do you know if there's an income limit for claiming these energy credits? I heard somewhere that if you make over a certain amount you don't qualify for them.

There aren't income limits for the basic Residential Clean Energy Credit (Part I of Form 5695) which covers things like solar panels and geothermal heat pumps. You get 30% of the cost back as a credit regardless of income. For the Energy Efficient Home Improvement Credit (Part II of Form 5695) which would cover things like insulation, windows, doors, and potentially some electrical work, there also aren't income limits currently. However, there are maximum credit amounts depending on the type of improvement. For example, there's a $600 limit for certain high-efficiency exterior windows and a $500 limit for certain exterior doors.

You'll definitely need at least Deluxe for any home improvement related stuff. The basic version really only handles W-2 income and simple returns. I'd actually recommend Premier if you're dealing with selling property or rental income.

Thanks for this tip! I'm a bit nervous about using Forms mode since I'm not super confident about the basis calculations. Have you had any issues with TurboTax calculating things incorrectly when you use this method?

I wouldn't recommend Forms mode unless you're very familiar with partnership tax rules. In my experience, filling forms directly can lead to errors with basis calculations since TurboTax won't prompt you for all the information it needs. The safer approach is definitely using the K-1 interview section under "Less Common Income" as others suggested. TurboTax will ask all the right questions about your basis, at-risk amounts, and passive activity involvement there, then properly calculate limitations before populating Schedule E correctly.

Did FreeTaxUSA handle the passive loss limitations correctly though? That's my biggest concern with cheaper tax software - sometimes they miss the complex calculations.

That used to be the case years ago, but the rules have changed. Under the current IRS Publication 970 Section 10 guidelines, graduate-level education is treated the same as undergraduate education for employer-provided educational assistance purposes. The $5,250 annual exclusion applies to both. Your employer might be operating on outdated information. Prior to changes in the tax law, graduate education had different rules, but that's no longer the case. The key factor now isn't the level of education but whether the educational program meets the other requirements and whether your employer has a properly established educational assistance program.

Thank you so much for clarifying! I'm going to show this to our HR department. They're a small company and probably haven't updated their policies in a while. I was really hoping to use the benefit for my MBA courses, so this is great news. Do you know if there are any special forms or documentation I should be keeping for tax purposes when using this benefit for graduate education? I want to make sure everything is properly documented.

Thanks for mentioning this! My company is fairly small (about 50 employees) and I'm not sure they have all this documentation in place. Is there a template or example of what this written plan should look like? I'd like to bring this up to our HR person but want to be helpful rather than just pointing out a problem.

So does that mean if I can't resolve the "potential deficiency" with documentation, my case will end up on a docket record too? At what point does it move from administrative to legal proceedings?

The progression typically works like this: First you get the initial inquiry (CP2000 or similar), then if unresolved, you receive a Statutory Notice of Deficiency (90-day letter). Only after receiving that 90-day letter and then filing a petition with the Tax Court would your case appear on a docket. You have significant opportunities to resolve the issue before reaching the Tax Court stage. Many deficiency issues are resolved during the correspondence audit phase or through the IRS Appeals office. Tax Court is usually the last resort when you and the IRS fundamentally disagree about your tax liability and can't reach a settlement.

You can create an account on the IRS website (irs.gov) and view your tax account transcript. It'll show any assessments, payments, and adjustments to your account. I check mine regularly since I had an issue a couple years ago.