Question - if a trust has zero income for the year, do you still need to file a 1041? Our family trust just holds some property but didn't generate any income last year.

Great question! I went through this exact situation last year. As others have mentioned, you don't need the grantors to file personal 1040s just for your trust filing purposes. However, I'd recommend getting a clear understanding of whether your trust is actually a "grantor trust" or not - this makes a huge difference. If it's a standard irrevocable trust (not a grantor trust), then the trust files its own 1041 and issues K-1s to beneficiaries for any distributions. The grantors' personal income levels are irrelevant to the trust's filing requirements. One thing to watch out for: even if the grantors don't normally need to file because of low income, if they receive distributions from the trust that push them above the filing threshold, they'll need to file to report the K-1 income. But that's their responsibility, not yours as trustee. Make sure you have the trust's EIN and keep good records of all trust income and distributions. The 1041 filing requirements are based on the trust having $600+ in gross income OR any taxable income, regardless of the grantors' situation.

One thing to keep in mind is the timing of when you lived in different parts of the house. The IRS has specific rules about mixed-use properties where part was your primary residence and part was rental. If you've lived in the main part continuously as your primary residence for at least 2 of the last 5 years before selling, that portion should qualify for the Section 121 exclusion. However, for the rental unit portion, even if it's in the same building, the IRS typically treats it as a separate property for tax purposes. This means you'll definitely owe the 25% recapture tax on all depreciation taken for the rental unit, and that portion won't qualify for the primary residence exclusion. For your home office depreciation, this gets a bit more complex - if the office is within your primary residence area and you stop using it as an office before selling, you might be able to apply the Section 121 exclusion to that portion's gain, but you'll still owe recapture tax on the depreciation taken. I'd strongly recommend getting a tax professional to help you allocate the sale proceeds between the different uses of the property to make sure you're calculating everything correctly.

Great question about allocation methods! The IRS typically allows several approaches for determining the split between personal residence and rental portions, but square footage is the most common and defensible method. For example, if your rental unit is 800 sq ft and your total property is 2,400 sq ft, then 33% would be allocated to the rental portion and 67% to your primary residence. This percentage applies to both your original basis and the sale proceeds. However, you can also use other reasonable methods like: - Number of rooms (if they're similar in size) - Fair rental value comparison - Relative assessed values if your local tax assessor breaks them out separately The key is being consistent - whatever method you used when you first started taking depreciation deductions should generally be the same method you use when calculating the sale allocation. Keep good documentation of your methodology because the IRS may ask you to justify your allocation during an audit. One important note: if you've been using a specific percentage on your Schedule E forms over the years for the rental portion, stick with that same percentage for the sale calculation. Changing it could raise red flags.

Sorry you're dealing with this! Just to add another perspective - double-check if you filled out a new W-4 when you started this job. The W-4 form changed completely in 2020 and no longer uses allowances. If you're using an old W-4 form from before 2020, the employer might have misinterpreted something. Or it could just be a data entry error where someone typed "9" instead of "0" or "1". For your bonuses, the standard supplemental wage withholding is 22% federal, not 18%. If they withheld less than that, it could explain part of why you're owing so much.

This sounds incredibly frustrating! The 9 allowances situation is definitely a red flag - that would drastically reduce your withholding throughout the year, which explains the large tax bill you're facing now. A few things to check immediately: 1. Request copies of all your paystubs from this year to verify what was actually withheld 2. Ask your HR/payroll department for documentation showing when and how your allowances were set to 9 3. Double-check that all your bonus withholding is properly included in Box 2 of your W-2 The good news is that if your employer made an error with your withholding allowances without your consent, you may be eligible for penalty relief from the IRS. They have provisions for situations where underwithholding wasn't the taxpayer's fault. For immediate relief, you can set up a payment plan with the IRS if you can't pay the full amount right away. And definitely submit a new W-4 form immediately to fix your withholding going forward - you don't want to be in this situation again next year! The bonus withholding should indeed be at 22% if they used the flat rate method, so 18% suggests there might have been an error there too.

I've dealt with this exact issue before with partnership returns. One thing that saved me was creating a detailed reconciliation worksheet between the accounting software balance sheet and Schedule L. Export your trial balance from the accounting software as of December 31st and compare each line item to what you've entered on Schedule L. Sometimes the issue isn't a missing transaction but rather a classification difference - for example, your software might classify something as "Equipment" while Schedule L requires it to be split between "Depreciable assets" and "Accumulated depreciation." Also check if there are any timing differences. Partnership tax returns are often prepared months after year-end, and sometimes additional transactions get recorded in the accounting system that should have been in the prior year. Look for any January entries that might actually belong in December. Since you're down to $3,200, I'd bet it's something simple like a rounding difference across multiple accounts or a single mid-sized transaction that got recorded in the wrong period. The good news is Schedule L problems are always solvable - the numbers have to be somewhere!

I went through a similar nightmare with a Schedule L that wouldn't balance last year! After hours of frustration, I discovered the issue was with how I was handling the depreciation. Make sure you're not double-counting depreciation anywhere. Check that: - Current year depreciation expense is properly reflected on the income statement - Accumulated depreciation is correctly updated on the balance sheet - Any Section 179 or bonus depreciation is handled consistently between your books and Schedule L Also, since you mentioned this is a construction partnership, watch out for work-in-progress (WIP) inventory. Construction companies often have jobs that span year-end, and the WIP can be tricky to value correctly. If they use percentage-of-completion accounting, make sure the WIP balance on Schedule L matches what's in their job costing system. One more thing - double check any equipment trades or disposals during the year. Construction companies frequently trade in old equipment, and if the gain/loss on disposal wasn't recorded properly, it can throw off both your fixed assets and equity accounts. You're so close with only $3,200 left to find! It's probably just one or two items that got missed or miscategorized.

For future reference, you should also know that the tax treatment of relocation expenses changed significantly with the 2017 tax law (TCJA). Before 2018, qualifying moving expenses were tax-deductible and employer reimbursements could be excluded from income. Now, almost all relocation benefits are fully taxable (except for active military), which is why companies do the gross-up to help employees. Without the gross-up, a $10k relocation payment might only net you $6k after taxes, which doesn't help much with actual moving costs.

I went through this exact same situation last year! The discrepancy between what you received and what's on your W-2 is actually pretty common with relocation bonuses. Your company likely did a "gross-up" calculation to ensure you received the full $10k after taxes. Here's what probably happened: They calculated that to give you $10k after all taxes (federal, state, FICA), they needed to report about $18k as taxable income. The extra $8k went directly to the IRS as tax withholding on your behalf. So you did receive the full benefit, just not all in cash. Double-check your final pay stub from last year - you should see the higher withholding amounts that correspond to the $18k gross income. When you file your taxes, you'll report the full $18k but you'll also get credit for all the taxes that were already withheld. It should balance out correctly and you won't owe extra taxes on money you didn't receive. This is actually a nice benefit from your employer since they covered the tax burden for you, but I agree they should have explained it better upfront!