That's interesting about the stepped-up basis, but unfortunately the house was solely in my name from the beginning. We never did a joint ownership. However, I did install a wheelchair ramp and some bathroom modifications for him last year. I hadn't even thought about claiming those as medical expenses! Is there a specific form I need to use for that?

Since the property was solely in your name, you're right that the stepped-up basis wouldn't apply. However, those modifications for your father's care are definitely potential medical expense deductions. You would claim these on Schedule A as itemized deductions under medical expenses. You'll need to keep receipts for the wheelchair ramp and bathroom modifications as supporting documentation. Remember that total medical expenses are only deductible to the extent they exceed 7.5% of your adjusted gross income. If the modifications were substantial, they could help you reach that threshold, especially combined with other medical expenses you may have incurred.

I used FreeTaxUSA last year for a similar scenario with my aunt's house. It was actually much clearer than TurboTax for entering the capital gains info. They have a specific section for sale of home where you can indicate it wasn't your primary residence, and then it walks you through calculating your basis and gain or loss. So much cheaper than TurboTax too!

What exactly is the pro-rata rule? I've been doing backdoor Roth for 2 years but have an old traditional IRA with about $30k in it. Should I be worried?

Yes, you should definitely be concerned. The pro-rata rule means you can't just convert your non-deductible contributions tax-free if you have other pre-tax IRA money. The IRS looks at all your IRA accounts (traditional, SEP, SIMPLE) as one big pot when you do a conversion. The taxable portion is calculated based on the ratio of pre-tax money to the total IRA balance. So if 80% of your total IRA money is pre-tax, then 80% of any conversion will be taxable regardless of which specific dollars you're converting.

TurboTax actually handles this pretty well but it's not obvious. You need to go to the IRA contributions section and make sure you select "nondeductible contributions." It'll then walk you through Form 8606. Just make sure you indicate which tax year the contribution was for. For the conversion, that goes in a separate section under "IRA distributions.

That's a good point. They're planning to retire in about 8-10 years, and I think their retirement income will put them around the 22-24% bracket based on their pension and expected 401k/IRA withdrawals. So it sounds like pre-tax contributions still make sense now, especially in 2023 if they're in the 24% bracket. But doesn't that still leave the question of whether to do the SEP for 2023 vs. prioritizing backdoor Roth going forward? The SEP would block backdoor Roth unless we convert it (paying taxes again).

If their retirement tax bracket is expected to be 22-24%, then yes, pre-tax contributions make sense now, especially while they're still in the 24% bracket. For your specific question about 2023 SEP vs. future backdoor Roth, I'd recommend a hybrid approach. Have your dad make a SEP contribution for 2023, but perhaps not the full $12,889. He could contribute just enough to keep him from spilling into a higher bracket. This gives some tax savings now while limiting the amount that would affect future backdoor Roth conversions. Then for 2024 and beyond, focus on maxing out his employer 401k (including any after-tax contributions for mega backdoor Roth) before considering backdoor Roth IRA strategies. The 401k contributions would give him the pre-tax benefit without the pro-rata complications of the SEP.

This is a really good point about being near the bracket edge. Moving from 24% to 32% is an 8% jump which is huge. If a $12,889 SEP contribution could keep them in the lower bracket for 2024, that would save significantly more than just the direct tax benefit on the contribution itself.

That's actually a fantastic point I hadn't considered! They're definitely near the edge of the bracket - I think my mom estimated they'll be about $15-20k over the 24% threshold for 2024 without any additional deductions. So a $12,889 SEP contribution for 2023 wouldn't directly affect 2024 taxes, but it would free up cash they could use for other deductions or opportunities in 2024. I'll definitely bring this up with them - maybe they could increase 401k contributions enough in 2024 to stay in the 24% bracket if they preserve more cash now with the SEP contribution for 2023. Thanks for this perspective!

This is so helpful! So basically if I have a single-member LLC, the IRS treats me exactly the same as if I just had a sole proprietorship? What's the advantage of multi-member then? My wife and I are thinking of starting a business together.

That's right - for tax purposes, a single-member LLC is treated exactly like a sole proprietorship. You file Schedule C with your personal return, and the LLC is completely "invisible" to the IRS. For you and your wife, it depends on your state. In community property states, a husband and wife can elect to treat their LLC as a disregarded entity (essentially a sole proprietorship) instead of a partnership, which simplifies filing. In non-community property states, a husband-wife LLC typically files as a partnership, which means a separate tax return (Form 1065) and Schedule K-1s. The partnership route involves more paperwork but can sometimes offer more flexibility in how income and expenses are allocated between owners.

You actually don't need an LLC to deduct legitimate business expenses. You can deduct the business portion of your computer, internet, home office space, and business travel on Schedule C as a sole proprietor. The LLC won't change what you can deduct - you just need to make sure they're ordinary and necessary expenses for your business.

I hadn't thought of that option. Do you know if there's a way to check online to confirm the overpayment is showing as a credit on my account? I'm a bit worried about skipping a future payment without knowing for sure the IRS has properly recorded the extra payment.

Yes, you can check your account on the IRS website. Just go to irs.gov and use the "View Your Account" tool - you'll need to create an account if you don't already have one. It will show your current balance and any credits on your account. I'd recommend waiting about 2-3 weeks after both payments have processed before checking, as it takes some time for everything to show up correctly in their system. If you're planning to use the credit for a quarterly estimated payment, just make sure to check well before that payment is due to confirm everything looks right.

Did you get any interest on the refund for the time they held your money? Seems like they should pay interest if they're holding onto a clear overpayment for 3 months!