If ur charging so much below market wouldnt this rental be considered a hobby and not a business? I thought if u dont make profit for like 3 years the irs considers it a hobby and u cant take deductions??

Just to add another perspective - make sure you keep detailed records of all rental-related expenses even if you're charging below market rate. I rent to my sister at a reduced rate and learned the hard way that documentation is key. Keep receipts for your portion of utilities, any repairs or maintenance done to the rental space, insurance allocations, etc. Even if you can only deduct up to your rental income, having organized records will save you headaches if you ever get audited or need to reference something later. Also consider having a simple written rental agreement even with family - it helps establish that this is a legitimate rental arrangement rather than just casual help with expenses. The IRS likes to see that you're treating it as a real business relationship.

I'm just wondering - does anyone know if TurboTax handles these excess contribution 1099-Rs correctly? I tried entering mine last year and it seems like it didn't know what to do with the code combinations.

I went through almost the exact same situation last year! Had two 1099-Rs for excess contribution removals made on the same day - one with codes P and J, another with codes 8 and J. It's really confusing when you first see it. The key thing to understand is that they represent two different parts of the same transaction. The P code is for the principal (your original excess contribution) that gets backed out of your prior year return, while the 8 code is for any earnings that grew on that excess contribution while it sat in your account. Even though both were processed the same day, they have different tax treatments. For your 2022 amendment, you'll reduce your IRA contribution deduction by $5,432.34. For 2023, that $89.34 in earnings gets added to your income and you'll likely owe the 10% early withdrawal penalty on it too. One tip - when you're amending 2022, make sure you also check if you claimed any retirement savings credit (Form 8880) based on that contribution. You might need to recalculate that as well. The whole process is a pain, but once you understand the logic behind the different codes, it makes more sense.

As someone who's been following this discussion with great interest, I wanted to add a perspective that might help clarify why these distinctions exist in the first place. The fundamental principle at work here is that the tax system tries to distinguish between different types of economic activity based on their underlying purpose and social impact. Game show winnings are taxed as income because, despite feeling like luck, you're actually participating in a commercial transaction where both parties benefit - the show gets entertainment content, and you get prizes. Personal gifts are treated differently because they represent voluntary transfers within families or communities, which tax policy generally wants to encourage (or at least not discourage) for social reasons. The gift tax system exists primarily to prevent wealthy individuals from avoiding estate taxes, not to punish normal family generosity. What I find most interesting is how this same principle applies across many areas of tax law - scholarships, insurance payouts, employee benefits, and even things like found treasure all get different treatments based on the nature of the transaction rather than just the amount received. The prize valuation issue everyone's discussing does seem like a legitimate problem though. Having to pay taxes on inflated MSRP values that don't reflect real-world market prices can create genuine hardship. Perhaps the solution is requiring shows to offer cash alternatives at realistic values, or allowing contestants to request independent appraisals for tax purposes. Thanks to everyone who shared their experiences - this has been one of the most enlightening tax discussions I've encountered!

This has been such an enlightening thread! As someone who's always been confused by these tax distinctions, I really appreciate how everyone broke down the logic behind treating game show winnings and gifts differently. What finally made it click for me is understanding that the IRS isn't just looking at whether someone received "free money" - they're examining the underlying economic relationship and purpose of the transaction. Game shows are commercial enterprises where contestants provide entertainment value, making it a business transaction even if winning feels like pure luck. Personal gifts, on the other hand, are voluntary transfers we want to encourage for social reasons. The prize valuation issue is definitely problematic though. It seems fundamentally unfair that winners have to pay taxes based on inflated MSRP values they could never actually realize. I love the suggestions about mandatory cash alternatives or independent appraisals - something needs to change so people don't get financially punished for getting lucky. As a newcomer to understanding tax policy, this discussion has shown me how the tax code tries to balance revenue collection with social goals like encouraging family generosity and education. It's way more nuanced than I ever realized! Thanks to everyone who shared their knowledge and experiences.

I've been in almost the exact same situation with my quarterly bonuses! After dealing with this for several years, I can tell you that claiming "Exempt" on your W4 is definitely not the right approach here. You can only legally claim exempt status if you had zero tax liability last year AND expect zero tax liability this year - which almost nobody with a regular salary plus bonuses qualifies for. The 40% withholding you're seeing on bonuses is actually normal - it's the combination of the 22% flat federal rate for supplemental wages, plus state taxes and FICA. It feels brutal, but it's not technically "over-withholding" - just very conservative withholding. What worked for me was taking a step back and looking at the annual picture instead of trying to fix individual payments. I used the IRS Tax Withholding Estimator and plugged in my expected annual salary plus a conservative estimate of my bonuses. The calculator then showed me how to adjust my regular W4 to reduce withholding from my regular paychecks to balance out the heavy withholding from bonuses. I ended up getting about $140 more per regular paycheck, which really helps with cash flow throughout the year while still keeping my total annual withholding appropriate. The IRS doesn't care about the timing of your withholding - just that you meet the annual safe harbor requirements (90% of current year liability or 100% of prior year). This approach is much safer than trying to game the system with exempt status, and it's been working great for me for over a year now. Definitely recommend running your numbers through that IRS calculator!

I've been lurking on this thread because I'm dealing with the exact same bonus withholding frustration! After reading all these detailed responses, I'm convinced the exempt status route is definitely not the way to go - way too risky given the strict IRS requirements. The annual balancing approach that several people have described makes so much more sense. Instead of trying to fix individual payments, adjusting regular paycheck withholding to compensate for the heavy bonus withholding throughout the year seems like the smart play. I just ran my numbers through the IRS Tax Withholding Estimator using my salary plus a conservative bonus estimate, and it's showing I could potentially get about $130 more per regular paycheck while still staying within the safe harbor rules. That would make a huge difference for my cash flow situation. One thing I learned from this discussion that I hadn't realized before is that the 22% flat rate for supplemental wages is standard - so that brutal 40% we're seeing (with state and FICA added) is actually normal, even though it feels like highway robbery! Thanks to everyone who shared their real-world experiences with this strategy. It's so much more helpful than just reading the technical rules. Definitely going to implement some W4 adjustments based on what I learned here.

I completely understand your frustration! This is one of the most confusing aspects of payroll taxes. What you're seeing is actually pretty normal, unfortunately. The key thing to remember is that your bonus isn't actually being "taxed" at 40% - that's just the withholding rate. When you file your taxes, the bonus gets added to your regular income and taxed at your normal marginal rates (so likely closer to that 24% you mentioned). The reason you're seeing such high withholding is probably because your employer is using the "aggregate method" - they temporarily add your bonus to your regular paycheck and calculate withholding as if that huge amount was your normal salary. This pushes the withholding calculation into higher tax brackets temporarily. On top of the federal withholding, you've also got: - Social Security tax (6.2%) - Medicare tax (1.45%, plus potentially 0.9% additional if you're a high earner) - State income tax (varies by state) - Possibly local/city taxes - Any pre-tax deductions like 401k contributions All of this can easily add up to that 35-40% total withholding you're seeing. The good news is you'll likely get a nice chunk of that back as a refund when you file your taxes. You can also ask your payroll department if they'd consider using the flat 22% percentage method for future bonuses, or temporarily adjust your W-4 to reduce regular paycheck withholding to offset the over-withholding from your bonus.

This is such a frustrating experience, but you're definitely not alone! I went through the exact same shock when I saw my year-end bonus withholding. What's happening is likely that your employer is using the "aggregate method" for withholding - they temporarily combine your bonus with your regular salary and calculate taxes as if that inflated amount was your normal pay. This can easily push the withholding calculation into the 37% or even higher brackets, especially when you add in all the other deductions. Here's what's probably being taken out of your bonus: - Federal income tax (could be 22% flat rate OR much higher if using aggregate method) - Social Security (6.2%) - Medicare (1.45% + possible 0.9% additional Medicare tax for high earners) - State income tax (varies widely by state) - Any 401k, HSA, or other pre-tax deductions - Possibly local/city taxes All of this can definitely hit that 38-40% range you're seeing. The important thing to remember is that when you file your actual tax return next year, your bonus just gets added to your regular income and taxed at your normal progressive rates. So if your marginal rate is 24%, most of your bonus will be taxed at 24%, not 40%. You'll likely get a decent refund from all that over-withholding. You can ask HR if they'd switch to the 22% flat rate method for future bonuses, or consider temporarily adjusting your W-4 to reduce withholding on your regular paychecks for the rest of the year to offset this. Just make sure to change it back in January!