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Here's an important thing to know about K-1s that nobody mentioned yet - they often arrive LATE! Like after April 15th late. If that happens, you'll need to file an extension (Form 4868). Your brother should be able to give you an estimate of the numbers so you can pay any estimated tax due with your extension request. I invest in several partnerships and literally never get my K-1s before April. It's annoying but normal.
Does filing an extension because of a late K-1 increase your chances of being audited? I've always heard you should avoid extensions if possible.
Filing an extension does not increase your audit risk at all. That's a common myth. In fact, tax professionals file extensions for many of their clients as standard practice. The key is making sure you pay any estimated tax due when you file the extension. Penalties are for not paying on time, not for filing the actual return later. As long as you make a good faith estimate of what you owe and pay that amount with your extension request, you're completely fine.
WARNING about K-1s - make sure the EIN on the form matches your brother's business! I got a K-1 last year that had a typo in the EIN and it caused my return to be rejected when I e-filed. The IRS computers couldn't match my reported K-1 info with what the business filed. Also check if your state requires you to attach a copy of the K-1 to your state return. Some states do require this while the federal return doesn't.
This is great advice! I had the same issue with a wrong EIN and it was a nightmare to fix. I'd also recommend comparing the K-1 you receive with any estimated K-1 info your brother might have given you during the year. If there are big differences, ask why before filing.
Has anyone done a reverse 1031 exchange? I'm in a competitive market and found the perfect replacement property but haven't sold my current one yet. I heard you can buy first then sell, but it seems complicated.
I did a reverse exchange last year. It's definitely more complex and expensive. You need an Exchange Accommodation Titleholder (EAT) to hold the new property while you sell the old one. My qualified intermediary charged about $7K more for this vs a standard exchange. You still have 180 days total to complete everything, but now you're racing to sell your property. If you can't sell in time, you lose the exchange benefits.
Quick question about the 1031 exchange timeframe - does the 45-day identification period include weekends and holidays? My closing date is April 1, 2025, so would my identification deadline be May 16 or would it be later if there are holidays?
I went through the Tax Court petition process last year. Here are some tips: 1) If you don't have the 90-day letter, call the IRS (I know, painful) and request a copy. Explain you need it to file a Tax Court petition. 2) The Tax Court petition form is pretty straightforward. Focus on clearly stating why you disagree with the IRS determination. Be specific about which expenses were improperly disallowed and why. 3) Consider using the Tax Court's "small tax case" procedure (check the box for this on the petition) since your amount is under $50,000. It's more informal and doesn't set legal precedent. 4) Include as much documentation as possible with your petition. 5) Be aware that after you file, the IRS will likely transfer your case to their Office of Chief Counsel, and they often reach out to settle before actually going to court.
This is really helpful! For the small tax case procedure, does that mean I don't need to hire a lawyer? I've been worried about the cost of legal representation on top of everything else.
For small tax cases, you don't need to hire a lawyer - many people represent themselves successfully. The process is designed to be more accessible. Judges in these cases tend to be more patient with self-represented taxpayers and will often help guide you through the process. That said, you might want to consider a consultation with a tax professional who has Tax Court experience, even if just for an hour, to review your petition before filing. Some Low Income Taxpayer Clinics (LITCs) offer free or low-cost help if you qualify based on income. Many law schools also run tax clinics where law students supervised by professors can help with Tax Court cases.
Have you tried contacting the Taxpayer Advocate Service? They're an independent organization within the IRS that helps taxpayers resolve problems. If the same auditor is blocking your appeals, that seems like exactly the kind of situation they're designed to help with. You can reach them at 877-777-4778 or find your local office on the IRS website. They can often intervene when normal IRS channels aren't working properly.
One additional thing to consider - if you had any income from your home country while studying in the US (like rental income, investments, etc.), you might still need to report it on your US tax return, even if you're paying taxes on it in Indonesia already. The US tax system is based on worldwide income for citizens and residents, but for nonresidents (which you likely are as an F-1 student in your first 5 years), you generally only pay US taxes on US-source income. However, you still need to disclose certain foreign accounts if they exceed $10,000 at any point during the year (FBAR requirements). I learned this the hard way when I almost got penalized for not reporting my home country savings account that my parents were contributing to while I was studying here.
Wait, I do have a savings account back home with about $12,000 in it. My parents put money in there for emergencies. Do I seriously need to report that? What form would I even use for that?
Yes, if your foreign account(s) exceeded $10,000 at any point during the calendar year, you need to file a Foreign Bank Account Report (FBAR), which is FinCEN Form 114. This is separate from your tax return and filed electronically through the Financial Crimes Enforcement Network's BSA E-Filing System. This doesn't mean you owe taxes on that money - it's just a disclosure requirement. The deadline is typically April 15, but there's an automatic extension to October 15 if you miss the April deadline. The penalties for not filing can be severe, especially if they consider it a willful violation, so definitely take care of this!
Don't forget about state taxes too! Federal and state taxes are separate in the US. Depending on which state your university is in, you might also need to file a state tax return. California (where UCLA is) definitely requires international students to file a state tax return if they earned income in California. You'll likely need to file Form 540NR. The state doesn't always honor the same tax treaty benefits that the federal government does, so you might end up owing state tax even if you're exempt from federal tax. State tax rules can vary widely, so check with your university's international student office for California-specific guidance.
Chad Winthrope
22 I faced this exact problem last year! What I did was file Form 8606 to declare my non-deductible Traditional IRA contribution. This creates a "basis" in your IRA so you're not taxed twice. Going forward, look into the "backdoor Roth" strategy. Each year you can: 1) Make a non-deductible contribution to your Traditional IRA 2) Convert it to Roth shortly after (not recharacterize - that's different) 3) Document it all with Form 8606 Just be aware of the "pro-rata" rule if you have other pre-tax money in any Traditional IRAs. That can make things more complicated tax-wise.
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Chad Winthrope
ā¢3 Can you explain the pro-rata rule a bit more? I have some old 401k money that I rolled into a Traditional IRA years ago, plus some non-deductible contributions like OP. Will that mess up the backdoor Roth strategy?
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Chad Winthrope
ā¢22 The pro-rata rule means the IRS looks at all your Traditional IRA accounts combined when you do a conversion. If you have a mix of pre-tax and after-tax money, you can't just convert the after-tax portion. For example, if you have $50,000 in pre-tax Traditional IRA money from an old 401k rollover, and you add $6,000 in non-deductible contributions (after-tax), your IRAs are now about 89% pre-tax and 11% after-tax. If you try to convert $6,000 to Roth, about 89% of that conversion ($5,340) would be taxable. One workaround some people use is to roll pre-tax IRA funds into a current employer's 401k if possible, which removes them from the pro-rata calculation. Then they can do clean backdoor Roth conversions with just the non-deductible contributions.
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Chad Winthrope
9 Is there any downside to just leaving the after-tax money in the Traditional IRA? I'm in a similar situation and honestly thinking about just keeping it there to avoid the hassle.
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Chad Winthrope
ā¢18 The main downside is that any earnings on that money will be taxed as ordinary income when you withdraw in retirement, rather than being tax-free like they would in a Roth. If you're young and this money will be invested for decades, that's potentially giving up a lot of tax-free growth. Also, tracking basis gets more complex over time if you have a mix of deductible and non-deductible contributions. You'll need to file Form 8606 every year you make non-deductible contributions and keep records potentially for decades.
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