Thanks for the advice! I've actually already started putting some money aside each paycheck, but probably not enough. When you say use a free filing option - are there specific ones you'd recommend for someone with just a regular W-2 job and nothing complicated?

For a simple W-2 situation, the IRS Free File program is your best option. They partner with tax software companies to provide truly free filing if your income is below a certain threshold (around $73,000). I personally used FreeTaxUSA which has a free federal option for any income level and only charges about $15 for state filing. Avoid the big companies that advertise "free" but then try to upsell you on everything. If all you have is W-2 income and standard deduction, you honestly don't need anything fancy. The IRS website has a tool to help you find legitimate free options based on your situation.

This is such important advice! Also worth knowing that if you file for an extension (Form 4868), you get until October 15 to FILE, but you still need to PAY by April 15. The extension only gives you more time to submit paperwork, not to pay what you owe.

That's a really good point I hadn't even thought about! My friend is living in Germany now - would they have a similar tax treaty situation? How complicated is it to claim those foreign tax credits?

Yes, Germany and Canada do have a tax treaty that should prevent double taxation. Your friend will need to report the Canadian property sale on their German tax return, but they can claim a credit for taxes paid in Canada. For claiming the credits, they'll need documentation showing the exact amount of Canadian tax paid specifically attributable to the property sale. The process isn't super complicated, but it does require careful documentation. Make sure they keep copies of their Canadian non-resident return, the T2062 form, and proof of the tax withholding and any refund they receive. German tax authorities may want to see these documents.

This is so true! My family had the same issue with a property in Montreal. The 1994 capital gains election can make a huge difference in the adjusted cost base. Also worth noting that if they ever did any major renovations, those costs should be added to the ACB as well.

Yeah, finding documentation from 20+ years ago can be a real challenge though. If they made the election back in 1994, the CRA should have it on file, but you might need to specifically request that information. Some accountants keep spreadsheets showing the impact of various capital gains changes over the years for long-term held properties. Especially important for non-residents since they don't get the principal residence exemption for years they weren't Canadian residents.

I hadn't even thought about insurance or retirement accounts! Do you have recommendations for affordable E&O insurance for a solo developer? And for the Solo 401(k), can I set that up myself or do I need to go through a special provider?

For E&O insurance, I use Hiscox which has reasonable rates for solo developers - usually $500-1000/year depending on your projects. Some clients actually require this in contracts, so it's worth having anyway. For the Solo 401(k), you can set it up yourself through providers like Fidelity, Vanguard, or Charles Schwab for free. The paperwork is a bit involved but not terrible. The huge advantage is you can contribute both as the "employee" (up to $22,500 in 2023) AND as the "employer" (up to 25% of your net earnings) for a much higher total than regular IRAs allow. Just make sure you set it up before December 31st of the tax year you want to use it for.

Adding to this - make sure you're accounting for self-employment tax (15.3%) on top of regular income tax. It catches a lot of first-time contractors off guard. You pay both the employer and employee portions of Medicare and Social Security taxes. You can deduct the employer half though.

Do all states tax capital gains? I thought some states like Florida and Texas don't have income tax, so would they still tax capital gains from property sales?

You're absolutely right - states without income tax generally don't tax capital gains either. Florida, Texas, Wyoming, Nevada, South Dakota, Washington, Alaska, and New Hampshire don't have state income taxes, so you wouldn't pay state-level capital gains taxes in those locations. However, even in those states, you still need to pay the federal capital gains tax. And some states have other property-related taxes or transfer taxes when selling real estate that could still impact your total tax burden.

Are routine maintenance costs considered capital improvements? Like, if I replaced the water heater or fixed a leaky roof, does that count? Or only major renovations?

Do you know if converting from an FSA to HSA mid-year affects the contribution limits? My company is switching our health plans in July and I already contributed to an FSA.

Yes, it definitely affects your contribution limits. When you switch from an FSA to HSA mid-year, you generally have to prorate the HSA contribution limit based on the number of months you're eligible. If you make a mid-year switch, you can only contribute 1/12 of the annual limit for each month you're HSA-eligible. However, there's something called the "last-month rule" that might help - if you're HSA-eligible on December 1, you can potentially contribute the full year's limit, but you must remain HSA-eligible through December of the following year (called the testing period) or face penalties on the accelerated portion.

Does FreeTaxUSA handle situations where you've changed jobs mid-year and have HSA contributions from two different employers? That's what I'm dealing with now.