Do those charitable deductions really offset the taxes they would have paid though? I always assumed the math wouldn't work out since you're giving away the whole asset value to save a percentage in taxes.

You're right that the pure math doesn't work out if you're only thinking about tax savings - you'll always have more money if you just pay the taxes instead of donating the entire asset. The charitable deduction typically saves you your marginal tax rate (37% federal for top earners) plus potentially state taxes. However, the strategy makes sense when combined with genuine philanthropic goals. By donating appreciated stock, you avoid capital gains tax (up to 23.8% federal) that would have been due if you sold first and then donated cash. You also get the deduction for the full market value. So while you're giving away the asset, you're doing it in the most tax-efficient manner possible.

Don't they have to pay taxes on those perks though? I thought if a company pays for personal expenses it counts as compensation and is taxable?

Thanks for bringing this up! Client is in multiple states (TX, FL, and NY) - do you know if NY has specific requirements? Completely forgot about the state angle.

New York does have specific requirements. They generally conform to federal for the fiscal year change itself, but you need to file Form CT-300 to report the change for corporation franchise tax purposes. They're particularly strict about timely notification. Texas doesn't have a specific form but requires a letter of explanation attached to the franchise tax report covering the short period. Florida is generally easier - they usually just require that you check a box on their form F-1120 indicating it's a short-year return and provide an explanation.

QBI for short years needs to be annualized for the wage/capital limitation tests. Multiply the QBI by 12 and divide by months in short period. This applies to the 50% of W-2 wages test and the 25% wages plus 2.5% of unadjusted basis test. Easy to miss but important!

Thank you for this suggestion! I didn't even think about checking with the state unemployment office. He did have health insurance through one of the jobs so we'll definitely reach out to the insurance company as well. Do you remember what department specifically you had to contact at the state level? Was it just the general unemployment office or did you have to ask for a specific record-keeping division?

I contacted the wage record unit within the state's Department of Labor. Most states have a division that handles wage reporting from employers for unemployment tax purposes. Just call the main unemployment office number and ask to be directed to whoever maintains employer wage records. For the health insurance angle, you'll want to contact the member services department and explain you need the employer information for tax purposes. Sometimes they'll need a written request, but in my experience, they were pretty helpful once I explained the situation.

Actually the deadline for 2020 refunds would be May 17, 2024, since the IRS extended the filing deadline that year because of covid. But your point is totally valid - time is running out to claim any refund from 2020!

Do you know if you can request the first-time penalty abatement when you file the late return, or do you have to wait until after they assess the penalties?

You typically need to wait until after the IRS assesses the penalties before requesting first-time penalty abatement. So you'd file your late return, receive a notice from the IRS about penalties, and then call them to request the abatement. When you call, specifically ask for "first-time penalty abatement" and explain that you have a clean compliance history for the previous three years. They'll check your records, and if you qualify, they can often approve it during that same call. It's definitely worth doing - the penalties can add up quickly on late returns!

Are you sure about that? I thought the IRS requires you to file regardless of whether you're getting a refund or not. I've always heard not filing is illegal even if you don't owe anything.

Can you explain how you calculated the right withholding amount? I always end up with either a huge refund or owing money, and I can never get it right.

I used the IRS Tax Withholding Estimator on their website, which accounts for your total income, filing status, dependents, and expected deductions. The key is inputting accurate info about all income sources and any pre-tax deductions like 401k or health insurance. For a more manual approach, I take my expected annual income, subtract deductions, calculate the total tax using the brackets, then divide by the number of pay periods. This gives me the amount that should be withheld each period. If it differs from what's actually being withheld, I adjust my W-4.

This bucket analogy makes so much sense! I've been trying to explain this to my partner for years. Quick question though - do tax credits affect the effective rate differently than deductions? Like if I get a $2,000 child tax credit vs a $2,000 deduction?