Wait seriously? I had no idea about the Roth IRA limitation! I thought the income limits were just reduced, not basically eliminated. That's a huge factor to consider...

Yes, it's one of the most restrictive aspects of filing separately that catches people by surprise. The income limit for Roth IRA contributions when filing separately is just $10,000 - after that, you can't contribute at all. It's not a gradual phase-out like with other filing statuses. For comparison, with married filing jointly in 2024, the Roth contribution starts phasing out at $230,000 and completely phases out at $240,000 of modified AGI.

This is the approach we took. My wife is a public school teacher going for PSLF, so we file separately to keep her payments low. Yes, we pay more in taxes each year, but after running the numbers, we'll come out ahead by about $42,000 over the 10-year forgiveness period.

Wait, really? I didn't know that scholarships would reduce the amount I can withdraw penalty-free. My daughter did get about $15K in merit scholarships. So I would need to subtract that from the total expenses before figuring out my penalty-free withdrawal amount?

Yes, that's correct. Any tax-free educational assistance must be subtracted from your qualified expenses before calculating your penalty-free withdrawal amount. This includes tax-free scholarships, Pell grants, employer-provided educational assistance, and veterans' educational assistance. In your case, if your daughter received $15K in merit scholarships, you would subtract that from your total qualified expenses. So if tuition is $80K and other qualified expenses are, say, $10K, your total qualified expenses would be $75K ($90K minus the $15K scholarship) rather than the full $90K.

This is actually an important timing consideration. The IRS requires that the IRA withdrawal occur in the same tax year that you pay the qualified education expenses. If you pay tuition in December 2025 (which is in tax year 2025), but take the IRA withdrawal in January 2026 (tax year 2026), you wouldn't be able to connect those specific education expenses to your withdrawal for the penalty exception.

Thanks for clarifying that! Guess I need to time my withdrawal more carefully than I thought. I'll make sure to take out the money before the end of December since that's when I'll be paying the spring tuition bill.

So when they say "voluntary tax system" that's basically BS right? Like they WILL come after you eventually? I always thought it was more like "we hope you'll pay but if you don't we might not notice" lol.

Voluntary tax" system means'you re expected to calculate and report your own taxes correctly without the government doing it for you first. It'doesn t mean taxes are optional! The IRS receives information from banks, employers, payment processors, etc., and their systems automatically match that information against filed returns. If you'haven t filed but they have records of your (income like 1099s from clients or bank)deposits , their automated systems will eventually flag your account for non-filing. Sometimes it takes years if'you re not on their radar, but digital records have made it much easier for them to catch non-filers. And once they do notice, they can go back indefinitely for unfiledyears.

I used FreeTaxUSA for 3 years of back taxes last year. Way cheaper than TurboTax and they keep prior year versions available. You just have to print and mail them in since you can't e-file prior years. Make sure you send them certified mail so you have proof of when you filed. Took about 9 weeks to process each return.

If I file an amended return just for the stimulus credit, will that affect any other parts of my tax situation from that year? I'm worried about opening a can of worms or triggering an audit.

Filing an amended return for just the Recovery Rebate Credit shouldn't affect other aspects of your tax situation if that's the only change you're making. You'll need to complete the entire 1040-X form, but you'll only be changing the specific line related to the credit. The amendment itself doesn't increase your audit risk if the claim is legitimate. Just make sure you have documentation showing you were eligible and didn't receive the payment. The IRS should have records of which payments were issued to you, but having your own bank statements as backup is always smart.

You can check your IRS online account instead. Go to irs.gov and look for "View Your Account." You'll need to create an ID.me account if you don't have one, but once you're in, you can see all the payments that were issued to you including all stimulus payments. It's actually more reliable than the old GetMyPayment tool was.

Do you know if loans from the foreign owner to the U.S. DE need to be reported differently than contributions? I paid some formation costs directly but also "loaned" money to the business with the intention of repayment.

Yes, loans are treated differently than contributions. Loans would be reported separately in Part V, and you need to be careful to document the loan terms properly. A loan should have a written agreement, specified interest rate (even if it's 0%, though that could raise other tax issues), and a repayment schedule. Without proper documentation, the IRS might recharacterize what you call a "loan" as actually being a contribution, which can have different tax implications. If you're planning to have the business repay you, definitely document it as a formal loan from the beginning.

I tried TurboTax and H&R Block - neither handled Form 5472 properly for foreign-owned DEs. Ended up using a specialized international tax preparer who charged $800 just for this form.