That's really interesting - I hadn't heard about this election before. So if I eventually cut back my consulting hours and qualify as a real estate professional, I could make this election to treat all my properties as one activity? Does this need to be done the first year I qualify or can it be done in any year?

You can make the election in any year that you qualify as a real estate professional. It's done by filing a statement with your tax return that you're making this election under Section 469(c)(7)(A). Once made, the election applies to that year and all future years unless you revoke it. This is a huge benefit because without the election, you'd have to meet the material participation test separately for each property to deduct losses from that specific property. With the election, all your real estate activities are combined, making it much easier to meet the material participation standards across your entire portfolio.

I used TurboTax last year for my REPS filing and it actually does handle it pretty well. There's a section specifically for real estate professionals where you can indicate you qualify and it will then allow you to deduct your rental losses against your other income. Just make sure you have good documentation of your hours in case of an audit!

That's a smart approach I hadn't considered. Did your state make substantial changes to the template format, or did they just add sections for the new requirements? I'm trying to gauge how different the new SSR should look.

They kept the same general structure of the 2016 template but expanded several sections. The most significant changes were in the areas covering cloud environments, remote access, and encryption requirements. They also added entirely new sections for container security, mobile device management, and the updated incident response procedures. The nice thing about their template is that they clearly marked which requirements were from the 2021 revision, making it easy to see what's new. The overall document ended up being about 20% longer than the old template due to the additional controls.

This is a huge issue for us too. We're moving some systems to Azure GovCloud and trying to figure out exactly what needs to be in the SSR about it. Does anyone know if IRS accepts the FedRAMP authorization package as evidence, or do we need to document all the controls separately?

Isn't this potentially risky from an audit perspective? Using the wrong form even if the end result is similar seems like asking for trouble...especially since Form 2555 is for US citizens/residents living abroad, not for foreign citizens in the US claiming treaty benefits.

You raise a good point about audit risk. After thinking about it more, I wouldn't recommend my approach. While it worked in terms of getting the correct tax amount calculated, it's definitely not the right way to claim treaty benefits. The IRS could rightfully question why Form 2555 was used when the requirements weren't met. The proper approach is definitely what others have suggested - report the income, then use Schedule 1 with a negative adjustment and proper treaty reference. Sometimes taking shortcuts leads to bigger problems later!

Sprintax is definitely designed better for international students but it's so expensive! $85 for federal plus $45 for each state is a lot when FreeTaxUSA is free federal and $15 state. If you can figure out the treaty reporting correctly, FreeTaxUSA saves a ton.

Thanks for pointing that out! I hadn't considered that the additional 12k might push me into a higher bracket. Do you think I should make an estimated tax payment to be safe?

Based on your situation, making an estimated tax payment might be smart, especially if the $12,000 pushes your total income significantly higher than normal. If you want to play it safe, you could calculate roughly how much additional tax you might owe beyond the 20% already withheld and make a quarterly estimated payment. This would help avoid any potential underpayment penalties when you file. Better to be prepared than surprised with a tax bill you weren't expecting.

That's not actually correct for 401k withdrawals. The 20% federal withholding is mandatory for 401k plans - administrators are required by law to withhold it. You might be thinking of an IRA withdrawal, where withholding IS optional. Big difference between the two account types regarding withholding rules.

Wouldn't filing Form W-4V only work for certain government payments? My NQDC is from a private employer. And for the quarterly estimated payments - wouldn't I potentially face underpayment penalties if I reduce them too much, even if I know I'll get a big refund later?

You're absolutely right about Form W-4V - I misspoke. For employer payments, you'd use a regular Form W-4. My apologies for the confusion! Regarding estimated tax payments, you're also correct to be concerned about underpayment penalties. However, the IRS has a "safe harbor" provision - if you pay at least 90% of the current year's tax or 100% of the prior year's tax (110% if your AGI exceeds $150,000), you won't face penalties. So you could potentially use last year's tax liability as your guide for this year's payments, taking into account the expected overwithholding from your NQDC distribution.

That's not accurate for NQDC distributions. While there are mandatory withholding rates for some supplemental wages (like bonuses), NQDC distributions definitely allow for either the aggregate method or the flat rate method. The issue here is that the employer is choosing the method that creates an artificially high withholding rate by annualizing a single payment. The mandatory withholding for supplemental wages over $1 million is 37%, but that's only for the portion above $1M. For someone receiving $165k annually, that's not even relevant.