Wait you can file differently on state vs federal? I had no idea! How complicated is that to do? I'm using TurboTax and wondering if it handles this automatically.

Yes, in many states you can absolutely file differently! Most tax software should handle this automatically by calculating which method is most beneficial for each return. TurboTax definitely does this - it will recommend the best filing method for both federal and state returns separately. It's actually not complicated at all from your perspective. The software does all the work of determining whether you should itemize or take the standard deduction at each level. You just need to input all your potential deductions (mortgage interest, property tax, charitable donations, etc.) and let the program determine the optimal approach for each return.

Good point about the interest decreasing over time. Do mortgage refinances reset this pattern? Like if I refinance after 10 years, will I go back to paying mostly interest again?

Thanks for the TaxSlayer suggestion! I hadn't heard of that one. Is it pretty straightforward for first-time filers? And good tip about waiting until February - I was planning to file right away but it makes sense to let them work out the bugs first.

TaxSlayer is definitely straightforward for first-timers. They use a guided interview process similar to TurboTax but without all the upselling. The help content isn't quite as extensive, but still good enough for most situations. One other tip - whatever service you choose, create your account now and start entering basic info like personal details and W-2s as they come in. That way you're not trying to do everything at once when you're ready to file. Most services save your progress so you can work on it a little at a time.

Just be careful with Cash App Taxes if you have anything complicated. They don't support multi-state filing, rental properties, or foreign income. But for W-2 and basic 1099 income it works great!

That's an interesting option I hadn't considered. How does the income work from something like that? Is it comparable to what you might get from a rental property? And would I still qualify if I'm coming from a partnership LLC structure?

The income from a DST is typically distributed monthly or quarterly and is generally comparable to what you might see from a rental property, usually in the 4-6% range depending on the specific trust. Many DSTs focus on stable, long-term leased properties like corporate office buildings or industrial spaces. Yes, you would still qualify coming from a partnership LLC structure, though there are some complexities to navigate. Each partner in your LLC would need to be treated as an individual investor in the 1031 exchange process. You would likely need to either dissolve the partnership before the exchange or have the partnership itself invest in the DST, depending on your specific situation and goals.

This is actually smart advice. I did something similar last year. Refinanced my rental property at 4.5% and used the cash to buy into a local business. The interest is deductible as a business expense too if you structure it right.

That's actually a risky approach. The IRS automated matching system will flag your return because the total W-2 income they have on file will be higher than what you reported. This almost always triggers a notice or even an audit. When the IRS computers see two W-2s but you only report one, they assume you're underreporting income. You'll likely receive a CP2000 notice proposing additional tax on the "unreported" income. Then you'll have to go through the explanation process anyway, but now with the added stress of responding to a formal IRS notice with deadlines and potential penalties. It's much better to be proactive about addressing the duplicate reporting before it becomes a bigger issue.

That makes sense, thanks for explaining! I definitely don't want to trigger any automatic flags or get one of those scary IRS letters. Seems like being proactive is the way to go, even if it means more work upfront.

This is super helpful, thank you! I'm going to follow these steps. Did you mail in your return instead of e-filing to include all those attachments? Or is there a way to add explanation docs with e-filing?

I ended up mailing in my return because at the time (2019) there wasn't a great way to attach all that documentation with e-filing. However, many tax software programs now allow you to upload PDF attachments with your e-filed return. If you're using software like TurboTax or H&R Block, look for an option like "Add an Explanation" or "Upload Supporting Documents" in the filing section. If that's not available, you might need to mail in your return with all the documentation. It's a bit more work, but worth it to avoid headaches later. The most important thing is documenting everything clearly so when the IRS automated system flags the discrepancy (which it probably will), you've already provided a clear explanation.

Thanks for bringing this up! I actually don't have any camera equipment yet - I've been using my ancient phone which takes terrible photos. The new phone would be my only photography equipment. Do you think that makes the case stronger for it being a legitimate business expense?

Yes, that definitely strengthens your case for the business expense deduction. When it's your only photography equipment and directly tied to improving your product listings, it's much easier to justify as a necessary business expense. Just make sure to keep good documentation - save your current product photos, then take new ones with the new phone to show the improvement. This before/after comparison can be extremely helpful if you're ever questioned about the business necessity. Also keep any feedback from customers or analytics showing that better photos improved your sales conversion rate.

This is super important! In the UK the VAT threshold is £85,000 - are you anywhere near that with your Amazon sales? If not, you probably aren't VAT registered yet.