Couldn't this still trigger an audit though? Especially if the bonus happens right before the wedding?

You're right to be concerned about timing. Any bonus right before the wedding could appear suspicious if audited. The key is making sure it's reasonable compensation for actual work performed. If they're legitimate employees with a history of employment, and the bonus is in line with what you'd pay other employees for similar contributions, you're on safer ground. Documentation is crucial here - performance reviews, bonus criteria, and a consistent bonus program for all employees would help substantiate the business purpose. But if they've never worked for you before and suddenly get a "job" with a big bonus right before their wedding, that's pretty much asking for trouble.

TurboTax is okay but I've found it doesn't catch some of these nuanced situations. It'll let you enter whatever and won't necessarily flag potential issues. I learned this the hard way last year.

I sold some ISO shares last year that I had exercised 3 years prior. The broker reported the sale on Form 1099-B but only included the exercise price as my basis, not any AMT adjustments I had previously paid. I had to manually adjust my basis on Schedule D to avoid double taxation. The IRS never questioned it, but I kept meticulous records including my original Form 3921 and the tax return where I reported the AMT adjustment. My understanding is that the IRS systems don't automatically cross-reference your old 3921, so good record-keeping is essential.

Thanks for sharing your experience. That's helpful to know about the 1099-B only showing the exercise price. I'll make sure to keep all my 3921 forms and tax returns so I can properly adjust my basis when I eventually sell. Sounds like the burden is really on us to track everything correctly.

That's a smart idea I hadn't thought about. Would I just put it in as an informational note or is there a specific way you'd recommend documenting it?

Most tax software has a section for notes or additional information you want the IRS to see. I'd simply list "Received Form 3921 for ISO exercise - below AMT threshold" and include the company name, number of shares, exercise date, and FMV. If there's a miscellaneous forms section, you could also add a brief statement there. The key is to acknowledge you received the form while making it clear there's no tax impact for this year. This creates a paper trail showing you weren't trying to hide anything.

That's actually really helpful! Some of my payments go directly to their health insurance and not to my ex. Would that part be deductible? And our decree just says she gets to claim them as dependents since they live with her over 50% of the time.

If you're paying for health insurance directly (not through your employer but actually writing separate checks for their coverage), you might be able to include that amount as a medical expense deduction if you itemize and your total medical expenses exceed 7.5% of your AGI. It's not a direct deduction for child support, but it could help. Regarding your decree saying she claims them - that's pretty standard unfortunately. Your best bet might be to see if she'd be willing to give you Form 8332 for one child in alternating years, which some co-parents do to make things more equitable. Sometimes offering to split any additional refund can help persuade them.

This is actually really smart. I do this too - my state gives a deduction up to $4000 per year for 529 contributions. It's not federal but still saves me about $200 in state taxes while saving for my kid's college.

Thanks for mentioning the quarterly payments - that's something I hadn't considered at all. Do you know what the threshold is for when we need to start making those payments?

Generally, you should make estimated tax payments if you expect to owe at least $1,000 in taxes when you file your return AND your withholding and credits will cover less than 90% of your current year tax or 100% of your previous year's tax (110% if your AGI was over $150,000). For active traders, it's almost always smart to make quarterly payments because the gains can be unpredictable and substantial. You can use Form 1040-ES to calculate and make these payments. The due dates are April 15, June 15, September 15, and January 15 of the following year.

Oh yeah, wash sales can be a HUGE issue for day traders. If you sell a stock at a loss and then buy it again within 30 days before or after the sale, you can't claim that loss immediately. Instead, the loss gets added to the cost basis of the new purchase. For casual investors, this isn't a big deal, but for day traders who might be trading the same stocks repeatedly, it can create a massive tax tracking headache. Most tax software struggles with tracking this properly across multiple brokerages.

Good point about state taxes - I hadn't even thought about that angle. Do you know if taking cash out triggers state tax obligations in the states where the previous properties were located? Or is it just based on my current state of residence?

It primarily depends on your current state of residence, but some states can get complicated if properties were located there. For example, California is notorious for trying to tax the deferred gain when California property is exchanged for out-of-state property. In your case, since you previously owned property in Washington state, you're probably fine there as Washington doesn't have state income tax. Nevada also doesn't have state income tax, so no concerns with your current property. But wherever you're currently a resident will likely want their share of your recognized gain from the cash boot you're taking out.

This is so important! My brother did a partial 1031 last year and his QI made an error in the documentation that led to the entire exchange being disqualified. He ended up owing tax on the FULL gain, not just the cash he took out. Make sure you use a reputable QI who specializes in these partial exchanges.