Oh wow, I hadn't even considered local taxes! I know I'll be working in Chicago for about a month - does anyone know if they have special local tax requirements? This is getting more complicated than I expected.

Chicago doesn't have a city income tax like some other major cities, so you're safe there. You'll just need to deal with Illinois state income tax for the period you're working in Chicago. However, if your contract takes you to New York City, Philadelphia, San Francisco, or certain cities in Ohio or Michigan (among others), you'll need to account for local income taxes as well. It's definitely worth researching each location before you go. Some cities have very low thresholds - Philadelphia, for instance, starts taxing non-residents from day one of working there.

The fees vary wildly by state. When I registered my LLC in Nevada, Colorado and Texas last year, the initial registration fees were around $150-200 per state. But then many states also have annual report fees or franchise taxes. California is notoriously expensive with their $800 minimum franchise tax regardless of whether you make any money there.

My friend tried to catch up on his taxes and ended up owing way more in penalties than actual taxes. Is there any way to avoid that or at least reduce those penalties?

How do you get your IRS transcripts? Do you have to call them or can you get them online?

Thanks for the insight! So just to be clear, since the GoFundMe was specifically to help with flood damage repairs and donors didn't get anything in return, I probably don't need to report it as income? Do I need to keep any specific documentation besides the withdrawal statements from my bank?

That's correct - funds received as gifts to help with your personal hardship (like flood damage) with no goods or services provided to donors would generally be considered non-taxable gifts. The IRS doesn't require you to report gifts you receive on your tax return. I would recommend keeping documentation that clearly shows the purpose of the GoFundMe campaign (screenshots of the campaign page would be ideal), records of the deposits to your bank account, and documentation of how you used the funds for flood repairs (receipts, invoices, etc.). While this might seem excessive, having this documentation will make things much easier if questions ever arise.

Actually the $600 threshold has been delayed AGAIN for 2023 tax year too! They're still using the $20,000/200 transactions threshold. The $600 threshold keeps getting pushed back because of all the confusion it would cause.

Do the penalties keep getting worse the longer you wait? I'm in the same boat but haven't done anything about it yet...embarrassed to admit I've been procrastinating dealing with this for months.

Yes, the penalties definitely increase the longer you wait. They start at $50 per form if you're less than 30 days late, then jump to $110 per form if you're between 30 days and August 1, and finally to $290 per form after August 1. Plus, if they determine you intentionally disregarded the filing requirement, it can go up to $580 per form! So my advice is to stop procrastinating and file ASAP. Even if you're already in the higher penalty bracket, it's better to file now than wait and risk being accused of intentional disregard.

I successfully used reasonable cause last year! Had to include a letter explaining the situation (in my case, a family emergency and a computer crash that lost my records) along with Form 843. Took about 2 months but they waived all penalties. Make sure to be specific about exactly how your situation prevented timely filing, and include any documentation you can.

Would the installment sale thing be obvious on the K-1? Mine has so many attached statements and codes that I can barely make sense of it. Is there a specific form or attachment I should be looking for?

The installment sale election would be indicated on your K-1 with box 6c checked (it's labeled "Net section 1231 gain"). Then there should be an attached statement with "Form 6252" or "Installment Sale" in the title that breaks down the gross profit percentage. If your K-1 doesn't have this, ask your company specifically whether they're reporting the transaction as an installment sale. If they're not, you unfortunately will have to recognize the full gain in the current year. In that case, you should request a "tax distribution" to cover the taxes on income you haven't actually received yet - most partnership agreements have provisions for this.

I went through an audit last year because of exactly this situation. The key was having detailed documentation from the company explaining exactly how they calculated the reported gain and why the distribution was lower. The IRS actually understood the concept pretty well once I provided the paperwork. Make sure you get: 1) The original PIU agreement, 2) Documentation of the sale transaction, 3) Calculation of your proportional interest, and 4) Explanation of why distributions differed from allocated gain. With those four things, my audit was resolved in my favor.