I've heard about CNC status but wasn't sure if it would apply in this case. Would the IRS consider CNC even if my client has consistent income? Their issue is more that the total amount is overwhelming rather than having no income at all.

CNC status is based on ability to pay after necessary living expenses, not just on having income. If your client's income is being consumed by reasonable living expenses with nothing left over, they could still qualify. The IRS uses their Collection Financial Standards to determine what counts as necessary expenses. Have your client document all their actual expenses - housing, utilities, food, healthcare, transportation, etc. If these legitimate expenses leave little to nothing for tax payments, they have a case for CNC status even with steady income. The IRS would rather put someone in CNC temporarily than force them into a payment plan they can't maintain.

Be careful with this advice! The 10-year clock doesn't start until the tax is assessed, which can't happen until the return is filed. For unfiled returns, the clock hasn't even started ticking yet. Plus, certain actions can extend that 10-year period, like requesting an installment agreement or filing bankruptcy.

The charitable remainder trust is interesting but wouldn't work in my case since I don't own the asset - it's just a profit share agreement that pays out when the company sells. Could opportunity zone investments still work after I receive the payout? How quickly would I need to invest in one after getting the profit share payment?

You're right about the CRT - it only works for assets you currently own, not future payments you'll receive. Sorry I missed that detail. For opportunity zone investments, you generally have 180 days from realizing the capital gain to reinvest into a qualified opportunity fund. So you could potentially use this strategy after receiving your profit share payout. The deferral benefits aren't as strong as they were initially, but you can still defer the tax until 2026 and potentially reduce your taxable gain by 10% if you hold the investment long enough.

Installment sales are complicated though right? I tried to do one last year and my tax software couldn't handle it - ended up needing to pay an accountant extra to file correctly.

Thanks for sharing your experience! So with your holding LLC structure, do you just file one partnership return for the holding LLC, or do you still need to file for each property LLC as well? I'm trying to understand the administrative burden.

With my structure, I only file one partnership return (Form 1065) for the holding LLC. The individual property LLCs are treated as "disregarded entities" for federal tax purposes since they're single-member LLCs owned by the holding LLC. This significantly reduces tax preparation costs and paperwork. You'll still need to maintain separate books for each property for good management practices, but the tax filing burden is much lighter. Note that state requirements vary - some states may require separate filings or have annual fees for each LLC regardless of tax status. In my case, the administrative simplification at the federal level has been a big advantage.

That's a really important consideration. For real estate investors, the QBI deduction can offer up to a 20% deduction on qualified business income. With pass-through entities (LLCs taxed as partnerships, S Corps, or disregarded entities), you generally preserve your ability to claim this deduction. C Corps aren't eligible for the QBI deduction, which is another reason they're often not ideal for real estate holdings. Also, if your income is above certain thresholds, having your properties in the right structure becomes even more important to maximize QBI benefits.

Thanks for that strategy idea! How do you determine what the right split is between using 529 funds versus other money? Do you need to keep really detailed records to show which expenses were paid from which source?

The ideal split depends on maximizing your education credits. For the American Opportunity Credit, you need $4,000 in qualified expenses to get the full $2,500 credit. So I typically recommend paying at least $4,000 of tuition/fees from non-529 sources, then using 529 funds for remaining tuition and all room/board expenses. Yes, good record-keeping is essential! Keep copies of all tuition statements, receipts for books/supplies, and documentation showing which payment method was used for each expense. I create a simple spreadsheet each semester showing expense type, amount, date paid, and payment source. This has been extremely helpful during tax season and would be crucial documentation if ever audited.

Is there a specific form you need to file to elect to treat the 529 distribution as taxable? Or do you just report it differently on your regular tax forms?

Thank you for these clear steps! Quick question - if my shares were sold at slightly different prices throughout the day (not all exactly at the FMV at exercise), does that change how I should calculate the adjustment?

No problem! If your shares were sold at slightly different prices throughout the day, that doesn't change how you calculate the basis adjustment. The adjustment is still (FMV at exercise - original option price) × number of shares sold. The selling prices will determine if you have any additional short-term capital gain or loss after the adjustment. For example, if FMV at exercise was $106.63, but some shares sold for $106.80 and others for $106.40, you'd have a small gain on some and small loss on others. But the basis adjustment calculation is the same regardless of the actual sale prices.

Yes, you'll absolutely need to make the same type of adjustment when you eventually sell. The key is that when you exercised the options, you already paid ordinary income tax on the spread between your grant price and the FMV on exercise date. That spread was included in your W-2 income for the year you exercised. Your new cost basis becomes the FMV on the date you exercised, not the original grant price. When your broker issues a 1099-B after you sell, they'll likely show the original grant price as your basis, so you'll need to make that same Form 8949 adjustment to avoid being taxed twice on the same income. Keep good records of your exercise date and the FMV on that date!