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.

Thanks for confirming what I suspected. Do you think I should just file the taxes normally and have him reimburse me for the extra amount I'll owe? Or is there a better way to handle this without getting him in trouble?

You should definitely report the income properly on your return since it's tied to your SSN. Have your uncle calculate exactly how much extra tax you're paying because of his income and reimburse you that amount - including the self-employment tax portion which is significant. If you want to do everything by the book, the proper way would be for him to pay you the full amount shown on the 1099, then you pay the taxes, and he would have no tax obligation. But most families just calculate the tax impact and have the actual earner reimburse that amount. Just make sure you keep documentation of everything in case of an audit.

This is terrible advice that could lead to penalties, interest, and potentially an audit. The IRS automatic matching system WILL flag the missing 1099 income and generate a CP2000 notice. By that point, penalties and interest will already be accruing.

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.

I actually hadn't considered bonus depreciation! That's a great point. I vaguely remember TurboTax asking something about "Section 179" and I think I might have said yes without fully understanding what it meant. Would that explain such a big difference?

Yes, that would absolutely explain the difference! Section 179 expensing and bonus depreciation can make a huge difference in the first year. Instead of depreciating certain components over their normal useful life (5-7 years for appliances, 15 years for land improvements, etc.), you can deduct the full cost in year one. If you applied Section 179 to eligible components of your rental properties in TurboTax, you might have fully deducted thousands of dollars worth of appliances, carpet, window treatments, etc., which would make your first-year depreciation much higher. FreeTaxUSA is probably calculating just the regular residential real estate depreciation (building value ÷ 27.5 years) without any bonus components.

This is what I was thinking too. If the total cost basis for all three properties was $758,175, but you're only entering one property into FreeTaxUSA, that would definitely cause a mismatch.

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.