This is super helpful, thanks! Question - does the 500 hour requirement have to be exact? Like do I need to document every single hour I worked on my side business?

You don't need to document every minute, but you should have reasonable support for your hour claims if you ever get audited. The IRS doesn't require a specific format - you can keep logs, calendars, appointment books, or even create summaries based on your regular schedule. The key is having something contemporaneous (created around the time of the activity) rather than trying to reconstruct everything years later if you're audited. For a side business where you're close to the 500-hour threshold, I'd recommend at least tracking days worked and approximate hours per day. If you work a very regular schedule, you might be able to create a reasonable calculation (like "I work every Tuesday and Thursday evening for 4 hours, plus every other Saturday for 8 hours" = approx 520 hours per year).

This happened to me too! Turned out they were trying to determine if I qualified for a green jobs tax incentive since I work in environmental remediation. The form was poorly worded and looked like it was questioning my employment status, but really they were trying to give my employer a tax break for hiring people in my field.

I hadn't even thought about future capital gains implications! So you're saying if we sell the property later at say $500,000, our share of the gain would be based on the original $195,000 purchase price rather than the $410,000 value when we were added to the deed? That's a pretty big difference in potential tax. Is there any way around this, or would it be better tax-wise to inherit the property later instead of being added to the deed now?

That's exactly right. If you sell at $500,000 and your share of the original basis is based on the $195,000 purchase price, you're looking at a much larger capital gain than if you had a stepped-up basis from inheritance. From a pure tax perspective, inheriting property is often more advantageous than receiving it as a gift because of the stepped-up basis. However, there are non-tax reasons your parents might want to add you to the deed now - like avoiding probate or starting to transfer ownership during their lifetime. Another option worth exploring is whether your parents could sell you a partial interest in the property at its current fair market value. This would establish your basis at today's value. They could potentially do this as an installment sale or even forgive the payments as annual gifts under the exclusion amount. This gets complicated though, so definitely consult with a tax professional who specializes in real estate transactions.

This is super important! My family did something similar in California and got hit with a massive property tax increase because the transfer triggered a reassessment. We had no idea that would happen.

Thank you! This sounds very similar to what might have happened to me. Did your husband end up owing taxes on the distribution? And did he have any luck getting the money back after all that time?

Yes, he did owe some taxes because they processed it as a distribution rather than a direct rollover, which was super annoying. We had to pay about $1,600 in taxes on it. We probably could have fought it, but the amount wasn't worth hiring a tax pro for. He was able to claim the remaining money though! We contacted the company, verified his identity, and they sent a check for the remaining amount (after the withholding they'd already taken out). Took about 3 weeks to get the check. If your situation is similar, definitely call them ASAP to claim your money before it potentially gets sent to the state as unclaimed property.

That unclaimed benefits site is legit. I found an old pension I didn't even know I had from a summer job in college. Only about $3,200 but hey free money!

Does your S-corp pay you a reasonable salary too? I heard the IRS gets suspicious if you do the rental agreement but don't take much salary since it looks like you're trying to avoid payroll taxes. Wondering how you balance this?

Yes, absolutely! I pay myself a salary of $92,000 which is in line with industry standards for my role and region. The rental agreement is completely separate from my salary arrangement. The IRS does indeed look closely at S-Corps that try to avoid payroll taxes by taking distributions instead of reasonable compensation, so I'm careful to maintain proper documentation for both arrangements. The home office rental is properly documented with a formal lease agreement, market rate analysis, and clear separation from my compensation structure. My accountant reviews everything annually to make sure I'm in compliance.

A friend of mine did! He didn't properly document the switch from Schedule C to S-Corp and didn't set up either an accountable plan or rental agreement. The IRS disallowed a bunch of home office expenses his S-Corp had been deducting and hit him with penalties. They were especially interested in the depreciation from his Sch C years. Make sure you have proper documentation!!!

Doesn't mail forwarding take a long time though? I've heard it can delay mail by 1-2 weeks, which could be risky for time-sensitive tax documents.

In my experience, there was about a 3-5 day delay when I first set it up, but after that it worked consistently. You're right that it's not instantaneous like having someone check a local PO box. If you're concerned about time-sensitive documents, you might want to contact the senders directly (employers, banks, etc.) and change your address with them temporarily or opt for electronic delivery where possible. That's more reliable than depending on mail forwarding for critical documents.

Filing Form 8822 is really only necessary for a permanent address change. For a temporary situation, it's overkill and might actually cause confusion. The IRS processes those form submissions manually and it can take weeks or months to update in their system.