5 Do you know if there are any exemptions for inherited property at the state level? I'm dealing with a similar situation but in Washington state, and I've heard rumors about special provisions for family transfers.

17 State exemptions vary widely. Washington has an estate tax with exemptions for certain family transfers, but it's separate from capital gains considerations. Some states offer partial exemptions for inherited family farms or primary residences. The best approach is to check directly with your state's revenue department. Each state has different thresholds, rates, and exemptions. These rules change frequently too, so make sure you're looking at current information for the tax year when you'll sell.

12 My family did this with my grandma's farm property. We sold it in three separate transactions over three tax years. It helped keep us in lower capital gains brackets each year rather than one massive hit. You need to be careful though - there are rules about "related party transactions" and "installment sales" that might apply. We had to structure each sale as truly separate (different parcels to different buyers) to avoid IRS scrutiny.

I haven't been getting pay stubs! That's part of the problem - they just direct deposit the money and when I've asked for stubs they say "we'll email them" but never do. Is that even legal? How do I know if they're actually sending the money to the IRS if I don't get pay stubs?

That's concerning. Employers are legally required to provide either electronic or paper pay statements in most states. If they're not providing pay stubs, that's another red flag pointing to potential financial issues at the company. You can check if they're remitting your taxes by creating an account on the IRS website and viewing your wage and income transcript. It won't show real-time data, but you'll eventually be able to see if they're reporting your withholding properly. This is definitely a situation to stay on top of because if they're having financial troubles, tax withholding is often one of the first things struggling businesses stop remitting properly.

The IRS withholding calculator is definitely helpful but I found it confusing at first. Did you end up withholding enough to cover what you would owe? I tried using it but wasn't sure if I did it right.

Couldn't this be considered some kind of tax avoidance scheme? I thought the IRS had rules against transferring assets just to create tax advantages?

Transfers between spouses are explicitly allowed under IRC Section 1041, which states that "no gain or loss shall be recognized on a transfer of property from an individual to a spouse." This isn't considered tax avoidance but a legitimate planning strategy. The key distinction is that my spouse is genuinely a different taxpayer with a separate SSN. Once the assets are transferred, they legitimately belong to my spouse, who then has the right to select their preferred cost basis method for those newly acquired shares. This differs from trying to change the method on your own shares after you've already made an election.

Those robo-advisors typically use specific identification method from the start, so they avoid the average cost basis problem entirely. But they won't help with existing mutual fund positions that are already using average cost basis. You'd have to sell everything (potentially creating a taxable event) and then move to their platform.

Thanks, that makes sense. I guess there's no easy solution once you're stuck with average cost basis. I'll make sure to use specific identification for any new investments going forward.

That's a really good point! Should I also get a copy of his tax return showing he included the income? Or is that too much to ask?

Getting a copy of his tax return would be ideal, but many people aren't comfortable sharing their full tax returns. At minimum, I'd ask for a signed statement that acknowledges the specific dollar amount from the 1099-K and confirms he included it on his Schedule C or business return. If he's willing to provide a redacted copy of his Schedule C showing the income line that includes these sales, that would be even better. The more documentation you have showing this was handled properly and wasn't an attempt to evade taxes, the better positioned you'll be if there are ever questions.

Did the IRS ever contact you about the mismatch between the 1099-K with your SSN and your tax return before you filed the nominee forms?

Is this really true? I thought there was always a penalty for filing late regardless of whether you owe money or are getting a refund.

Yes, it's absolutely true! The IRS only charges penalties and interest when you owe them money and pay late. They have no incentive to penalize people who are owed refunds - they're actually saving money by holding onto your refund longer! The only "penalty" for filing late when you're due a refund is that you lose the refund entirely if you wait longer than 3 years from the original due date. So for 2020 taxes, you'd lose your refund if you don't file by May 17, 2024. But there are no failure-to-file penalties or interest charges when you're getting money back.

This! I thought I just had a "simple return" for 2020 but turned out I qualified for education credits from some classes I took that year. Added almost $1000 to my refund that I wouldn't have gotten if I just rushed through it.