Thanks for this perspective! Since I'm planning to sell soon, adding it to the basis makes the most sense for me. Do I need any special documentation beyond the receipt and my communication with the builder to prove this should be part of my basis?

You'll want to keep the inspection report, receipt, and any communication with the builder or HOA that shows the inspection was necessary due to building defects. Also document that other units had confirmed mold issues, as this strengthens your case that the inspection was a necessary expense related to your property. For your basis calculation, maintain a file with all improvement costs, including this inspection. When you sell, you'll use IRS Form 8949 and Schedule D to report the sale, where your adjusted basis will offset the sale proceeds to determine your gain or loss.

This is exactly what I did when I had water damage in my apartment! The landlord paid the testing company directly and it saved me from dealing with any tax headaches. Definitely the cleanest solution if the builder is willing to do it.

Is there some calculator you can use to figure out the right withholding amount? I always struggle with this and either get a huge refund or end up owing.

Yes, the IRS has a Tax Withholding Estimator on their website that's pretty accurate. Just google "IRS withholding calculator" and it should be the first result. You'll need your most recent pay stub and tax return handy when you use it. The calculator will tell you exactly how to fill out your W-4 based on your specific situation. It even lets you adjust whether you want a bigger refund or more money in each paycheck. I use it every time I get a raise or my life circumstances change, and it's kept my tax bill/refund pretty balanced.

Exactly this. I work in payroll and see this all the time. Payroll systems calculate withholding based on the assumption that each check is what you'll make all year. So if you get a raise midyear, the system doesn't know about your previous lower income months and doesn't withhold enough.

That's a great point about midyear raises. The payroll system treats each check as if you've been making that amount all year, which can lead to significant underwithholding. This is especially true for bonuses or people who get promoted partway through the tax year.

That's a really good point I hadn't considered. My first LLC does own the building where we operate. Would the self-rental rules apply even after the restructuring since I'd still be the ultimate owner through the second LLC?

Yes, the self-rental rules would still apply even after restructuring. The IRS looks at the ultimate ownership when determining whether these rules kick in. Since you'd still be the ultimate owner of both entities (you own the second LLC which owns the first LLC), any rental payments between them would be subject to scrutiny. The main thing to be aware of is that rental income in this situation is typically treated as non-passive, regardless of your level of participation. This means you can't use these rental losses to offset other passive income. It can significantly impact your tax planning if you were counting on those losses.

What ratio did you end up using between salary and distributions that the IRS was ok with? I've heard everything from 50/50 to 70/30 but never from someone who actually went through an IRS review.

How difficult was it to set up the TOD? Does it offer any advantages over just naming them as regular beneficiaries? I'm trying to keep things as simple as possible while still maximizing the tax benefits.

Setting up the TOD was extremely simple - just a form from my brokerage firm that took maybe 10 minutes to complete. The main advantage is that it's specifically designed for investment accounts and creates a cleaner transfer process. The TOD designation accomplishes essentially the same thing as a regular beneficiary designation, but it can sometimes process more quickly after death and avoids probate. Both methods will give your grandkids the full step up basis benefit. One thing to note - if you have multiple grandchildren and want to specify different percentages or specific assets going to specific grandchildren, the TOD forms typically allow for that level of detail.

Yeah, the UTMA/UGMA accounts are terrible for tax efficiency compared to getting the step up basis. My brother went that route and regretted it. Did you consider a trust at all? I've heard revocable living trusts can provide the step up basis while also giving you more control over when/how the kids get the money.

3 Did you have to fill out any special forms to document the support calculation? I've been trying to figure out if there's an official worksheet or something for this. My son made about $32k from gaming tournaments this year.

18 There's no specific IRS form for the support calculation, but I created a simple spreadsheet showing the total cost of my daughter's support (housing, food, education, medical, clothing, etc.) and what portion I paid versus what was paid from her earnings. I kept receipts for major expenses just in case. For your son's gaming tournaments, make sure you understand if they're considered prizes/awards (reported on Line 8 of Schedule 1) or self-employment income (Schedule C) - they're treated differently for tax purposes. In my daughter's case, her online business income required Schedule C and self-employment tax, which was a big surprise our first year dealing with it.

7 Good question! The kiddie tax only applies to unearned income (investment income, interest, dividends, capital gains) - not to earned income like modeling or acting wages. If your child performer is just earning wages, the kiddie tax doesn't apply at all. However, if they're earning enough that you're investing some of that money and generating significant investment income, then the kiddie tax could come into play. For 2024, the first $1,250 of unearned income is tax-free, the next $1,250 is taxed at the child's rate, and anything above $2,500 in unearned income would be taxed at the parent's rate.