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Something nobody's mentioned yet - make sure you look into whether this arrangement could be considered a PFIC (Passive Foreign Investment Company). If your grandmother's business meets certain tests, your gains could be subject to complicated and usually unfavorable PFIC tax rules. Also, depending on how much you've sent, you may need to file Form 8938 (Statement of Specified Foreign Financial Assets) if your investment exceeds certain thresholds. The penalties for not filing these international information returns are harsh.
What exactly qualifies as a PFIC? My grandmother's cafe is definitely an active business where she works daily, not some passive investment vehicle. Would that still fall under those rules? And are the Form 8938 thresholds different for different countries?
A PFIC is generally a foreign corporation where either 75% or more of the income is passive (like interest or dividends) or 50% or more of assets produce passive income. An actively run cafe would typically not qualify as a PFIC, so you're probably safe there. Form 8938 thresholds don't vary by country, but they do differ based on filing status and whether you live in the US or abroad. For a single person living in the US, you'd file if your foreign financial assets exceed $50,000 on the last day of the tax year or $75,000 at any time during the year. The thresholds are higher for married couples and US persons living abroad.
Honestly the bigger issue is that ur grandma considers u an "owner" but legally ur not. This is a HUGE risk. If something goes wrong with the business, u have zero protection. If she passes away suddenly, u have no legal claim to anything. I'd strongly suggest getting an actual ownership agreement in writing, even if it's a small percentage. Otherwise ur basically making an unsecured loan with no documentation.
This is such an important point! My dad sent money to his brother in Mexico for a similar arrangement and when they had a falling out, he couldn't prove he was entitled to anything. Lost everything because there was no paper trail showing it was an investment rather than a gift.
As a custom furniture maker who went through this exact process last year, here's my practical advice: go back to cash method ASAP. The paperwork needed to switch back isn't that complicated, and the cash method is so much simpler for our type of business. For tracking materials, I just keep receipts and categorize expenses - no need for complex inventory systems. Under current rules for small businesses, you can expense materials when you buy them rather than tracking inventory changes. This works perfectly for custom goods where most materials are purchased for specific client projects anyway. The accrual method with formal inventory tracking is really designed for businesses with large stock and standardized products. For custom makers like us, it's unnecessary complexity.
Couldn't you potentially save on taxes by using accrual method though? I've heard you can deduct expenses before you actually pay them. Would that be beneficial for someone who buys a lot of supplies in December but doesn't pay until January?
Cash method actually tends to be more beneficial for most small custom goods businesses. While accrual lets you deduct some expenses before paying, it also forces you to report income when you invoice clients - even if they haven't paid you yet. For most of us, that's a big disadvantage. The December/January scenario you mentioned is a real consideration, but for most custom makers, the simplicity of cash method far outweighs any potential timing benefits. Plus, with cash method, if you have a client who hasn't paid yet, you don't have to pay taxes on that income until you actually receive payment. This is huge for small businesses with cash flow challenges or clients who pay late.
Has anyone used TurboSelf-Employed for this accounting method change? I'm in a similar situation but my accountant wants to charge $600 just to file the Form 3115 for me, which seems excessive.
I used TurboSelf-Employed last year and it handled my accounting method change pretty well. The software walked me through the Form 3115 with guided questions. It wasn't perfect - I still had to do some research on my own, but it was way cheaper than paying an accountant $600. They also have some decent articles about cash vs. accrual in their help section.
3 Has anyone used H&R Block for this type of situation? They advertise that they can handle "complex tax situations" but I'm not sure if that includes non-resident gambling income.
11 I tried H&R Block last year for my W2G as a non-resident from Germany. Big mistake! The preparer had no idea about the proper treaty rates and almost filed my return incorrectly. I ended up going to a specialist and had to pay twice. Definitely find someone who specifically knows international tax!
6 One more thing to consider - if you had SUBSTANTIAL gambling winnings (like over $50k), you might want to look into professional gambler status filing. A friend of mine from Australia did this and was able to deduct travel expenses related to his poker tournaments. Not sure if it applies in your situation but worth asking a specialist about.
20 Professional gambler status is EXTREMELY difficult to qualify for as a non-resident and can actually create bigger problems! The IRS scrutinizes these claims heavily, and it can trigger effectively connected income treatment which means filing Schedule C and potentially being subject to self-employment tax. It can also affect visa status since technically you'd be "working" in the US. I'd be very careful about pursuing this route without expert guidance.
Just want to add something important about QBID calculations that nobody mentioned. Make sure you're accounting for the "taxable income limitation" too. Your QBID can't exceed 20% of your taxable income AFTER subtracting net capital gains. So if a big chunk of your income is from capital gains, that could be why you're seeing a lower QBID number than expected. I made this mistake last year and couldn't figure out why my deduction was smaller than the 20% of QBI I was calculating manually. Also, if your K1 Box 20 has code Z with multiple amounts listed, make sure you're entering ALL of them into FreeTaxUSA. The software needs each component to calculate correctly.
That's a great point that I hadn't considered. We did have some capital gains last year from selling some stocks (about $35,000). Would that really affect the QBID calculation that much? I didn't realize capital gains would impact this.
Yes, capital gains definitely impact the calculation! The 199A deduction is limited to 20% of your taxable income MINUS net capital gains. So in your case, if you had $35,000 in capital gains, your effective taxable income for QBID purposes would be reduced by that amount. For example, if your taxable income was $200,000 including $35,000 capital gains, your QBID would be limited to 20% of $165,000 ($200,000 - $35,000), which is $33,000. Even if your QBI was higher, you couldn't take more than that $33,000 as your QBID. This is a commonly overlooked limitation that can significantly reduce the expected deduction.
Has anyone else noticed that FreeTaxUSA sometimes struggles with complex K1 entries? I had a similar issue with the 199A deduction last year but found a workaround. Try downloading and installing the free IRS QBID worksheet (just google "IRS Section 199A worksheet") and calculate it manually first. Then you can see exactly where the software might be making different assumptions. For me, the issue was that FreeTaxUSA was applying an aggregation method for multiple businesses that wasn't appropriate for my situation. I ended up switching to TaxSlayer which handled it better for my specific case.
Nia Thompson
Don't overwhelm yourself! I hadn't filed for 5 years and did it all in a month. My biggest tip: set up an IRS online account ASAP - it gives you wage transcripts showing all reported income. Make a timeline and tackle one year each weekend. For software, I used TaxAct for older years - cheaper than TurboTax and lets you file past years electronically when possible. Important: request installment agreement using Form 9465 if you can't pay all at once. The monthly payment can be as low as $25 depending on your situation.
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Mateo Rodriguez
โขTaxAct didn't work well for me for back taxes. The navigation was confusing and it kept deleting info between sessions. Which version did you use?
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Aisha Hussain
Just remember state taxes too! Everyone's talking about federal, but depending on your state, you might have similar issues with unfiled state returns. Some states have different requirements and deadlines for back taxes. Also, if you moved between states during these years, you might need to file partial-year returns for multiple states. This gets complicated fast.
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