Do you know if the donations would affect the basis in our partnership interests? We've been told conflicting things.

Charitable contributions do reduce your basis in the partnership. When the partnership donates property, each partner's basis is reduced by their share of the partnership's basis in the donated property - not by the deduction amount that flows through. This basis reduction is important to track because it affects your gain/loss calculation when you eventually sell your partnership interest. If you don't properly reduce your basis, you could understate your gain (or overstate your loss) on sale, which would be a problem if audited.

Yes, I've done this! For partnership donations, the partnership completes Form 8283 and attaches it to the partnership return. Then each partner also attaches a copy to their individual return. Make sure you complete Section A for items valued under $5,000 and Section B for items over $5,000. Section B requires a qualified appraiser's signature, which can be a pain to arrange. Also, if any single item is worth over $500, you need a detailed description including condition and how you established fair market value.

How do you figure out the state requirements? Is there a website where you can check what the rules are for each state? I'm in California and I've heard they're extra strict about reporting income.

Most states have a department of revenue or taxation website where you can find the specific requirements. For California specifically, you should check the California Tax Service Center website. They're indeed more stringent about reporting requirements. I'd also recommend looking into whether you need a business license in your city or county, as some local jurisdictions require this even for small online businesses. California does have some additional forms and possibly registration requirements depending on your exact income level.

But doesn't setting up an LLC require public registration with your state? I thought your name would be publicly searchable as the owner, which seems counterproductive if privacy is the goal.

Did you have to deal with any local tax issues beyond state level? Our target firm has employees who would be working from Philadelphia which I know has its own wage tax. Any tips on tracking all these multi-state/local tax obligations?

Yes, local taxes were actually more problematic than state taxes in some cases. Philadelphia wage tax was exactly one we encountered - it's around 3.5% for residents and still applies even when working remotely for an out-of-state employer. The key to tracking multi-jurisdiction obligations was implementing a good workforce management system that logged employee locations. We use a combination of IP logging and employee self-certification of work locations. For tax compliance, we ended up subscribing to a specialized multi-state tax service that alerts us to filing requirements and due dates across all jurisdictions. Initially tried to handle it manually and missed several local tax filings that resulted in penalties.

Unfortunately, a 1031 exchange only applies to real property, not business entities like accounting practices. The goodwill and client lists that make up most of an accounting firm's value don't qualify. Your best bet might be an installment sale (using Form 6252) to spread the tax hit over multiple years.

Do you have any links about that glitch? I'm dealing with a similar issue but my accountant hasn't mentioned anything about a known system problem. Would be helpful to reference when I call them.

I don't have the exact link handy, but it was discussed in a Tax Notes article around February. The issue was specifically with the IRS automated processing system incorrectly flagging certain states as FUTA credit reduction states for the 2023 tax year when they weren't actually on the reduction list. If I remember correctly, the states most commonly affected were Ohio, Kentucky, and Virginia - businesses in these states were incorrectly having the credit reduction applied even though they weren't on the official reduction list for 2023. The article mentioned that the IRS was aware of the issue but hadn't fully resolved it in their automated processing system.

Not the OP but we use Drake Tax software and got the same notice. Our accountant is pretty sure it's the IRS error, not the software, since the calculations checked out when they reviewed everything.

That's really helpful! We might be in that higher AGI category because of the stock sale. So does that mean we'd need to withhold 110% of last year's tax (including the unexpected $9,300) to be safe? And that withholding tip is brilliant - I had no idea the IRS treats withholding as if it happened evenly!

Yes, if your AGI was over $150,000 last year, you'd need to cover 110% of your total tax liability (including that $9,300) to guarantee no underpayment penalty. But that's only if you're using the "prior year tax" safe harbor method. The withholding strategy is a great safety net. Unlike estimated payments which must be made quarterly in the correct amounts, the IRS treats withholding as if it occurred evenly throughout the year regardless of when it actually happened. So increasing your withholding in November/December can retroactively cover your requirements for the entire year. It's a completely legitimate way to avoid penalties if you realize late in the year that you might come up short.

ESPP sales are actually a bit complicated. Companies usually withhold some taxes, but often only at a flat 22% rate for federal (regardless of your tax bracket). If you're in a higher tax bracket, that withholding might not be enough. Also, depending on if it's a qualifying or non-qualifying disposition, the tax treatment differs. Some of the gain might be taxed as ordinary income rather than capital gains.