This hobby vs business distinction is worrying me now. I definitely intend to make a profit, but with only $360 in income for 2024 and thousands in expenses, will the IRS see this as a legitimate business? We had the property listed on several rental sites but just had bad timing with the market in our area.

Don't worry too much - the IRS looks at your intent and efforts, not just your initial results. Save copies of your rental listings, any advertising you did, and documentation of your efforts to rent the property. This shows you were genuinely trying to operate as a business. The IRS generally allows new businesses some time to become profitable. They use a guideline that if you show a profit in 3 out of 5 consecutive years, they'll presume you have a profit motive. Your first year being mostly preparation is very common in real estate. Just make sure you keep excellent records of all expenses and your efforts to rent the property. This documentation will be crucial if you're ever questioned about your business intent.

I had a similar situation last year. You need to allocate expenses based on both time and usage. For example, if your property was available for rent for 3 months out of the year, you'd allocate 25% of annual expenses like insurance, property taxes, etc. to the rental activity. Then within those 3 months, if it was only actually rented for 10 days, you need to keep personal use vs. rental use straight too. Publication 527 has worksheets for this. It gets complicated fast!

That's exactly what I'm worried about! How do you know for sure you've got everything? I usually get a W-2 from my main job and a 1098-T for my kid's college, but sometimes random 1099s show up.

I keep a checklist of all expected documents from previous years and mark them off as they arrive. I also wait until at least February 1st even though some forms come earlier - this gives stragglers time to arrive. For unexpected 1099s, I log into any accounts where I might have earned interest or made transactions (banks, investment accounts, payment apps like PayPal or Venmo if you use them for business) and check if they're issuing forms. Most places now let you see if a tax form is being generated before they actually send it.

I second FreeTaxUSA! Used it for the first time last year and it was super straightforward. The interview process walks you through everything, and they have good support articles if you get confused.

9 That's a good point about initialing changes. Does this apply to all tax forms or just the W4? I sometimes make small corrections on other forms too.

4 Initialing changes is good practice for all tax forms, not just the W4. It's especially important for any form where you're providing information under penalty of perjury. For the W4 specifically, it's less critical since it's an internal form between you and your employer, but it's still a good habit. For forms that go directly to the IRS like your 1040, initialing changes can help prevent questions about who made the modifications.

5 I tried using it but found it confusing. It asked for too much detailed information that I didn't have on hand when filling out my W4.

Thanks for bringing that up! Do you know if just working from a temporary apartment in Georgia would definitely create nexus? Or does it depend on what kinds of activities I'm doing there? I won't be meeting clients or making sales there - just doing the same online work I'd be doing from Texas.

It really depends on Georgia's specific rules, but physical presence often creates nexus regardless of what specific activities you're doing. Being physically present and working from Georgia for 6 months would likely trigger nexus in most states. However, Georgia may have thresholds based on income earned while in the state or number of days present. Some states have COVID-related exceptions that might still apply for remote workers, but these are being phased out in many places. I'd recommend checking with Georgia's Department of Revenue directly or having a tax professional review Georgia's specific nexus requirements for your situation.

What percentage of your business income did you set as salary? I've heard everything from 30% to 60% being "reasonable" depending on the industry.

Thank you for bringing this up! I hadn't even considered the PFIC angle. Do you know if educational non-profits typically generate enough investment income to trigger PFIC status? This organization mainly receives donations and some government grants. Also, did you determine the partnership classification yourself or did you need professional help? I'm wondering if Mexican non-profits might be viewed differently than Spanish ones.

Educational non-profits typically don't generate enough investment income to trigger PFIC status unless they have a large endowment that's actively invested. If they're primarily operating on donations and government grants for educational activities, it's unlikely to be classified as a PFIC. The PFIC test generally requires that 75% or more of the entity's income is passive (investment) income, or 50% of assets are held for the production of passive income. We definitely needed professional help to determine the correct classification. The key was looking at the organizational documents and how the entity operates rather than what it's called locally. We provided our tax professional with the Spanish equivalent of articles of incorporation and bylaws, which showed it operated more like a partnership with pass-through characteristics rather than a corporation. Mexican entity classification might differ, so I'd recommend either consulting with a tax professional familiar with Mexico-US tax matters or at minimum reviewing the actual organizational documents with that perspective in mind.

I used Greenback Expat Tax Services last year for a somewhat similar situation with interests in a Japanese non-profit. They weren't cheap (around $600 for my returns) but they knew exactly which forms were needed. For the penalties - they can be HARSH. Form 5471 penalties start at $10,000 per form per year if required but not filed. FBAR penalties are even worse. Don't mess around with this stuff!

Everything was handled remotely - I uploaded documents to their secure portal and had two video calls (initial consultation and then a review of the prepared returns). They were in a completely different time zone but made it work. They definitely provided advice for future years, which was actually the most valuable part. They suggested some changes to how I documented my involvement with the Japanese entity and recommended keeping certain records that would make future filings simpler. They also explained how getting married would affect my reporting requirements, which might be relevant to the original poster too. For what it's worth, they said most regular CPAs miss crucial details on these foreign filings because they rarely deal with them.