10 Is there any way to reduce the tax hit? I'm thinking about surrendering a policy but worried about having to pay a lot in taxes. Can I roll it over into something else tax-free?

22 Yes, you have a couple options to potentially reduce or defer the tax impact. If your policy qualifies, you could do what's called a 1035 exchange into an annuity or another life insurance policy. This allows you to transfer the cash value without triggering immediate taxation. Another option is to see if your policy allows for partial surrenders over multiple tax years instead of taking all the money at once. This can spread the tax liability across different years and potentially keep you in a lower tax bracket. Just be aware that each partial surrender can affect your overall basis calculation in complex ways.

9 Unfortunately, surrender fees typically aren't tax deductible. They're just considered a reduction in your proceeds. So if your surrender value is $5,000 but you only get $4,400 after surrender charges, you'll only pay taxes on the gain based on the $4,400 you actually receive (minus your basis).

How complicated is the process of setting up an LLC and electing S-Corp status? I've heard there are additional costs like payroll services and more complex tax filings. Is it worth it at my income level (around $85K total with about $50K from equipment)?

Setting up an LLC is relatively straightforward - you can do it yourself in most states through their secretary of state website for a few hundred dollars. The S-Corp election is just filing Form 2553 with the IRS. The ongoing requirements are what add complexity. You need to run payroll (including quarterly payroll tax filings), issue yourself a W-2, and file a separate tax return for the business (Form 1120-S). I use a payroll service that costs about $50/month. The tax preparation is more expensive too - I pay about $800 more per year than I did as a sole proprietor.

I tried this approach and it didn't work well. The IRS looks at related activities and may still consider it all one business, especially if the equipment is used in conjunction with your services for the same clients. Also, having two businesses created more paperwork and confusion with my clients who didn't want to deal with multiple invoices and payment processes.

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.

Have you ever been audited though? I'm worried that ignoring anything on the K1 could trigger something later. Just because you haven't had an issue yet doesn't mean the IRS won't come back years later.

No, I've never been audited for this issue. You're not really "ignoring" anything on the K-1 though - you're using all the information that's relevant to your individual tax situation. The K3 just provides additional detail for certain foreign transactions that most domestic investors don't need to report. The IRS generally focuses audit resources on areas where significant tax might be underreported. For most domestic investors in MLPs, waiting for a K3 that won't change your tax liability isn't likely to be a high audit priority. I've been filing this way for over 7 years with multiple MLPs and haven't received so much as a notice.

TurboTax is super annoying with MLP K-1s. I had the same warning last year and called their support. They confirmed that if you're a US-only investor with no foreign tax credit claims, you can override that warning and proceed with filing. There's actually a checkbox somewhere in the foreign income section where you can indicate you have no foreign filing requirements.

Is there an income limit for VITA to help with Schedule C? I thought they only did simple returns and turned away any business income?

VITA generally helps taxpayers who make $60,000 or less, and while some locations might turn away complex business returns, many VITA sites have volunteers certified to handle simple Schedule C forms like yours would be. It does vary by location though - when you call to make an appointment, just specifically ask if they can handle a simple Schedule C with minimal income and expenses. Some sites have advanced-certified volunteers who definitely can help with this.

Yes! All the major tax software handles federal and state together. California isn't as bad as people make it sound for simple situations. I'm in CA too and did my Schedule C last year with minimal income through FreeTaxUSA. The state part was actually easier than the federal section.