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I'm an expatriate tax consultant, and this exact example confuses many of my clients. Here's the clearest way I can explain it: The physical presence test requires 330 full days of presence in a foreign country during a period of 12 consecutive months. In the example, counting forward 330 days from June 1, 2022 (excluding US days) gets you to May 12, 2023. Now you need to identify which 12-month period contains those 330 days. The period must end on May 11, 2023 (not May 12) because: - If the period ended on May 12, 2023, it would start on May 13, 2022 - But your qualifying foreign presence began on June 1, 2022 - So a period from May 13, 2022 to May 12, 2023 would include days before you established foreign presence That's why they use May 11 as the end date - to create a 12-month period (May 12, 2022 to May 11, 2023) that properly contains all your qualifying days.
But if I started my foreign assignment on April 15, 2022 (earlier than the example's June 1), wouldn't the period from May 13, 2022 to May 12, 2023 work just fine? All those days would still be within my foreign presence period, right?
If you started your foreign assignment on April 15, 2022, then yes, a period from May 13, 2022 to May 12, 2023 would technically work for you. But the IRS example is specifically dealing with someone who began their foreign presence on June 1, 2022. The key is finding the optimal 12-month period that maximizes your qualifying days. If you started on April 15, you might actually have a different optimal 12-month period than the one in the example. You'd need to count forward 330 days from your start date (accounting for any US visits) and then establish your specific 12-month period.
Anyone know if 2025 is bringing any changes to the FEIE physical presence test? I've heard rumors about the IRS tightening the rules for digital nomads who bounce between countries. Will this counting method stay the same?
As far as I know, the basic mechanics of the physical presence test aren't changing for 2025. The 330-day requirement and 12-month period calculation should remain the same. What might be getting more scrutiny is whether digital nomads truly have a "tax home" in a foreign country, which is a separate requirement for the FEIE.
Another option is to open your own bank account if possible. Some banks offer teen accounts that your parents don't have access to. Then you can have your refund direct deposited there. If your dad is filing your taxes for you, make sure you see the final return before it's submitted and verify your refund is going to YOUR account, not his. If he's e-filing, you should be able to see where the refund is being directed.
Can I even open my own bank account at 17 though? I thought you had to be 18 to do that without a parent.
Most major banks offer teen checking accounts starting around age 13-16, but they typically require a parent as a co-owner until you're 18. However, some credit unions and online banks have better options for minors with more privacy. Even with a joint account, your dad would technically be violating the account agreement if he took money that was clearly yours (like a tax refund) for his own use. You could also consider asking another trusted adult (like an aunt, uncle, or grandparent) to help you open an account instead of your dad.
I had this exact situation when I was 16! My dad tried to claim my $700 refund and I ended up filing my own taxes (super easy with free tax software) and getting the money sent to my aunt's address as a paper check. My dad was LIVID but couldn't do anything about it. Just make sure you file BEFORE your dad tries to claim your income on his taxes. If he's already filed and included your income incorrectly, it gets more complicated.
Since you're already using QuickBooks, make sure you're leveraging its full potential for your year-end processes. For your 1099-NECs, you need to have vendors properly flagged as 1099 contractors with complete W-9 information entered. Run the 1099 verification report ASAP to see what's missing. For S-Corp reasonable compensation documentation, create a formal corporate minute documenting how you determined your salary amount. This is crucial if you ever get audited. Don't forget about state filings too! Many S-Corps have state filing requirements beyond just the federal return. QuickBooks reports filtered by state can help organize this information.
Thanks for the QuickBooks tips! One question - for the 1099 vendors, some of them were added years ago and I'm not sure we ever got proper W-9s. What's the best way to handle that this late in the year when I need to issue them in just a few weeks?
For those vendors without W-9s, send them the form immediately with a deadline of 7 days for return. Most vendors are used to this process and will respond quickly. You can email them the form with a clear subject line mentioning the urgent tax deadline. If any vendors don't respond, you'll still need to issue their 1099-NECs by the deadline, but you might have to do so with incomplete information. In that case, use whatever information you have on file, but be aware that you may need to issue corrected forms later. The IRS can penalize for missing or incorrect TINs, so document your good-faith efforts to obtain this information by keeping records of your requests.
Don't forget about the Qualified Business Income (QBI) deduction for your S-Corp and Schedule C! It's a potentially huge tax benefit (up to 20% of your business income) that many DIY filers miss. Also, remember that S-Corp reasonable compensation requirements mean you MUST pay yourself a market-rate salary before taking distributions. If your salary is too low compared to distributions, it's a huge audit flag.
How do you determine what a "reasonable" salary is though? I've heard different things from different accountants. Is there some kind of formula or percentage of profits?
Brewery owner here! We went with an LLC taxed as an S-Corp (1120-S) and it's been great for our situation. The self-employment tax savings are substantial. One thing to consider - with craft breweries, equipment depreciation is a big deal tax-wise. The other advantage to S-Corp status is that it looks more established to distributors and larger retailers. We found this helped when trying to get our beers into larger chains and regional distribution networks. Make sure whatever you decide, you have solid operating agreements that clearly outline capital contributions, profit distributions, and decision-making authority. The tax form is just one part - the legal structure between partners is equally important.
That's super helpful context from someone in the same industry! Can I ask how you handled the reasonable salary requirement for S-corps? I've heard the IRS scrutinizes brewery owners who take too little salary to avoid payroll taxes.
Great question! For breweries, this is indeed tricky. We looked at what comparable positions would earn in our area (head brewer, operations manager, etc.) and set salaries accordingly. For the first two years, our salaries were about 50-60% of our total compensation, with the rest as distributions. The IRS does look closely at this industry, so we documented our salary-setting process carefully. We also made sure our salaries increased as the business grew more profitable. Having documentation that shows your salary determination wasn't arbitrary is key if you ever get questioned. Our accountant had us keep notes from our meetings where we discussed compensation and market rates.
Don't forget to consider state-specific implications too! Some states treat these entities differently. For example, California has that annoying $800 minimum franchise tax for LLCs and S-Corps, plus an LLC fee based on gross receipts that can get pricey for breweries with high-volume/low-margin products.
CosmicCruiser
This is a bit of a side question, but since you mentioned having a nanny - did you pay them over $2,400 in 2024? Because if you paid less than that threshold, you don't actually need to withhold Social Security and Medicare taxes, which means the W-2 situation might be simpler. Just wondering if that applies to your situation?
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Emma Thompson
ā¢We definitely exceeded the $2,400 threshold - paid our nanny about $18,000 throughout the year. So unfortunately I do need to deal with all the proper employment tax requirements including the W-2. But that's good information to keep in mind for others who might have more occasional help!
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Anastasia Fedorov
Just be super careful with electronic W-2s. I emailed one to my housekeeper last year and it turned into a disaster when someone hacked her email account and filed a fraudulent return with her info before she could. The IRS explicitly recommends securing any electronic tax documents with passwords or encryption. Maybe ask your nanny if they'd be ok with you using a secure file transfer service instead of direct email?
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Sean Doyle
ā¢This is good advice. I send my gardener his W-2 through a password-protected PDF with the password texted separately to his phone. That way even if someone gets into his email, they can't open the actual document without the password from a different channel.
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