Do we know which states will be included when they eventually expand? I'm in Texas so we don't have state income tax anyway, but curious about the rollout plans.

The IRS hasn't announced specific states that will be included in future Direct File expansions. The rollout will likely depend on which states are willing to partner with the federal system, so it will vary. For Texas residents like yourself, you're actually in a good position since you don't have state income tax to worry about. Direct File is already a complete solution for you. The taxpayers who have to deal with this two-step process are those in the 41 states plus DC that have income tax filing requirements.

Thanks for the tip! I wish I'd known this before paying for TurboTax. Will definitely check Colorado's website for next year. Did you have to re-enter all your information or was there a way to import data from your federal return?

Can you really just decide which year to count income in? I thought you had to report income in the year you receive it, not when you decide to invoice for it?

It depends on your accounting method. If you're on a cash basis (which most small businesses and freelancers are), you report income when you receive it, not when you earn it. So if you complete work in December but don't send the invoice until January, you'll receive and report that income in the following tax year. This is totally legitimate as long as you're not artificially manipulating when you actually receive payments. You can't deposit a check and not record it - that would be illegal. But you can time when you bill clients and when you make business purchases within reason.

I've used it for clients with seasonal businesses. It's more paperwork (Form 2210 Schedule AI), but it can be worth it if your income is heavily concentrated in certain periods. Basically, you calculate your required payment for each quarter based on what you actually earned that quarter, not 1/4 of your annual income.

Thanks for the specific guidance on ProSeries! When I create the supporting statement, should I explicitly mention the AMT avoidance strategy, or just document the calculation of limited PAL?

I would recommend documenting both. In your supporting statement, first detail your calculation of the limited PAL amount - showing the total available, the amount you're choosing to use, and the remaining carryforward. Then I would also briefly explain the tax planning strategy - that you're limiting the PAL utilization to minimize Alternative Minimum Tax impact. This shows the IRS there's a legitimate tax planning purpose behind your decision. It's completely legal tax strategy, and being transparent about it actually strengthens your position if there's ever a question.

Good point. If you've made grouping elections for your passive activities, you should be consistent in how you treat the entire group. You can't cherry-pick which specific property's losses to use within a grouped activity. You would need to proportionally limit losses across the grouped activities.

But don't some payment apps have daily or weekly transfer limits? My PayPal only lets me send like $2-3k per week without upgrading or something. Might be annoying for the friend to space it out over time.

You're right about the limits on some platforms. Venmo's standard limit is $4,999.99 per week for person-to-person payments, so the friend would need at least 3 weeks to pay everyone individually if using Venmo. PayPal has similar restrictions as you mentioned. Banks typically have higher limits for Zelle transfers, often $2,000-$5,000 daily depending on the bank. Your friend could potentially use multiple payment methods or speak with their bank about temporarily increasing limits if they wanted to make all payments quickly.

This is a good question, but no, the gift tax wouldn't apply here. The IRS defines gifts as transfers made without receiving full consideration (value) in return. In this case, the $10k is repayment of money previously provided - it's settling a debt, not a gift. Even if the IRS initially questioned it, you would explain that this was repayment of a loan. That's why documentation of the original arrangement is important. Text messages, emails, or even witnesses who can confirm the nature of the original transaction can help establish this wasn't a gift.

Did you have to get a separate business bank account and strictly separate personal vs business expenses? That part seems complicated.

Yes, keeping separate accounts is absolutely essential. I have a dedicated business checking account, savings account, and credit card that I ONLY use for business expenses. This creates what accountants call a "clean separation" between personal and business finances. This separation is critically important when you have an S-Corp to avoid having your corporate veil pierced in case of legal issues. It also makes bookkeeping much easier and helps prove to the IRS that you're operating a legitimate business. Mixing personal and business expenses is a huge red flag that can trigger audits.

I use Justworks for my S-Corp and it's been amazing. They handle all payroll taxes, compliance filings, and even offer health insurance options that are better than what I could get as a tiny business. It costs a bit more than basic payroll ($49/month per employee) but the time savings and reduced stress are worth it.