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One important thing to know - if you sell your car to a dealership rather than private party, they may issue you a 1099 form if the amount is over $600. This doesn't change the tax situation (you still only pay tax if you sold for a profit), but it means the IRS is automatically notified of the transaction. So don't panic if you get a 1099 - you just need to properly report it on your return and show your original basis (purchase price) to demonstrate there was no taxable gain.
Is this a new rule? I sold a car to a dealer last year for $15k and never got any 1099 form from them.
Everyone is focusing on federal taxes, but don't forget about state taxes! Some states have different rules about vehicle sales. For example, in Massachusetts where I live, if you sell a vehicle for more than $1000, you need to report it on your state tax return using Schedule D. You probably still won't owe taxes unless you sold at a profit, but you might need to file additional paperwork depending on your state.
The real IRS never threatens arrests or demands immediate payment over the phone. They always send multiple written notices first. If you want to be extra safe, here's what I did when I got similar calls: 1. Didn't respond to the callback number 2. Independently looked up the IRS customer service number 3. Called and verified I had no issues (after waiting on hold forever) 4. Added my number to the Do Not Call registry (doesn't stop all scammers but helps) 5. Blocked the scam numbers on my phone The worst part is these scammers specifically target elderly people and immigrants who might be more fearful of government authorities.
Do you remember what the official IRS number is? I got one of these calls yesterday and now I'm paranoid even though I'm 99% sure it's a scam.
The general IRS customer service number is 800-829-1040. When you call, be prepared for a long wait time, and have your tax return handy as they'll ask verification questions to confirm your identity. I recommend calling early in the morning right when they open or later in the evening before they close as those tend to have shorter wait times. You can also try calling mid-week as Mondays and Fridays are typically their busiest days.
Has anyone actually fallen for these scams? My grandmother almost sent them $4,000 in gift cards because they said she'd be arrested if she didn't pay immediately. The scary part was they had her actual name and the last 4 digits of her SSN (probably from some data breach). They kept her on the phone for hours so she couldn't call anyone else to verify.
Yes, these scams are successful enough that they keep doing them. My coworker's father lost $12,000 to an IRS scammer last year. They told him he had outstanding tax bills and would be arrested at work the next day if he didn't pay. They kept him on the phone for 5 hours while he went to different stores buying gift cards. He was too embarrassed to tell anyone until weeks later.
The same thing happened to me when I worked at Domino's! The franchise was sold mid-year to a completely different owner. Check your husband's pay stubs throughout the year - you might notice the company name changed slightly at some point. Also, double-check that the combined income from both W2s matches what you'd expect for the full year's earnings. Sometimes during ownership transitions, there can be accounting issues where a week or two of pay gets missed.
I never thought to check his paystubs! I'll have him dig those up tonight. Do you remember if your tax withholding was affected when the ownership changed? That's the part that seems strange to me - one W2 has withholding and one doesn't.
Yes, the withholding situation definitely changed when ownership switched. The first owner withheld taxes properly, but the new owner classified me as an independent contractor for the first month before fixing it. That meant one W2 had normal withholding while the other had almost none. The paystubs should show exactly when the change happened. If you notice one of the employers wasn't withholding properly, you might owe more at tax time than you expected. It's better to find out now rather than get surprised with a tax bill!
Make sure you also check if one of the W2s shows any tips! Sometimes when delivery places change ownership, they handle tip reporting differently. One might include reported tips in Box 1 while the other might have them broken out separately in Box 8.
One thing no one has mentioned yet - make sure you're calculating your mom's cost basis correctly! The original purchase price is just the starting point. You can add the cost of capital improvements made over the years she owned the home (new roof, remodeling, additions, etc.). This can significantly reduce the taxable gain even before applying the $250k exclusion. My parents kept receipts for major improvements and it added about $85k to their basis when they sold their home last year. Unfortunately, normal repairs and maintenance don't count - has to be improvements that add value.
That's really helpful! I know she did a kitchen renovation about 10 years ago and replaced all the windows. I'll have to see if she kept the receipts. Does TurboTax have a specific section for entering these improvements or do you just add them to the original purchase price?
Yes, TurboTax does have a specific section for this. After you enter the original purchase price, it should ask if you made any improvements to the home. There will be a place to itemize and enter each major improvement separately. If she doesn't have all the receipts, reasonable estimates are generally acceptable - just be prepared to justify them if ever questioned. Make sure to only include capital improvements (things that add value, prolong the home's useful life, or adapt it to new uses) - not repairs or maintenance. So the kitchen renovation and window replacement definitely count, but something like painting or fixing a leaky faucet wouldn't.
We went through this exact situation with my mother-in-law last year. Don't forget to consider state taxes too! The federal $250k exclusion is great, but some states have different rules for capital gains on real estate. What state does your mom live in? That could make a significant difference in the total tax bill.
Alana Willis
The other thing nobody's mentioned yet is that LLC and corporation status also gives you liability protection. If your business gets sued, they can't come after your personal assets (in most cases). So there are non-tax benefits too. But yeah, the tax situation is tricky. My accountant actually advised AGAINST S-Corp election for my LLC this year because I'm only projecting about $65k in profit, and the payroll costs and extra tax filings would eat up any SE tax savings. She said once I hit about $80k consistently, we'll make the switch.
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Tyler Murphy
ā¢Is the liability protection really that valuable though? I've heard you need good insurance anyway since people can still try to pierce the corporate veil if you don't keep business and personal completely separate?
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Alana Willis
ā¢The liability protection is valuable but not perfect. You're right that you still need good insurance, and yes, "piercing the corporate veil" is a real concern. If you don't maintain separate business bank accounts, mix personal and business expenses, or don't follow corporate formalities, the courts can potentially hold you personally liable. LLC protection works best for legitimate business debts and certain types of lawsuits. It's one layer of protection that works alongside proper insurance. So it's not an either/or situation - smart business owners have both the legal structure AND insurance coverage.
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Sara Unger
I think everyone's missing a key point here. The tax savings of an S-Corp setup mostly come from avoiding self-employment tax (15.3%) on a portion of your income. But remember Biden signed that bill that increased Medicare tax for higher incomes to fund some of those IRA climate thingys. So make sure your calculations are using the current tax rates not old advice from a few years ago!
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Butch Sledgehammer
ā¢The Medicare surtax (0.9%) only applies to incomes over $200k for singles/$250k married, so it won't affect most small business owners just starting out. The bigger recent tax change was actually the SECURE 2.0 Act which changed retirement plan options for small businesses.
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