That's a really good point that I hadn't even considered! She's currently living in Australia and I have no idea what their rules are for small self-employment income like babysitting. Would we need to file tax returns in both countries then? And how does that work with the tax treaty stuff?

Australia definitely taxes residents on worldwide income, so yes, she likely needs to file there too. The good news is that the US and Australia have a comprehensive tax treaty. If she pays taxes in Australia, you can generally claim a Foreign Tax Credit on your US return using Form 1116 to offset US taxes on that same income. This helps prevent double taxation. Australia has a tax-free threshold of about 18,200 AUD, so if she's making less than that from babysitting, she might not owe Australian taxes anyway.

This FBAR stuff is terrifying! I've been doing my taxes myself for years and just found out about this requirement. Is there any kind of amnesty program if you've messed up in previous years? Also, does it matter if the account has barely any money in it?

Is that always true though? I thought there were exceptions based on how many days you rent it and personal use days? The whole 14-day rule and all that?

That approach could potentially create even bigger problems. The IRS looks at the substance of transactions, not just the form. If they determine the arrangement is actually a disguised below-market rental, they could disallow your rental expense deductions AND potentially treat the "gifts" as taxable rental income that you failed to report. Additionally, regular monthly gifts that coincide exactly with rent payments would look suspiciously like a tax avoidance scheme. It would be hard to argue these are genuine gifts rather than just a way to circumvent the Fair Market Rent rules. I'd strongly advise against this approach.

Ah, I see. I didn't realize the IRS would look at the whole picture like that. Makes sense though - it would be pretty obvious what was happening if the gifts lined up exactly with rent payments. Thanks for explaining!

That's a really good point I hadn't considered. I probably spent 15 hours last year just on my taxes, and that was before all these complications. Do you know if tax preparation fees are tax deductible?

Unfortunately, tax preparation fees aren't deductible for individuals anymore since the 2017 tax law changes. However, if you have a business (which you do with your craft sales), you can deduct the portion of tax prep fees related to your business on Schedule C. So if your tax preparer charges $400 and roughly 30% of your return complexity is from your business, you could deduct about $120 as a business expense. Make sure they break down their fee so you can document this properly!

This is terrible advice. I thought the same thing until I got audited last year. Turns out I'd been incorrectly handling my home office deduction for my side business for 3 years. Ended up owing $3,200 in back taxes plus penalties. A $400 tax pro would have saved me thousands.

I registered it as what they call an "individual enterprise" in Turkey, which is basically their version of a sole proprietorship. There's no separate legal entity - the business and I are the same for liability purposes. Does that change anything about how I should approach the US tax side?

That's good news! If it's truly equivalent to a US sole proprietorship with no separate legal entity status, then you're on the right track with Schedule C reporting. Just make sure you keep documentation showing the legal status in Turkey in case of any IRS questions. Just be aware that as your business grows, you might want to consider the implications of potential liability exposure since you're personally liable for the business. Many people with foreign operations eventually set up an LLC in the US that owns the foreign business operations to create some liability protection while still maintaining pass-through tax treatment.

I used TurboTax Self-Employed last year for my Canada-based consulting business and it handled the Schedule C foreign expenses fine. You just enter everything in USD after converting the amounts yourself. The software doesn't help with the currency conversion or FBAR filing though - you have to handle that separately.

I appreciate the suggestion! In this case, I actually paid the hospital directly rather than gifting money to my dad, but that's good to know for future reference. Would it have made any difference tax-wise if I had sent him the money first and then he paid the hospital? Or is the end result the same either way?

The end result would be exactly the same tax-wise. Whether you pay the hospital directly or give your father the money to pay, the IRS views it the same way - as a gift to your father. Neither approach would give you a tax deduction. The only practical difference is that paying directly ensures the money is used for its intended purpose, and sometimes hospitals offer cash discounts or payment plans when working directly with them. But from a tax perspective, there's no advantage to either approach.

This sounds like tax fraud. You can't just claim personal expenses as business expenses by making up fake work. The IRS specifically looks for this kind of thing in audits.