Does anyone know if u need to set this up differently for different accounting software programs? Im using Xero and it just asks me to set up "tax rates" without this recoverable/non-recoverable distinction. So confused!!!

This is such a common confusion point for new business owners! You're absolutely right that US sales taxes are generally non-recoverable, unlike VAT systems. When setting up QuickBooks or any accounting software for a US business, you should select "non-recoverable" for sales taxes. The key thing to remember is that in the US, you collect sales tax from your customers and remit it to the state, but any sales tax you pay on your own business purchases becomes part of your cost of goods sold or business expenses. You can't offset what you pay against what you collect like you can with VAT. For your e-commerce business, make sure you're also registered for sales tax collection in states where you have nexus (physical or economic presence). Each state has different thresholds and rules. And don't forget - while the sales tax you pay isn't "recoverable" through the sales tax system, it is deductible as a business expense on your income tax return, which still provides some tax benefit. Good luck with your new business setup!

There's another possibility that H&R Block software sometimes messes up on: Did you indicate that you were enrolled at least half-time for one academic period in 2023? And did you verify that this is your 1st, 2nd, 3rd, or 4th year claiming AOTC? You can only claim it for 4 years total. I had this issue last year where the software didn't recognize my eligibility because I accidentally indicated it was my 5th year claiming the credit (it wasn't). The software immediately disqualified me without explanation.

Hey everyone! I'm a tax preparer and see this exact situation all the time. Based on what you've shared, I think there are a few things to check: First, definitely verify with your parents about the dependency status - that's crucial and could be the main issue. Second, for the scholarship allocation that others mentioned, it's totally legitimate. The IRS allows you to treat scholarship money used for room/board as taxable income, which then frees up your actual tuition payments to qualify for the AOTC. You'll pay some tax on that scholarship portion, but the credit is usually worth way more. Third, make sure in H&R Block that you're answering "No" to whether this is your 5th+ year claiming AOTC, and "Yes" to being enrolled at least half-time. Finally, don't forget you can add books, supplies, and required equipment costs to your qualified expenses even though they don't show on the 1098-T. Keep those receipts! The math usually works out that claiming the AOTC yourself (if you file independently) gives your family more money back than your parents claiming you as a dependent, especially since you're in a lower tax bracket. Good luck!

I'm dealing with a similar situation as a freelance consultant - had several business expenses in 2020 but very little income due to the pandemic. From what I've researched and discussed with other self-employed folks, you definitely can and should claim those legitimate business expenses even with zero income. The key things to remember: keep all your receipts and documentation organized, make sure the expenses were genuinely for business purposes (which yours clearly were - license, insurance, conference, supplies are all standard business costs), and don't let the software warnings scare you. A net loss from a business is completely normal and legal, especially during 2020. One tip that helped me - when entering everything in the tax software, I made notes in the description fields explaining the business purpose of each expense. It helps create a clear paper trail showing these were legitimate business costs, not personal expenses you're trying to write off.

This is actually a really straightforward situation that many self-employed people faced in 2020. You absolutely should report your business on Schedule C even without receiving any 1099s - the IRS doesn't require you to have received a 1099 to report business income (or in your case, $0 income). All of those expenses you mentioned - the license renewal, liability insurance, office supplies, and business conference - are completely legitimate business deductions. The fact that you had no income doesn't disqualify you from claiming them. You'll end up with a net business loss, which can actually help reduce your overall tax liability if you have other income. A few important points: Make sure you keep all receipts and documentation for these expenses. The conference expenses should be broken down properly (travel, meals at 50%, lodging, etc.). And don't worry about audit flags - business losses are normal, especially for 2020. The IRS understands that many businesses had extraordinary circumstances that year. Just file Schedule C with $0 gross receipts and list all your legitimate business expenses. Your tax software should handle this just fine.

5 One thing nobody's mentioned - if your new job offers a 401(k), put as much in there as you can afford! It reduces your taxable income which means less tax owed. I doubled my salary last year too and upped my 401(k) contribution to 15% and ended up with a refund instead of owing. Plus you're saving for retirement which is a win-win.

Great thread! As someone who went through this exact situation two years ago, I wanted to add that you should also consider quarterly estimated tax payments if your withholding still isn't enough. When I doubled my salary mid-year, even with extra withholding I was still projected to owe about $800. My accountant suggested making a small estimated payment in Q4 (January 15th deadline) to cover the gap. It's form 1040ES and you can pay online through EFTPS. This way you avoid any underpayment penalties and don't get hit with a big bill at filing time. Just another tool in your arsenal to make sure you're covered!

One thing I haven't seen mentioned yet is the Net Investment Income Tax (NIIT) - also known as the 3.8% Medicare surtax. Even though you might qualify for the 0% capital gains rate on your investment property, you could still be subject to NIIT if your modified adjusted gross income exceeds $250,000 (married filing jointly). However, given your situation with veterans benefits being non-taxable and only $33K in capital gains, you should be well below that threshold, so NIIT likely won't apply to you. Also, since you mentioned this is "how you make your living," you might want to consider whether you should be making quarterly estimated tax payments going forward. Even if this year works out to zero tax liability, future years might be different, and the IRS prefers to receive payments throughout the year rather than a large lump sum at filing time. The safe harbor rule generally requires you to pay either 90% of the current year's tax or 100% of last year's tax (whichever is smaller) through withholding and estimated payments to avoid penalties. Since your tax situation seems unique with the veterans benefits, it might be worth discussing estimated payment strategies with a tax pro for future years.

This thread has been incredibly informative! As someone new to real estate investing, I'm amazed at how many tax considerations there are that I never would have thought of. The discussion about potentially qualifying for the 0% capital gains rate due to veterans benefits being non-taxable income is fascinating. I had no idea that was even possible with a $33K gain. It really shows how important it is to understand your complete tax picture, not just the obvious parts. A few questions for the group: For someone just starting out with real estate investing, what documentation should I be keeping from day one to make sure I'm prepared for these kinds of tax situations? And should I be thinking about the dealer vs investor classification before I even buy my first investment property, or is that something you can establish over time based on your actual activities? Also, are there any other tax benefits or considerations for real estate investors that haven't been mentioned yet? This conversation has already opened my eyes to so many things I didn't know about!