Thanks for this insight - this is exactly the kind of real-world experience I was hoping to hear about. Did you use a specialized leasing company or did you find and manage your own customers? I'm trying to determine how hands-on I need to be with the day-to-day for this to work properly from a tax perspective.

I worked with a specialized company that handled finding customers and managing the equipment, but I made sure to document my involvement in major business decisions. I maintained records of regular meetings where I reviewed leasing terms, approved maintenance expenses, and made decisions about lease renewals. For tax purposes, material participation is key - I spend about 5-7 hours per week on this business, tracking my time carefully. The leasing company does the daily work, but I'm involved in all significant decisions. My tax advisor recommended this level of involvement to satisfy the active participation requirements, especially since I'm using the losses to offset other income. Document everything - calendar entries, emails, meeting notes - it all helps establish your legitimate business involvement.

Great point about QBI - this is something to consider. Section 179 deductions do reduce QBI, which can impact your 199A deduction. It's definitely a balancing act. On the Social Security question, remember that W-2 wages from an S-corp are still subject to FICA taxes regardless of the business's profit or loss. If you're taking a reasonable salary from your S-corp, those earnings will still count toward your Social Security earnings record even if the business shows a large loss due to Section 179 deductions.

How much do you typically pay for TurboTax? Their pricing is so confusing with all the different versions and upsells.

We pay about $150 for the Self-Employed version plus state filing. You're right that their pricing is confusing - they start you on a cheaper version then tell you halfway through that you need to upgrade to handle certain forms. The most annoying part is that they increase the price every year while adding very few new features. We've looked at cheaper alternatives like FreeTaxUSA but haven't made the switch yet because we're already familiar with TurboTax's interface.

I switched from TurboTax to a CPA three years ago and it's been worth every penny. Cost is $350 but she found nearly $2,000 in deductions I was missing related to my consulting work. Plus she provides advice throughout the year, not just at tax time. The biggest difference is that software can only work with the information you provide and the questions it's programmed to ask. A good CPA asks probing questions based on your specific situation and knows the more obscure parts of tax code that might apply to you.

Thanks for the info! That makes sense they'd be treated as collectibles. Do you happen to know if gas fees for minting NFTs can be included in the cost basis? I spent almost as much on gas as I did on some of the actual NFTs.

Yes, gas fees for minting can absolutely be included in your cost basis! That's an important point many people miss. Any fees directly associated with acquiring the NFT (minting fees, gas fees, marketplace fees) can be added to your cost basis, which reduces your taxable gain when you sell. Keep detailed records of all those transactions and fees - I use screenshots of the transaction confirmations showing the gas fees in case of audit.

According to an article I read last week, the draft form includes specific sections for reporting both hard forks and airdrops with guidance on valuation. They're apparently going with fair market value at time of receipt (defined as when you have dominion and control over the tokens), but there's also a section for indicating if the tokens had no established market at the time of receipt.

That's a really interesting perspective I hadn't considered. So essentially, I'd be slowly buying the business through my work rather than just managing it for the owner? Would this potentially have tax advantages for both of us compared to the current arrangement?

Yes, exactly. Instead of you managing someone else's business indefinitely, you'd be acquiring equity over time through your work. This can have tax advantages for both parties depending on how it's structured. For you, payments applied toward business acquisition would be building equity rather than just being compensation. For the owner, they could potentially receive capital gains treatment on the sale rather than ordinary income, which typically has more favorable tax rates. Additionally, a properly structured installment sale can spread their tax liability over multiple years.

I went through this exact audit 2 years ago. The IRS initially tried to reclassify all distributions as wages for our inactive owner. What saved us was our operating agreement that clearly defined roles, board minutes documenting the owner's transition to inactive status, and communication records showing who was actually making decisions. Make sure everything is documented contemporaneously - creating documentation after the fact if you get audited looks suspicious. And the operating agreement should explicitly state the owner's current role (or lack thereof).

What's considered a "reasonable salary" though? I've heard everything from 30% to 60% of profits should be salary. Is there an actual rule or is it just whatever you can justify?

There's no fixed percentage that's automatically considered "reasonable" - it depends on your industry, location, duties, and what comparable positions would earn. I've found that industry salary surveys are helpful for documenting your decision. For my construction management business, I settled on about 40% of profits as salary after researching what project managers in my area typically earn. The key is having documentation to support whatever number you choose. The IRS is mainly concerned with people taking a tiny salary and huge distributions to avoid payroll taxes. As long as you can justify your salary with market research, you're generally in good shape.

Oh crap I didn't even think about that. What state are you in? I'm in California and now I'm wondering if I need to do something separate for state taxes.