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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.
My tax guy told me there's a $400 threshold for self-employment income but royalties are different - they're considered passive income and have to be reported regardless of amount. Been reporting my timber royalties for years even though they're less than $300/year.
Wait, is the $400 threshold for ALL income or just self-employment? I made about $350 last year doing some freelance work and didn't report it. Should I be worried???
The $400 threshold applies specifically to self-employment income, which is when you need to file Schedule SE and pay self-employment tax. But that's completely different from the requirement to report all income on your tax return. All income is technically required to be reported regardless of amount. The $400 threshold only determines whether you need to pay self-employment tax, not whether you need to report the income. For your freelance work, you should still report it on Schedule C even if it's under $400, but you wouldn't need to file Schedule SE or pay self-employment tax.
I just went through an audit because I didn't report $200 in royalties from a book I published years ago. Thought it was too small to matter but the IRS computer matched the 1099 to my return and flagged it. Cost me way more in penalties and time than if I'd just reported it. Don't risk it!
Your RSA treatment depends on exactly when you recognized ordinary income. If your RSA was subject to vesting, you would've paid ordinary income tax at the time of vesting, establishing your cost basis. If the acquisition accelerated vesting, that complicates things. Check your 2021-2023 W-2s for Box 14 which might list the RSA income. That amount is your cost basis. The difference between that and your acquisition payout is your capital gain. In my experience, the missing cost basis is the most common issue with equity comp in tax software. You'll need to manually adjust this in TurboTax.
Thanks for explaining this! I just checked my W-2 from 2021 and sure enough, there is an amount listed in Box 14 that matches when the RSA vested. So if I understand correctly, I should use that as my cost basis when entering this into TurboTax?
Yes, that amount in Box 14 is exactly what you should use as your cost basis. Enter that into TurboTax when it asks for the adjusted basis. This will reduce your capital gain to just the appreciation that occurred between vesting and acquisition. Regarding the 20% rate, once you enter this correct basis, check your total income. If your modified AGI exceeds $200,000 (single) or $250,000 (married filing jointly), you're subject to the additional 3.8% Net Investment Income Tax on top of the 15% long-term capital gains rate, effectively making it 18.8%, which TurboTax might round to 20%.
I had a similar issue with RSAs at my last company. Make sure to check Form 8949 in TurboTax. If the cost basis wasnt reported to the IRS (box A unchecked on your 1099-B), you need to select "adjustment" and enter code B for "basis reported to the IRS is incorrect." Then manually enter your correct basis from your W-2 when the RSA vested. This is super common with employer equity and most people overpay taxes because they dont adjust it!!
I agree with this! Same thing happened to me last year and I ended up amending my return after I realized I'd overpaid. The adjustment codes on Form 8949 are crucial for equity compensation.
For your California amendment after moving to Texas, make sure you're filing as a part-year resident on the 540NR form, not the standard 540X. I made this mistake when I moved from California to Nevada and it delayed my amendment by months! Also, be super clear about the dates you were a California resident in 2023. They'll want to know exactly when you established residency in Texas. California is notorious for trying to claim you as a resident for tax purposes as long as possible, especially if you have significant income.
Thanks for this tip! I wasn't aware of the 540NR form. Do you remember what documentation California required to prove your residency change? I have my Texas apartment lease and utility bills starting in December 2023, but I'm not sure if I need anything else.
For proving your change of residency, California typically wants to see a combination of documents. Your lease and utility bills are good starts. Also gather: your Texas driver's license (if you've gotten one), voter registration, vehicle registration if you transferred it, and bank statements showing your address change. The more documentation you have showing you've established a permanent home in Texas, the better. California can be particularly aggressive about maintaining tax residency claims, especially for higher-income individuals. Make sure all your documentation has consistent dates that align with when you claim to have moved. And keep copies of everything you submit - California's Franchise Tax Board has been known to "lose" documentation and ask for it multiple times.
Has anyone else noticed that the IRS seems to be taking WAY longer to process Form 3911 this year? I filed mine in February and it's been over 4 months with no resolution. The IRS website still shows my original return as "still processing" and I'm out almost $4,000!!!
Reginald Blackwell
Just a side note - if you're not a U.S. citizen and don't qualify for an SSN, you might have an ITIN (Individual Taxpayer Identification Number) as your TIN instead. That's what I have as a resident alien, and it works similar to an SSN for tax purposes but can't be used for things like Social Security benefits.
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Aria Khan
ā¢How difficult was it to get your ITIN? I'm helping my cousin who just moved to the US and needs to file taxes next year.
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Reginald Blackwell
ā¢The ITIN application process wasn't super difficult, but it did take some time. You need to complete Form W-7 and provide original documents or certified copies from the issuing agency (like a passport). You can submit it with your tax return or in advance. The processing time was about 7 weeks for me, but I've heard it can take longer during busy periods. One tip for your cousin: if possible, use an IRS-authorized Certifying Acceptance Agent instead of mailing original documents. That way they don't have to part with their passport for weeks while the IRS processes the application.
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Everett Tutum
When I first got my tax documents sorted out, I was confused by all these different ID numbers too. Basically: - Regular employees: SSN = TIN - Non-US citizens without SSN: ITIN = TIN - Businesses: EIN = TIN - Adoption taxpayer: ATIN = TIN The TIN is just the generic term the IRS uses to refer to whichever number applies to your situation.
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Sunny Wang
ā¢What about for a trust? My parents set one up and I'm trying to figure out the tax situation.
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