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One thing that hasn't been mentioned yet - if the payment was specifically designated as "alimony" in the divorce decree, the tax treatment would be different depending on when your divorce was finalized. For divorces finalized AFTER Dec 31, 2018, alimony is NOT taxable income to the recipient (and not deductible by the payer). For divorces before that date, alimony IS taxable income. But from your description, this sounds like a property settlement, not alimony, so it should be non-taxable regardless. Just make sure your sister keeps good documentation in case of an audit.
The divorce was finalized in 2019, but the agreement definitely doesn't call it alimony. It's labeled as "property settlement" in the divorce decree. Is that clear enough for the IRS or does she need additional documentation? And would the extra amount he paid her ($2,500 over the agreed amount) fall under the same category?
If the agreement specifically labels it as "property settlement" in the divorce decree, that's very clear documentation for the IRS. That's exactly what you want - language that explicitly categorizes the payment as division of marital assets rather than support payments. For the extra $2,500, that's a bit trickier. Since it wasn't specified in the original agreement, the IRS might consider it as a separate transaction. If her ex specifically characterized it as interest or compensation for the delay, it could be considered taxable income. If it was presented as an additional property settlement or a gift, it would likely not be taxable to her. I'd recommend documenting any communication about that extra amount (emails, texts) that explains the nature of that additional payment.
Has your sister already received a tax form for this payment? If her ex reported it as income paid to her, she may get a 1099-MISC, which would mean the IRS is expecting her to report it as income. If that happens, she'll need to file her return correctly (as a non-taxable property settlement) and include an explanation with documentation.
This is a really good point. When I went through my divorce, my ex-spouse incorrectly issued me a 1099 for a property settlement payment. I had to file Form 8275 (Disclosure Statement) with my tax return to explain why I wasn't reporting the amount as income. Saved me from an automatic audit flag when the IRS computers saw the 1099 but didn't see matching income on my return.
She hasn't received any tax forms yet, but that's a really good point! I'll tell her to wait before filing her taxes to make sure she doesn't get a 1099 from him. If she does, we'll definitely need to file that Form 8275 with an explanation. The divorce was such a mess that I wouldn't be surprised if he reports it incorrectly just to cause problems.
Has anyone tried those online CPA matching services? I've seen ads for them but not sure if they're legit or just trying to push you to the highest bidding accountants.
I used CPAselect last year and it was hit or miss. They matched me with three accountants but only one was actually taking new clients. That said, the one I ended up with has been great. Just make sure to do your own vetting even after they match you.
Thanks for sharing your experience! I'll give it a try but will definitely interview them carefully before committing.
Just want to add - check if your prospective new CPA has experience with your specific situation (small business, investments, etc). I switched to a CPA who specializes in freelancers and she catches deductions my previous general accountant missed completely. Also ask about their preferred communication method! My old CPA was phone-only which drove me nuts, new one does email which is so much better for me.
Good point! My business involves international clients and my current CPA seems completely lost with the foreign income reporting. Need to find someone who specializes in that for sure.
U might b able 2 take advantage of a tax credit instead of a deduction if ur income is low. Look into the Savers Credit if u put $ into retirement or check if ur state has any low income credits. Deductions just reduce ur taxable income but credits directly reduce taxes u owe which is better!!
Has anyone considered that a dental implant might actually count as a capital improvement to your body and should be depreciated over time rather than expensed in a single year? š¤ Just kidding!! Sorry, tax humor. But on a serious note, make sure you keep ALL your receipts, including costs for traveling to and from dental appointments - mileage can add up and is deductible as a medical expense too!
Brewery owner here! We went with an LLC taxed as an S-Corp (1120-S) and it's been great for our situation. The self-employment tax savings are substantial. One thing to consider - with craft breweries, equipment depreciation is a big deal tax-wise. The other advantage to S-Corp status is that it looks more established to distributors and larger retailers. We found this helped when trying to get our beers into larger chains and regional distribution networks. Make sure whatever you decide, you have solid operating agreements that clearly outline capital contributions, profit distributions, and decision-making authority. The tax form is just one part - the legal structure between partners is equally important.
That's super helpful context from someone in the same industry! Can I ask how you handled the reasonable salary requirement for S-corps? I've heard the IRS scrutinizes brewery owners who take too little salary to avoid payroll taxes.
Great question! For breweries, this is indeed tricky. We looked at what comparable positions would earn in our area (head brewer, operations manager, etc.) and set salaries accordingly. For the first two years, our salaries were about 50-60% of our total compensation, with the rest as distributions. The IRS does look closely at this industry, so we documented our salary-setting process carefully. We also made sure our salaries increased as the business grew more profitable. Having documentation that shows your salary determination wasn't arbitrary is key if you ever get questioned. Our accountant had us keep notes from our meetings where we discussed compensation and market rates.
Don't forget to consider state-specific implications too! Some states treat these entities differently. For example, California has that annoying $800 minimum franchise tax for LLCs and S-Corps, plus an LLC fee based on gross receipts that can get pricey for breweries with high-volume/low-margin products.
Caden Turner
PSA for all students: If your income is below $73,000, DO NOT directly go to TurboTax, H&R Block, etc. websites. Instead, access them THROUGH the IRS Free File page (https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free) if you want to use those services for free! Companies deliberately hide their free versions and use confusing language to get you to pay. There was actually a big scandal about this a few years ago. They advertise "free free free" but then charge you for state filing or when you have a 1098-T. I've used IRS Free File for 3 years as a student with W-2s, 1098-T education credits, and even some side gig income, and haven't paid a cent. Literally saved hundreds of dollars.
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McKenzie Shade
ā¢Does the Free File program have a mobile app or is it desktop only? My laptop died last month and I'm only using my phone right now.
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Caden Turner
ā¢Most of the Free File options are designed primarily for desktop, but several have mobile-responsive websites that work on phones. TaxSlayer and TaxAct specifically have decent mobile experiences through their Free File programs. If you're limited to just your phone, Cash App Taxes (mentioned in another comment) might be your best bet - it was literally designed as a mobile-first experience and works great on phones. It's free regardless of whether you access it through Free File or directly, and handles education credits without charging.
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Harmony Love
has anyone here used Credit Karma Tax? i heard they got bought by Cash App but still offer free filing. my roommate used it last year but he doesn't have education stuff like i do
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Rudy Cenizo
ā¢Yes, Credit Karma Tax is now Cash App Taxes. I used it this year with a W-2, 1098-T, and even some 1099-INT from my savings account. Completely free for both federal and state, and it handled my American Opportunity Credit without any issues. The interface is pretty streamlined and worked well on both my laptop and phone.
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