Don't forget about foreign tax complications if your ETFs or index funds hold international stocks! My Vanguard VXUS generates foreign taxes that I can claim as either a deduction or credit.

Great question! I was confused about this exact same thing when I started investing. Yes, you absolutely still owe taxes on those reinvested dividends - the IRS treats them as if you received the cash and then immediately used it to buy more shares. Since you mentioned you're holding VTI and VXUS, most of those dividends will likely be "qualified dividends" which get the favorable capital gains tax treatment (0%, 15%, or 20% depending on your income level) rather than being taxed as ordinary income. Your brokerage will send you a 1099-DIV that breaks down qualified vs. non-qualified dividends. One silver lining - those reinvested dividends do increase your cost basis in the funds, so when you eventually sell, you'll have less capital gains to pay taxes on since your purchase price will include all those reinvestments you already paid taxes on. $780 in dividends isn't too bad for your first year! Just make sure to save some cash for the tax bill if you haven't been setting aside money for taxes on your investment gains.

This is such a helpful thread! I'm in a similar situation and had one additional consideration that might help others - if you're planning to get married in the future, you'll want to think about the timing of adding your partner to benefits vs. getting married. When you get married, your spouse's benefits automatically become tax-free (no more imputed income), but you can only make changes during open enrollment or qualifying life events. Marriage is a qualifying event, but adding a domestic partner might use up your one "life event" change for the year depending on your employer's policy. Also, if you're contributing to a Dependent Care FSA for things like childcare, the domestic partner situation gets even more complex. The IRS has strict rules about who can be covered under these accounts, and domestic partners who aren't tax dependents usually don't qualify. I ended up waiting until marriage to add my partner to avoid the tax complications, but I know that's not an option for everyone. Just something to consider in your decision-making process!

Great question about coverage gaps! From my experience, marriage is considered a separate qualifying life event, so you should be able to make changes immediately when you get married even if you recently enrolled a domestic partner. The key is that these are two distinct qualifying events under most employer plans. However, I'd strongly recommend checking with your HR department about their specific policy on this. Some employers have waiting periods or restrictions on how quickly you can make multiple changes, even with qualifying events. When I called HR about this exact scenario, they confirmed that marriage would allow immediate changes regardless of recent domestic partner enrollment. As for the Dependent Care FSA, you're absolutely right to be concerned. The IRS rules are strict - only qualifying dependents can be covered, and domestic partners who don't meet the tax dependency tests usually don't qualify. This means if your partner has their own income above the threshold, daycare expenses for their children typically won't be eligible for reimbursement from your FSA. This could be a major factor in your decision. If you're looking at $5,000 in annual FSA savings for childcare (the maximum contribution), that tax benefit might outweigh the extra taxes from imputed income on health benefits. Definitely run the numbers on both scenarios before deciding!

Great question about tracking expenses for your flip! I went through this same situation last year with my one-time flip. One thing I learned that might help you - make sure to separate out any expenses that happened after you finished the renovation work. For example, if you're paying utilities while showing the house to potential buyers, those become selling expenses rather than basis additions. But utilities during active construction/renovation definitely add to your basis. Also, don't forget about some of the smaller expenses that can add up - things like permits, inspections, dumpster rentals, and even mileage to/from the property for renovation purposes. I kept a detailed spreadsheet with dates and categories which made tax time much easier. One last tip: if you're doing any of the work yourself, you can't add the value of your own labor to basis, but you can add the cost of materials you purchase. Keep those receipts organized by room or project type - it really helps if you ever need to explain your basis calculation to the IRS.

Just want to add another perspective on this since I handled a similar flip situation recently. One thing that caught me off guard was documentation requirements - the IRS really wants to see clear evidence that expenses were truly for improvement rather than maintenance. For your loan interest question, yes it can typically be added to basis, but make sure you can show the loan was specifically for acquisition or improvement costs. If you took out a HELOC on another property to fund this flip, that interest might be treated differently. Also, regarding the utilities during renovation - I learned the hard way that you need to be able to demonstrate the property was uninhabitable during that period. I had to provide photos showing active construction, contractor invoices with dates, and utility bills to prove the timeline. The IRS agent I spoke with said they see people try to claim regular occupancy utilities as improvements, so they scrutinize this area. One expense category you didn't mention but might apply: if you had to get any special permits, environmental testing, or surveys, those definitely add to your basis. Same with any professional fees for architects or engineers if you did structural work. Keep everything organized by month and take lots of photos throughout the process - it really helps establish the timeline if you ever need to justify your basis additions!

I want to share my experience as someone who went through a similar situation last year. I was offered $8,000 in cash for helping with landscaping work, and I was really tempted to just not report it. But after reading about the potential consequences, I decided to do the right thing and report it properly. It ended up being much less painful than I expected. I filed Schedule C for the self-employment income, but I was also able to deduct expenses like gas for my truck, tools I bought, and even part of my cell phone bill since I used it for work coordination. After all the deductions, I only owed taxes on about $5,500 of the income. The peace of mind has been worth it. I sleep better knowing I'm not looking over my shoulder wondering if the IRS will catch up with me someday. Plus, now I have a legitimate track record of self-employment income that could help if I ever want to apply for a loan or mortgage. My advice: report the income, keep good records of your expenses, and consider it a learning experience for handling taxes as a freelancer. It's really not as scary as it seems when you do it properly from the start.

I really appreciate seeing all the different perspectives here. As someone who's dealt with tax issues in the past, I want to emphasize that reporting the income is absolutely the right call, even though it might seem like a hassle now. One thing I haven't seen mentioned yet is that if you're going to be doing this type of work regularly, you might want to consider getting an EIN (Employer Identification Number) from the IRS. It's free and makes you look more professional when working with clients. You can also open a separate business bank account, which makes tracking income and expenses much cleaner come tax time. Also, don't forget about state taxes if your state has income tax. You'll need to report this income there too, but the good news is that most business expenses that reduce your federal taxes will also reduce your state taxes. The most important thing is to start keeping detailed records from day one. I use a simple spreadsheet to track every dollar that comes in and every business expense that goes out. It makes tax season so much easier when everything is already organized.

Has anyone tried both the IRS withholding estimator and TurboTax's W-4 calculator? I'm wondering which one is better for someone with large medical deductions like the original poster.

I went through this exact same situation last year with major medical expenses from a surgery, so I totally understand your confusion! The W-4 changes a few years back definitely made it more complicated. Here's what I learned after making some mistakes initially: You need to estimate ALL your itemized deductions for the year (medical expenses above 7.5% of your AGI, plus any mortgage interest, state/local taxes, charitable donations, etc.). Then subtract the standard deduction amount from that total. Only put the difference on line 4(b) of the W-4. With $27,000 in medical bills, a good chunk of that should qualify as deductible once you apply the 7.5% AGI threshold. Don't forget you can also include mileage to/from medical appointments and prescription costs. One tip that saved me: keep really detailed records of everything medical-related this year since you'll likely continue having follow-up appointments and expenses. I use a simple spreadsheet to track dates, amounts, and what each expense was for. Makes tax time so much easier! The instructions really are confusing - you're not alone in feeling lost by them. Take your time working through the calculations and don't hesitate to adjust your W-4 later in the year if your situation changes.