This has been such a valuable discussion to read through! I'm currently working on my first 338(h)(10) election and feeling much more confident after seeing everyone's real-world experiences. One area I haven't seen fully addressed is the impact on deferred tax accounting. When you're recording the deemed asset sale and recognizing the stepped-up basis for tax purposes, this creates significant temporary differences between book and tax basis that need to be reflected in your deferred tax calculations. In our situation, we're seeing substantial deferred tax liabilities arising from the step-up in asset values, particularly for goodwill and other intangibles that don't have book basis but now have tax basis. The deferred tax impact is actually one of the largest components of our overall journal entries. Has anyone dealt with complex deferred tax calculations in these elections? I'm particularly struggling with how to handle the interaction between the deemed asset sale recognition and the related deferred tax effects. Our external auditors are asking for detailed support for the deferred tax calculations, and I want to make sure we're approaching this correctly. Also, @Luca Bianchi, regarding your question about stock compensation - in our case, we had to work closely with legal counsel because some of the target's equity awards accelerated vesting due to the change in control, which created additional complexity in the deemed liquidation analysis. Definitely worth flagging early with your legal team.

I've been working through 338(h)(10) elections for about 8 years now, and this thread covers most of the key issues really well. Let me add a few practical points that might help newcomers: First, regarding the deferred tax discussion - you're on the right track, but don't forget that the deferred tax calculation needs to consider the specific tax depreciation methods that will apply to the stepped-up assets. For example, if you're stepping up equipment that qualifies for bonus depreciation, your deferred tax liability might reverse much faster than you initially calculate. Second, I'd strongly recommend documenting your entire process as you go. In every 338(h)(10) election I've worked on, we've ended up needing to explain our methodology to auditors, tax advisors, or even the IRS years later. Having contemporaneous documentation of your asset allocation decisions, FMV determinations, and calculation methods is invaluable. One thing I haven't seen mentioned is the potential Section 197 implications for intangible assets. If you're allocating significant value to customer relationships, non-compete agreements, or other intangibles, make sure you understand which ones qualify for 15-year amortization under Section 197 versus shorter recovery periods. Finally, for anyone dealing with their first election - consider running through the entire process with a small "test case" first if your transaction is complex. We often create simplified models to make sure our methodology is sound before applying it to the full transaction. It's much easier to catch errors early than to unwind incorrect entries later.

If you're having S-corp basis issues, PLEASE get professional help. I tried to handle this myself in 2023 and ended up with an unexpected $18k tax bill because I didn't understand how suspended losses work when your basis is insufficient. A good CPA will charge you way less than the mistakes will cost you.

I've been dealing with S-corp basis issues for my tech consulting business and want to share what I've learned about non-deductible expenses specifically. You're right to be confused - this is one of the trickier areas! The key insight is that non-deductible expenses like your excess meals, parking tickets, and club dues actually DON'T reduce your tax basis directly. Here's why: when your S-corp prepares its Form 1120-S, these non-deductible expenses get "added back" to calculate the final ordinary business income that flows through to your K-1. Since they're already being treated as non-deductible (meaning they don't reduce the S-corp's taxable income), they don't get to reduce your basis either. Think of it this way: if an expense reduced both your taxable income AND your basis, you'd be getting a double benefit. The tax code prevents this by having different treatment for truly deductible expenses versus non-deductible ones. For your $45k initial investment, that becomes your starting stock basis. Each year it increases by your share of the S-corp's income (which already has those non-deductible expenses added back in) and decreases by distributions and actual deductible losses. I'd strongly recommend setting up a simple spreadsheet to track this annually - it's much clearer than trying to rely on general accounting software for tax basis calculations.

This whole thread has been incredibly helpful! As someone who's had to deal with HSA contribution limits and corrections myself, I can't stress enough how important it is to stay on top of these details throughout the year rather than discovering issues at tax time. One additional resource that might be helpful for folks dealing with HSA complications - IRS Publication 969 has a comprehensive section on HSAs that covers contribution limits, excess contributions, and the correction procedures. It's not the most exciting reading, but it's the definitive source for understanding all the rules and requirements. Also, for anyone who's self-employed or has varying income throughout the year, remember that HSA contribution limits are based on your HDHP coverage months, not your income level. If you only had qualifying high-deductible health plan coverage for part of the year, your contribution limit is prorated accordingly. This is another common source of over-contributions that people sometimes miss. The bottom line is that while HSA over-contribution mistakes happen, they're usually fixable if you catch them early and handle them properly. The advice in this thread about keeping good records, working with your HSA administrator, and understanding the tax implications is spot on. Better to deal with a little paperwork now than penalties and headaches later!

This has been such an informative discussion! I'm dealing with a similar HSA over-contribution issue right now, and reading through everyone's experiences has been incredibly helpful. I wanted to add one more consideration that might be relevant for some people - if you're married and both spouses have HSA-eligible coverage through different employers, make sure you're coordinating your total household HSA contributions. The IRS has specific rules about contribution limits when both spouses have HSAs, and it's easy to accidentally exceed the limits if you're not communicating about your individual contributions. Also, for anyone who might be in a similar situation in the future, don't panic if you discover an over-contribution. As this thread shows, these issues are usually fixable with the right approach and documentation. The key is acting quickly once you discover the problem and working closely with your HSA administrator to ensure the correction is handled properly. Thanks to everyone who shared their experiences and solutions - this kind of real-world advice is so much more helpful than trying to decipher IRS publications on your own!

This is exactly the kind of situation where keeping meticulous records is crucial! I went through something similar with Boeing stock my grandmother left me. One thing I learned the hard way is that you should also consider the timing of when you gift the shares to your daughter. If she's starting college next year, think about her income level - if she's in a lower tax bracket, the capital gains tax rate when she eventually sells could be more favorable (potentially 0% or 15% instead of 20%). However, this could also affect her financial aid eligibility since assets in the student's name are weighted more heavily than parent assets in FAFSA calculations. You might want to consider whether it makes sense to sell some shares yourself first and gift the cash instead, or use a 529 education savings plan transfer. Each approach has different tax implications. Given the complexity with the multi-generational gifting and potential DRIP complications others mentioned, I'd really recommend consulting with a tax professional who specializes in estate and gift planning before moving forward.

Great question! As a newcomer to this complex topic, I'm learning a lot from this discussion. One thing I'm wondering about is whether there are any state-level implications to consider in addition to the federal tax rules everyone's discussing? I live in California, which I know has its own gift and inheritance tax rules. Would the cost basis carryover rules work the same way for state taxes, or could there be additional complications when gifting stock across state lines? For example, if your aunt lived in a different state when she originally purchased the Microsoft shares, or if your daughter will be attending college in another state where she might establish residency? Also, since several people mentioned the importance of documentation - is there a specific format or type of documentation that the IRS expects for gifted securities? I want to make sure I'm prepared if I ever find myself in a similar situation with family stock transfers. This thread has been incredibly helpful for understanding how complex these multi-generational transfers can be!

This W4 Box 2c confusion is so common! I work as a tax preparer and see this exact scenario multiple times every tax season. You're absolutely right that the mismatch caused your underpayment issue. Here's what happened: When you checked Box 2c, your employer's payroll system adjusted your withholding to account for having two working spouses with similar incomes. But when your husband didn't check it, his employer withheld taxes as if he was the sole breadwinner supporting a non-working spouse - which means much less tax was taken out of his paychecks. For 2026, definitely have your husband submit a new W4 with Box 2c checked. Since you both earn around $65k, this should solve most of the problem. However, I'd also recommend running the numbers through the IRS Tax Withholding Estimator mid-year to make sure you're on track, especially since you mentioned these were new jobs in 2024. One tip: if you want to be extra safe and avoid any surprises, you could have a small additional amount withheld from one of your paychecks using Step 4(c) - maybe $50-100 per month. This creates a small buffer without significantly impacting your monthly budget.

This thread has been incredibly helpful - I had no idea the W4 Box 2c could cause such issues! My partner and I are planning to get married next year and we both work (I make about $58k, they make about $62k). Based on what everyone's shared here, it sounds like we'll need to both check Box 2c when we update our W4s to "married filing jointly" status. But I'm curious - should we wait to make this change until after we're actually married, or can we update our W4s as soon as we know we'll be married for tax purposes? Also, since our incomes are pretty close to what Jacob and his husband earn, would it make sense to also add that small buffer amount in Step 4(c) that Keisha suggested? I'd rather be safe than sorry after reading about everyone's surprise tax bills!