If your bonus pushed you from the 22% to the 24% bracket, for example, remember that our tax system is progressive. Only the dollars that fall into that higher bracket get taxed at the higher rate. The rest of your income is still taxed at the lower rates of the brackets below it. But a large bonus can definitely cause underwithholding if your employer only withheld at the standard 22% supplemental wage rate. For 2025, single filers hit the 24% bracket at $95,376, the 32% bracket at $182,101, and the 35% bracket at $231,251. Married filing jointly has different thresholds.

I went through this exact same situation last year! Got a large bonus that was about 30% of my salary and ended up owing $2,100 even though my employer withheld taxes. What helped me understand it was realizing that the 22% flat withholding rate on bonuses is often not enough when you factor in state taxes, FICA taxes on the bonus amount, and how it affects your overall tax bracket. One thing that caught me off guard was that my bonus also pushed me over the income limit for some tax credits I'd been getting in previous years. The loss of those credits added to what I owed on top of the underwithholding issue. For this year, I updated my W-4 to have extra withholding throughout the year to cover any bonus I might receive. I'd rather get a smaller refund than owe a big chunk again. Also consider making a quarterly estimated payment if you know a bonus is coming - you can avoid underpayment penalties that way.

I went through something very similar when I purchased a small accounting practice last year. One thing I learned that might help you - make sure you're crystal clear about whether any part of your $27k included a non-compete agreement with the previous owner. Even if it wasn't explicitly called out in your contract, if there was any understanding that the seller wouldn't compete with you for a certain period, that portion needs to be amortized differently. Also, don't forget to consider if any of the customer contracts you acquired have specific terms or remaining durations. Sometimes part of the purchase price can be allocated to these existing contracts, which might have different tax treatment than pure goodwill. Your tax professional will definitely help sort this out, but having these details ready will make that meeting much more productive. Good luck with the expanded business!

Great discussion here! Just wanted to add one more important consideration for your meeting with the tax professional - make sure to discuss the potential impact on your state taxes as well. While federal tax law requires the 15-year amortization for goodwill, some states have different rules or additional requirements for business acquisitions. Also, since you mentioned this was a competitor buyout, keep detailed records of any costs associated with integrating their operations into yours (like transferring contracts, updating insurance, etc.). Some of these transition costs might be immediately deductible as business expenses rather than part of the asset purchase. One last tip - if your business grows significantly as a result of this acquisition, you might want to consider whether you need to change your business structure (LLC vs S-Corp, etc.). The additional income combined with the amortization deductions could affect your overall tax strategy. Your tax pro can run some projections to see if there are better approaches for your specific situation.

Has anyone used TurboTax to report their short-term rental income? I'm trying to figure out if the basic version will handle this or if I need to upgrade to the premium version.

One thing I haven't seen mentioned yet is the importance of keeping a detailed calendar or log of your rental activity. Since you're using the basement personally when family visits, you'll want to document exactly which days were: 1. Rented to paying guests 2. Available for rent but vacant 3. Used personally by you or family 4. Unavailable due to maintenance/repairs The IRS can be pretty strict about this documentation if you get audited. I use a simple spreadsheet with columns for date, status (rented/available/personal/maintenance), and any notes about bookings or personal use. Also, since you mentioned you sometimes let family stay there when they visit - make sure you're not charging them rent, because if you are, those days would count as rental days for tax purposes. If it's truly free family use, then it counts as personal use and reduces your deductible percentage. One more tip: take photos of the space in its rental-ready condition and keep receipts for any improvements or furnishings you buy specifically for the rental. These can help establish your basis for depreciation calculations.

This thread has been incredibly helpful! I'm dealing with a similar situation where my wife and I own our primary residence plus two adjacent lots that we've been using as extended yard space for the past 12 years. One lot has our pool and patio area, the other is mostly wooded but we use it for hiking trails and our kids built a treehouse there. Based on everything discussed here, it sounds like both lots should qualify for the capital gains exclusion along with our main house as long as we can document the residential use and sell within a reasonable timeframe. The advice about getting everything appraised together as one unit is brilliant - I'm definitely going to do that. One question I haven't seen addressed: does it matter that our lots are technically on separate parcels with separate property tax assessments? We receive three different tax bills each year, which makes me worry the IRS might view them as separate investment properties rather than part of our primary residence. Has anyone dealt with this situation where the adjacent land was on completely separate legal parcels? Also, for those who mentioned working with tax professionals specializing in real estate - any recommendations for finding qualified specialists? I want to make sure I get proper guidance before we start the selling process.

This has been such an informative discussion! I'm actually a tax preparer and wanted to add a few technical points that might help everyone here. First, regarding the separate parcel question - the IRS uses the "functional test" rather than just legal boundaries. As long as you can show the parcels were used together as your residence (which your pool, patio, trails, and treehouse clearly demonstrate), the separate tax assessments won't hurt you. In fact, I've seen cases where separate parcels actually helped establish clear ownership timelines. One thing I haven't seen mentioned is the importance of Form 8949 reporting when you do sell. You'll need to report each property separately on the form, but you can apply the Section 121 exclusion to the combined gain. I always recommend my clients include a statement explaining that the properties were used as an integrated primary residence - this proactive disclosure can prevent future IRS questions. Also, for those considering the timing of sales - while selling in the same tax year is cleanest, I've successfully handled cases where properties sold up to 18 months apart with proper documentation. The key is maintaining your narrative that they were always one residential unit, not separate investments. One last tip: if any of you have made capital improvements to the adjacent lots (landscaping, fencing, pool installation, etc.), make sure to include those in your cost basis calculations. These improvements can significantly reduce your capital gain and might even keep you under the $500K threshold if you're close to the limit.

Morgan, as someone who just went through this exact transition last year, I completely understand your anxiety! The "studio to house" analogy is perfect - it really captures how overwhelming this change can feel. I was terrified about switching from Single to HOH after my divorce, but it turned out to be much more straightforward than I expected. The IRS sees these life transitions constantly - divorce, separation, taking on caregiving responsibilities - so your situation isn't unusual at all. What helped me most was keeping simple documentation: a folder with utility bills showing my name/address, school enrollment records for my kids, grocery receipts, and a basic spreadsheet tracking monthly expenses to prove the 50% household support test. Nothing fancy, just organized records of my actual circumstances. The biggest relief came when I realized I wasn't trying to "game" anything - I was legitimately entitled to HOH status based on my real life situation. The tax benefits exist specifically for people like us who are now shouldering full financial responsibility for our households. My advice: file accurately, keep good records, and don't let audit fears prevent you from claiming the status and benefits you're legally entitled to. The tax savings can really help offset those increased expenses you're now handling solo. You're already doing the hard part (financially supporting your dependents) - the paperwork just needs to reflect that reality. You've got this! The community here is incredibly supportive if you need any other guidance along the way. 🏠💪

Hi Morgan! As a newcomer to this community, I just wanted to say how much I appreciate you sharing this question - it's exactly what I needed to hear about! I'm facing a similar transition next year when my custody arrangement changes, and reading through all these responses has been incredibly educational and reassuring. What strikes me most from everyone's advice is the consistent message that life changes like yours are completely normal and expected by the IRS. The documentation tips shared here (especially the simple folder system and 50% expense tracking) seem so much more manageable than I initially thought. I love how multiple people emphasized focusing on accuracy rather than audit avoidance - that perspective shift alone has reduced my anxiety about my upcoming filing change. Your "studio to house" analogy really resonates with me too. It perfectly captures that feeling of increased responsibility and complexity. But seeing how supportive and knowledgeable this community is gives me confidence that we can navigate these transitions successfully. Thank you for asking the question that so many of us newcomers were probably wondering about but were too nervous to post. The wealth of practical advice and encouragement in these responses has been invaluable. It's clear that with proper documentation and accurate filing, these status changes are just routine reflections of our real-life circumstances. Here's to successfully managing our new "houses"! 🏠✨