Individual tax
Form 1040 for people whose returns stopped being simple
Usually the year something changed: a K-1 arrived, equity vested, a rental was bought, or work crossed a state line.
Multiple states
Residency, part-year allocation, and the credit for taxes paid to other states are where multi-state returns go wrong, usually in the taxpayer’s disfavor. Remote work has quietly created filing obligations for a lot of people who never moved. We work out where you actually owe, and where you do not.
Three things drive it. Residency decides which state taxes everything, and it turns on domicile and days rather than on where the mail goes. Sourcing decides how much of the rest each other state may claim, and states do not use the same rule, so the same income can be claimed twice. The credit for taxes paid to other states is the relief, and it is claimed in the residence state, subject to limits that regularly surprise people who assumed it would net to zero.
A move made halfway is the expensive case: the old state still treats you as resident while the new one already does. What settles it is records kept at the time, not reconstructed afterwards. More on multi-state taxation.
Equity compensation
Restricted stock units, incentive stock options, and non-qualified options each have their own timing, their own withholding behavior, and their own way of producing a surprise. Incentive stock options in particular can trigger alternative minimum tax in the year of exercise, well before there is cash from a sale to pay it with. Broker cost basis on equity comp is frequently reported low, which means paying tax twice on the same income unless it is corrected.
Rental property and pass-through income
Passive activity limits, at-risk rules, depreciation, and the qualified business income deduction all interact. Whether a rental qualifies for the deduction, and whether losses are usable this year or suspended, comes down to facts worth establishing before the return, not after.
Self-employment and estimates
Quarterly estimates are the most common source of avoidable penalties in this practice. We set them against a projection rather than last year’s number when the year is clearly going to look different.
Foreign accounts
A foreign account can trigger an FBAR at a low aggregate threshold, and possibly Form 8938 as well. The penalties for missing these are disproportionate to the effort of filing them, so we ask directly rather than waiting to be told.
Insights
Further reading
Quarterly estimated taxes for private practice owners
The penalty is not for owing at filing. It is for paying late during the year, and the safe harbors are written so that a practice with unpredictable income can still avoid it.
One remote employee can put you in another state’s tax system
Nexus is three separate tests, not one. The reason remote work catches people is that the cheapest of the three to trigger is the one nobody is watching.
Bring last year’s 1040
The prior return is the fastest way to see what is being missed.