I'm in a very similar situation with my ex-husband and our 8-year-old daughter. We alternate claiming her every year, and I've learned a few things that might help you out. First, definitely align your W-4 with your actual tax filing plans each year. I used to just leave my W-4 alone and deal with whatever happened at tax time, but that led to some unpleasant surprises - especially a $1,400 tax bill one year when I had withheld as if I was claiming her but then it was his turn to claim her on taxes. Since you now have full physical custody, you might want to consider updating your informal agreement or at least getting it documented somehow. Even a simple text exchange confirming "2025 is Ana's year to claim, 2026 is mom's year" can be helpful if questions ever come up. One practical tip: I set a recurring calendar reminder every December to review and update my W-4 for the following year. Takes 5 minutes but saves me from major headaches. Also, don't stress too much about penalties - the IRS really doesn't care how many times you update your W-4 during the year as long as you're trying to match your actual tax situation. Your co-parenting situation sounds really healthy, which makes all of this so much easier to navigate!

This is such a relatable situation! I went through something very similar when my custody arrangement changed a few years ago. One thing that really helped me was thinking of the W-4 as a "withholding estimate" rather than a commitment. The key is making your best guess at the beginning of each year about what your tax situation will look like, then adjusting if things change. Since you now have full physical custody, you're technically the custodial parent, which gives you the default right to claim your son. If you want to continue the alternating arrangement with his mom, just make sure you both understand that you'll need to sign Form 8332 in the years when she claims him. For the W-4 strategy, I'd recommend updating it each January based on your plan for that tax year. If 2025 is your year to claim him, put down 2 allowances (you + your son). If 2026 is his mom's year, go back to just claiming yourself. Yes, it means updating your W-4 every year, but it's way better than getting hit with a surprise tax bill. The IRS won't penalize you for having the "wrong" W-4 during the year as long as you're making a good faith effort to estimate your taxes correctly. The penalties only come into play if you significantly underpay your actual tax liability. Hope this helps, and kudos on maintaining such a positive co-parenting relationship!

Has anyone actually successfully achieved "trader tax status" with the IRS? I keep hearing mixed things about whether day trading qualifies as a "business" or just as investment activity.

Great discussion here! I'm dealing with a similar situation and want to add a few considerations that might help others: One thing to really think about is the timing of setting up your business structure. If you're planning to elect Mark-to-Market status (Section 475), you need to make that election by April 15th of the year it takes effect, and it's generally easier to do this when you first establish your trading business rather than switching later. Also, don't forget about state taxes in your decision. Some states have different rules for S-Corps vs LLCs, and if you're doing well with trading, state tax implications could be significant depending on where you live. From my research, the "reasonable salary" requirement for S-Corps is probably the trickiest part. The IRS doesn't publish specific guidelines for traders, so you really need documentation showing what comparable professionals earn. I've seen suggestions ranging from 40-60% of net trading income as salary, but definitely get professional advice on this. One last thing - make sure whatever structure you choose, you're keeping meticulous records. Trading businesses get audited more frequently than other types of businesses, so having everything properly documented from day one is crucial.

One thing nobody has mentioned yet is that there are actually limits on business losses you can claim against other income in a given year. Section 461(l) limits excess business losses for non-corporate taxpayers. For 2023, you can only offset up to $289,000 (or $578,000 if married filing jointly) of non-business income with business losses. Anything above that becomes an NOL carryforward. Also, if your business loses money for 3 out of 5 consecutive years, the IRS might classify it as a hobby rather than a business, and then you lose the ability to deduct those losses against other income entirely.

The way I understand it (as a fellow sole proprietor) is that there's no such thing as a "business loss carryforward" for Schedule C businesses. When you have a loss, it immediately offsets your other income in that tax year. The confusion might be coming from corporations, partnerships and other entities where losses ARE tracked separately. But for sole props, it's all just your personal money - the business doesn't exist as a separate tax entity. That's actually a benefit - you get to use those losses right away instead of waiting for future business profits!

Just wanted to point out something nobody's mentioned: mortgage interest and property taxes are ALREADY deductible on your personal return if you itemize deductions, even without an LLC. Setting up this complex structure won't give you any additional benefit for those specific expenses. The only potential tax advantage is writing off depreciation and renovation costs, but as others have pointed out, most renovations would be capital improvements depreciated over 27.5 years - not immediate deductions. Also, mortgage lenders almost certainly won't give you a residential mortgage rate for an LLC purchase. You'd likely need a commercial loan at 1-2% higher interest, which would immediately negate many tax benefits.

As someone who's been through a similar analysis, I'd strongly recommend against the LLC approach for your situation. The math just doesn't work out favorably when you factor in all the additional costs and complications. Here's what you should consider instead: Since you're planning to live there as your primary residence, focus on the HELOC strategy mentioned earlier. You'll get immediate interest deductions on funds used for substantial improvements, and it's much simpler administratively. For the renovations, document everything meticulously. While you can't deduct them as a homeowner, they'll increase your cost basis when you sell, which reduces any potential capital gains. Given that you expect only modest appreciation, this could actually eliminate most or all taxable gains. Also consider timing your purchase and renovations strategically. If you're expecting higher income years during your 5-year ownership period, concentrate the major improvement projects (and corresponding HELOC interest deductions) in those years to maximize the tax benefit. The LLC structure would cost you thousands in additional fees, higher mortgage rates, lost homestead exemption, and preparation costs while providing minimal actual tax benefit. Sometimes the simplest approach is the best one.

Has anyone dealt with QBI deduction calculations for a short year? Trying to figure out if there are special considerations there.

One thing I haven't seen mentioned yet is the potential impact on retirement plan contributions. If your client has a SEP-IRA, Solo 401(k), or defined benefit plan, the short tax year will affect the contribution limits and deadlines. The contribution limits need to be prorated based on the number of months in the short period. For example, if they have a SEP-IRA and the short period is only 8 months, their maximum contribution would be 8/12 of what it would normally be. This could significantly impact their tax planning strategy, especially if they were counting on making large retirement contributions to reduce their tax liability. Also worth checking if they have any existing installment agreements with the IRS for estimated taxes - those will need to be recalculated for both the short period and the new tax year going forward. The IRS is usually accommodating about adjusting payment schedules if you're proactive about notifying them of the change.