Great questions! State tax residency rules are actually separate from federal rules, so becoming a federal resident alien doesn't automatically make you a California resident for state tax purposes. California has its own residency tests based on factors like where you maintain a permanent home, where your personal and economic ties are strongest, and your intent to remain in the state. However, since you've been in California for several years as a student, you might already meet California's residency requirements even before your federal status changes. I'd recommend looking into California's residency rules specifically - they're pretty detailed and different from the federal substantial presence test. As for estimated taxes, yes, that's definitely something to plan for! Once you're a resident alien, you'll likely need to make quarterly estimated payments if you have income that's not subject to withholding (like that foreign investment income). The general rule is you need to pay estimates if you expect to owe $1,000 or more in tax after subtracting withholding and credits. I'd suggest running some projections for your transition year to see what your tax liability might look like with worldwide income reporting - better to be prepared than get hit with underpayment penalties!

Just to add to what The Boss said about California - you're absolutely right to be concerned about the state tax implications! California is notoriously aggressive about claiming residency, and as an F1 student who's been there for several years, you might already be considered a California resident for tax purposes regardless of your federal status. California looks at the "totality of circumstances" including where you spend most of your time, where your belongings are, where you're registered to vote (if applicable), where you bank, etc. The fact that you've been filing as a nonresident doesn't necessarily mean you actually qualify for that status under California's rules. I'd strongly recommend reviewing FTB Publication 1031 which explains California residency rules in detail. You might want to consult with a tax professional who understands both federal immigration tax rules AND California state tax law, because getting this wrong could be expensive - California can go back and assess additional taxes plus penalties if they determine you should have been filing as a resident. The estimated tax payments are definitely something to plan for too. California requires estimates just like federal, and with your worldwide income potentially pushing you into higher brackets, the quarterly payments could be substantial. Start calculating early so you're not scrambling come January!

This is incredibly helpful, thank you! The point about retirement contributions is something I hadn't even considered - that's actually a huge benefit I didn't realize came with resident alien status. I've been watching my US citizen friends contribute to their 401(k)s and getting employer matches while I couldn't participate. Quick question about the professional help - how did you find a CPA who specializes in international tax? I'm worried about just picking someone random who might not understand the nuances of F1 to resident alien transitions. Did you look for specific certifications or just ask around? Also, roughly what should I expect to pay for this kind of specialized help? The spreadsheet idea for tracking presence is brilliant too. I've been pretty good about keeping my travel documents, but having it all organized in one place would definitely make the calculations easier when the time comes. Thanks for sharing your experience!

Code "J" is actually correct for your situation. It specifically indicates an early distribution from a Roth IRA that is not subject to penalty (due to it being a qualified distribution). This is different from OP's situation with a Traditional to Roth conversion. Distribution codes can vary based on the specific type of transaction and account types involved. For a backdoor Roth where you contribute to a Traditional IRA and then convert to Roth, you'd typically see code "2" (or sometimes "1" as in OP's case) for the conversion step. But for distributions from Roth IRAs themselves, different codes apply.

Is that really necessary though? Seems like overkill for a piece of forest land in the middle of nowhere. What kind of insurance would even cover that?

This is really helpful info about the Wisconsin MFL program! I had no idea forest land could qualify for such significant tax reductions. @Katherine Ziminski, do you know if there are any restrictions on access or use of the land while it's enrolled in the MFL program? Like, can you still hike on it or allow family to use it recreationally, or does keeping it as "managed forest" mean you can't really use it at all?

But the equipment deduction would reduce that net profit right? So if they spent $10,500 on the excavator and only make $8,000 in revenue the first year, they wouldn't owe SE tax?

Exactly right! The equipment deduction reduces your net profit, which is what SE tax is calculated on. So in your example, if they made $8,000 in revenue but had $10,500 in equipment expenses, they'd actually have a net loss of $2,500 for the year. No SE tax owed on a loss. Just keep in mind that having losses multiple years in a row can trigger IRS scrutiny about whether it's really a business or just a hobby. But for a startup year, especially with major equipment purchases, losses are totally normal and expected.

This is really solid advice! I'm just getting started with understanding business taxes myself, but the documentation part makes so much sense. Even something as simple as screenshots of Craigslist or Facebook posts where you're advertising your services could probably help show business intent, right? I hadn't thought about the insurance angle either - that's a great point about clients requiring liability coverage. Do you know if there are any other "must have" insurances for this type of work that would also be deductible?

@Nia Wilson Yes, absolutely! Screenshots of ads, even saved drafts of Craigslist posts you re'working on, text messages with potential clients, photos of you researching competitor pricing - all of that helps build your case for legitimate business intent. For insurance, beyond general liability, you ll'probably want to look into equipment coverage for the excavator itself theft, (damage, etc. and) potentially commercial auto if you re'using a truck/trailer to transport it to job sites. Some excavation work might also require bonding depending on your local regulations and the types of clients you work with. All of those premiums would be deductible business expenses. One more tip - if you re'planning to work your excavator from your home base, check if you need any local business permits or licenses. Getting those early not only keeps you compliant but also creates more documentation of your serious business intent.

How accurate did you find the IRS estimator? I tried using it but got confused with all the info they wanted. Did you feel like your withholding ended up being accurate using their recommendation?

I found the IRS estimator to be pretty accurate, but it does require a lot of detailed information. You need your most recent paystubs for both you and your spouse, plus any other income sources. The results were accurate for us - we got a small refund of about $650 which was perfect. The key things that made it work well were making sure we entered our pay frequency correctly (biweekly vs. semi-monthly makes a difference) and updating it mid-year when I got a raise. If your incomes are stable, you probably only need to do it once, but any big changes warrant a re-calculation.

Thanks for bringing this up! We're actually planning to put our baby in daycare once my wife's maternity leave ends. I had no idea about the Child and Dependent Care Credit. Does that get factored into the W-4 somehow or is it just something we claim when we file next year?

The Child and Dependent Care Credit is only claimed when you file your tax return - it doesn't affect your W-4 withholding at all. However, if you're planning on significant daycare expenses, you might want to consider adding a small amount to your additional withholding in Step 4(c) of your W-4 since the credit phases out at higher income levels and you want to make sure you don't underwithhold. Also, definitely look into the Dependent Care FSA that @53dc090fcbaf mentioned! You can set aside up to $5,000 pre-tax for childcare expenses, which reduces your taxable income. Just be careful not to contribute more than you'll actually spend since FSA funds typically have a "use it or lose it" rule.