Watch out if you're claiming education credits and your student is working! My son was working part-time and claimed himself on his taxes and we couldn't claim his education expenses even though we paid them! Had to amend both returns. Big hassle.

Just wanted to add that when calculating adjusted qualified education expenses, make sure you're also considering any tax-free educational assistance your daughter might have received. This includes things like employer tuition assistance programs, veteran's educational benefits, or Pell Grants. These all reduce your qualified expenses just like scholarships do. Also, keep in mind that if you're using 529 plan funds to pay for expenses, you need to coordinate carefully to avoid "double-dipping" - you can't claim the same expenses for both the education credit and tax-free 529 withdrawals. It's usually better to use 529 funds for room and board (which don't qualify for credits anyway) and pay tuition out of pocket to maximize your credit. Your calculation looks right assuming the laptop is required, but definitely get documentation from the school if it's not explicitly stated in writing!

Has anyone considered that you could possibly do both home office deduction AND rent part of it? Like if part of the shed is used for storage and part for actual embroidery work? Or is that getting too complicated and asking for an audit?

One important consideration that hasn't been mentioned is that if you go the rental route, you'll need to be very careful about fair market value pricing. The IRS scrutinizes related-party rentals closely, so you can't just charge yourself whatever rent you want - it needs to be what you'd realistically pay to rent a similar 250 sq ft business space in your area. Also, keep detailed records of ALL the improvements you've made (mini-split, lighting, electrical work) because those can be depreciated regardless of which method you choose. For your $12,000 in equipment, that gets depreciated separately as business assets anyway, not as part of the building deduction. Given that you're already set up as a sole proprietor filing Schedule C, I'd lean toward the home office deduction route. It's cleaner paperwork-wise and you won't have to deal with rental income reporting. Just make sure you're measuring your shed square footage accurately and keeping good documentation of your exclusive business use.

Thank you everyone for the helpful comments! I'm meeting with my accountant again tomorrow with a much better understanding of what's happening. I'll ask specifically about tracking my basis and maybe get a second opinion just to be thorough. Really appreciate all the insights!

I'd also recommend asking your accountant for a copy of your K-1 Schedule K-1 analysis showing the breakdown between ordinary income, capital gains, and any special allocations. This will help you understand exactly where that $19,500 is coming from. Also, if this is your first year with partnership income, consider asking about making quarterly estimated tax payments for next year. Since partnerships don't withhold taxes like W-2 jobs do, you might owe penalties if you don't pay estimated taxes throughout 2025. Your accountant can help you calculate what to pay quarterly based on this year's partnership income. One more thing - make sure you understand the partnership agreement regarding future distributions. Some partnerships have policies about distributing enough cash to cover tax obligations, while others prioritize reinvestment. This affects your cash flow planning going forward.

This thread has been incredibly helpful! I wanted to share another resource that might complement what's already been discussed. The IRS Publication 915 (Social Security and Equivalent Railroad Retirement Benefits) includes worksheets for calculating the taxable portion of Social Security benefits, which directly impacts your MAGI for IRMAA purposes. What I've found particularly useful is creating a spreadsheet that tracks all the components of MAGI throughout the year - not just the obvious ones like wages and retirement distributions, but also things like municipal bond interest, foreign earned income exclusion add-backs, and the taxable portion of Social Security benefits. This gives you a real-time view of where you stand relative to IRMAA thresholds. One strategy I haven't seen mentioned yet is the use of donor-advised funds for those who are charitably inclined. While the deduction doesn't reduce MAGI (since charitable deductions are itemized, not above-the-line), you can bunch several years of charitable giving into one tax year to maximize itemized deductions in that year, then potentially take the standard deduction in other years while still making charitable distributions from the DAF. This can help with overall tax planning that complements IRMAA management. For anyone dealing with this planning challenge, I'd also recommend keeping detailed records of your IRMAA calculation methodology and assumptions. When the actual brackets are released, you can refine your approach for future years based on how accurate your projections were.

This has been an absolutely fantastic discussion! I'm bookmarking this entire thread. One additional angle I'd like to add is for those who might be considering geographic arbitrage in retirement - if you're planning to move from a high-tax state to a low/no-tax state, the timing of that move can significantly impact your IRMAA calculations. State tax savings don't directly affect IRMAA since it's based on federal MAGI, but the move often coincides with other financial decisions like selling a primary residence, liquidating state-specific investments, or changing your asset allocation. These events can create one-time spikes in MAGI that push you into higher IRMAA brackets. I've seen retirees accidentally trigger huge IRMAA penalties by selling their home in a high-tax state the same year they do a large Roth conversion, not realizing the combined impact on their federal MAGI. The key is spreading these major financial events across multiple tax years when possible. Also, for anyone considering moving, some states have different rules about retirement account distributions that could affect your overall tax planning strategy, which indirectly impacts how you manage IRMAA. It's worth consulting with a tax professional who understands both your current state's rules and your target state's rules before making major moves. The 2-year lag that Sofia mentioned earlier becomes even more valuable in these situations - you can execute the move, see exactly how it impacts your taxes, and then adjust your Medicare planning accordingly before the IRMAA effects kick in.

If you do claim trader tax status, make sure you're extremely diligent with your record keeping. My friend claimed TTS for crypto trading in 2023 and got audited in 2024. The IRS wanted to see daily trading logs, evidence of his trading strategy, and proof he was trying to profit from short-term market swings. They also looked at the ratio of his trading income to his other income sources. He had good records and his TTS claim was upheld, but it was a stressful process.

One thing nobody's mentioned yet - if you're still employed at your day job, make sure you understand how trader tax status might affect your other tax situations. For example, if you have a 401k at work, having substantial self-employment income might open up options for additional retirement accounts like a SEP IRA that could benefit you. Also, don't forget that health insurance premiums can potentially be deductible for self-employed traders with TTS.