1 That's a good point about RMDs. I'm worried about tax implications when I have to start taking those distributions. Would doing Roth conversions earlier help reduce the RMD tax hit later?

Yes, doing Roth conversions earlier can definitely help reduce your future RMD tax burden! When you convert money from a traditional IRA/401k to a Roth, you're essentially reducing the balance that will be subject to RMDs later. Since Roth IRAs don't have RMD requirements during the owner's lifetime, that converted money won't be forced out as taxable income after age 72/73. The key is to do conversions strategically during your early retirement years when you might be in a lower tax bracket. For example, if you retire at 60 and have little other income before Social Security kicks in, you could convert amounts that keep you in the 12% or 22% tax bracket rather than potentially being pushed into higher brackets by large RMDs later. Just make sure to plan for the taxes on conversions - you'll want to have cash available to pay the tax bill without having to withdraw from retirement accounts.

This is really helpful! I hadn't thought about the spousal IRA option. My wife will probably keep working part-time even after I retire, so that could be a good backup plan. One question though - if I do some consulting work to generate earned income, do I need to worry about self-employment taxes on top of regular income taxes? I'm trying to figure out if the tax burden would eat up too much of the benefit of being able to contribute to the Roth.

Yes, you'll need to pay self-employment taxes on consulting income, which adds about 15.3% (Social Security and Medicare taxes) on top of regular income taxes. However, there are ways to minimize this impact: 1. **Keep it small**: If you only need to earn enough for Roth contributions ($7,000-$8,000), the SE tax hit isn't huge and the long-term Roth benefits often outweigh it. 2. **Business deductions**: As a consultant, you can deduct business expenses (home office, equipment, travel) which reduces your net self-employment income. 3. **Compare to alternatives**: Run the numbers against doing Roth conversions instead. Conversions avoid SE taxes but you'll pay regular income tax on the converted amount. The spousal IRA route with your wife's earned income might actually be the cleanest solution tax-wise if she's working part-time anyway. You could contribute to a spousal Roth IRA based on her earnings without dealing with SE taxes at all.

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Thanks for the reassurance! Been stressing about this all week. Definitely gonna check out taxr.ai - seems like everyone here is recommending it. $1 is way better than losing sleep over these codes 😅

Thanks, this is super helpful. So even though we never really operated, just the fact that we registered the business means I need to file? Is there any threshold for "minimal expenses" - we spent maybe £200 total on samples before abandoning the project.

Yes, the registration itself created a legal entity that you partially own, which triggers the Form 5471 filing requirement regardless of the minimal activity. The IRS is primarily concerned with disclosure of foreign entities, even dormant ones. There's no specific threshold for "minimal expenses" that exempts you from filing. However, the £200 you spent would simply be reported as expenses on the form. The good news is that with such minimal activity, your form would be quite straightforward - many sections would be zeros or not applicable. This is exactly the type of situation where the simplified reporting under Revenue Procedure 92-70 might be applicable, as others have mentioned.

@Asher Levin Wait, that statute of limitations thing sounds terrifying! So you re'saying if I don t'file the Form 5471 for my UK business, the IRS could potentially audit me years down the road even if I file everything else correctly? That s'exactly the kind of nightmare scenario I was worried about. How did you find out about this - did a tax professional tell you or did you discover it through research? I m'starting to think I really can t'afford NOT to file this form, even if the business never did anything substantial.

@Asher Levin This is exactly what happened to me! I had a dormant business in Canada that I forgot about for 3 years. When I finally consulted a tax attorney, they explained that the statute of limitations on my entire tax return stays open until I file all required international forms. It s'called the incomplete "return doctrine -" basically the IRS considers your return incomplete if you re'missing required schedules or forms. I ended up qualifying for the reasonable "cause exception" since I genuinely didn t'know about Form 5471 requirements. Had to write a detailed letter explaining the circumstances and provide documentation showing the business was truly inactive. The IRS waived the penalties, but it was a stressful 8-month process. Definitely file the form even if it s'mostly zeros - the peace of mind is worth it and it starts your statute of limitations clock ticking.

This is exactly the kind of detail-oriented thinking that prevents bigger problems down the road! I wish more people would double-check their documents like this. When I first started filing taxes, I just assumed everything was correct and didn't catch a mistake on my W-2 until it caused issues with my refund. Now I always review everything carefully like you're doing.

I haven't personally dealt with a partnership changing their reporting method mid-stream, but from what I understand, this kind of inconsistency across years could potentially raise questions if you're audited. However, if the partnership made the change based on better tax advice, it's likely they corrected to a more defensible position. The fact that they switched from Box 5 to Box 4b suggests they may have gotten advice that your arrangement truly constitutes guaranteed payments under Section 707(c) rather than interest payments. This could actually be beneficial long-term if it better reflects the legal substance of your investment. I'd recommend documenting the partnership's explanation for the change and keeping it with your tax records. If questioned, you can show that the partnership made the change based on professional advice, not arbitrary decision-making. You might also want to ask the partnership for a written explanation of why they believe Box 4b treatment is more appropriate - this could be helpful if consistency issues come up later. As for IRS preferences, from what others have shared here, it seems like agents focus more on whether the reporting matches the actual terms of the partnership agreement rather than having a blanket preference for one box over another.

Great point about the partnership agreement language! I'm actually dealing with a conversion situation right now - one of my partnerships converted from a Delaware LLC to a Bermuda company last year, and it's been a nightmare trying to figure out the tax implications. From what I've researched, the conversion itself is generally treated as a taxable liquidation of the domestic partnership followed by a purchase of the foreign entity. This means I had to recognize my share of the partnership's assets at fair market value, which created a significant tax bill even though I didn't receive any cash. The real kicker is that now I'm dealing with PFIC rules going forward, plus I had to make various elections (like the QEF election) to avoid even worse tax treatment. My tax preparer warned me that missing any of these elections or filing deadlines could result in the punitive excess distribution regime you mentioned. One thing that caught me off guard was the Form 8865 reporting requirements during the conversion year - apparently there are specific disclosure rules when a domestic partnership becomes foreign. The penalties for missing these filings are substantial. Have you found any good resources for navigating these conversions? The IRS guidance seems scattered across multiple regulations and revenue rulings.