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One thing to consider is the timing of when you sell or transfer. If you sell in December 2025, you'll owe taxes by April 2026. If you sell in January 2026, you'd push the tax payment to April 2027. Might help with cash flow if you need time to adjust to US taxes. Also, don't forget currency exchange rates factor into your capital gains calculations. The IRS wants everything reported in USD, so if the euro has moved significantly since you purchased the funds, that alone could create taxable gains or losses even if the fund itself hasn't changed much in euro value.
Does that mean we calculate the original purchase price using the exchange rate from when we bought it years ago? How would anyone track that?
Yes, you need to convert the original purchase price using the exchange rate from the date you bought the investment, and then convert the sale proceeds using the exchange rate on the date of sale. Most people track this by keeping their original investment statements and looking up historical exchange rates online (the IRS accepts several official sources for historical rates). Some tax software and investment tracking apps can handle this calculation if you input the purchase dates and amounts in the original currency. Your broker might also provide this information on your annual tax statements, but foreign brokers often don't format their documents to US tax standards.
Whatever you do, make sure you file an FBAR form if your foreign accounts total over $10,000 at any point during the year. The penalties for not filing are ridiculous - like $10,000 per violation even if accidental! Also look into Form 8938 requirements which is separate from FBAR but also mandatory for foreign accounts.
i messed this up my first year as a tax resident and got hit with a penalty. ended up doing the streamlined filing procedures to get back on track. dont risk it, the foreign account reporting is the one thing IRS seems to really care about enforcing!
I'm a treasurer at a nonprofit preschool and we actually issued special receipts for families who continued paying during our COVID closure. The IRS rules say that if you make a payment that's partly for goods/services and partly a contribution, the nonprofit should provide written acknowledgment that specifies the value of what was provided. In our case, we calculated the value of Zoom sessions at about 15% of normal tuition and documented the remaining 85% as potentially tax-deductible contributions. But parents need to check with their own tax advisors because everyone's situation is different!
That's super helpful! Do you have any sample language I could show my preschool? They're a small operation and probably haven't dealt with this specific situation before. I'd love to give them a template they could use.
Sure! The language we used was something like: "Thank you for your payment of $X during our closure period from [dates]. During this time, XYZ Preschool provided limited virtual services valued at $Y. The difference of $Z may be considered a charitable contribution. Please consult your tax advisor regarding deductibility." Make sure it includes the preschool's official name, EIN (tax ID number), address, and the date range. The more specific they can be about the limited services provided and their approximate value, the better. Remember they need to be honest about the value of what they provided - they can't just say the Zoom sessions were worth $1 if similar virtual programs would cost significantly more.
Has anyone successfully claimed the Child and Dependent Care Credit for these pandemic preschool payments instead of trying for the charitable deduction route? My tax software is suggesting this might be a better option for us.
We did this! Our accountant said it was much cleaner to claim the dependent care credit rather than trying to split hairs on what portion was charitable. As long as both spouses were working (or looking for work), payments to the preschool can qualify even if your child wasn't physically attending. The dependent care credit got expanded for 2021 taxes too.
Just to add another perspective - before you jump to IRC 1341, you should check your partnership agreement carefully for any specific tax provisions related to recoupment of tax distributions. Some agreements have language that specifically addresses this issue and may provide for special allocations in the year of forfeiture. In one fund I worked with, there was actually a mechanism for giving negative allocations in the year of departure to offset prior phantom income, which was more favorable than using claim of right. It's worth reviewing the specific tax distribution and clawback provisions in your documents.
I've gone through the partnership agreement a few times now, and while there are extensive provisions about tax distributions and clawbacks, there's nothing specifically addressing the tax treatment when someone leaves before vesting. The agreement basically just says I have to return all tax distributions related to unvested carry, which I did. Would the absence of specific tax remediation language make IRC 1341 the default approach?
Yes, if there's no specific remediation mechanism in the partnership agreement, then IRC 1341 would be the appropriate default approach. That's actually quite common - many partnership agreements focus on the economic mechanics of clawbacks but don't address the tax consequences for the individual partner. In this case, you recognized income in 2022, paid tax on it, and then in 2024 you had to return the related distributions because you no longer had a right to that income. That's precisely what the claim of right doctrine is designed to address. Just make sure you have solid documentation of both the original income recognition and the repayment.
Has anyone considered the timing implications here? Since you repaid in 2024, the IRC 1341 benefit would apply to your 2024 tax return, which you won't file until 2025. That's a long time to wait for relief when you've already had to repay a substantial amount.
You could adjust your 2024 withholding or estimated tax payments to account for the expected IRC 1341 credit. That way you get the cash flow benefit sooner rather than waiting for the 2024 return to be filed in 2025.
About your husband - I went through something similar with my wife (I was the one who hadn't filed for years). When I finally told her, she was upset initially, but mostly because I hadn't trusted her enough to share my struggles. We ended up working through it together, and while paying off the tax debt hasn't been fun, our relationship actually improved because I wasn't carrying this secret anymore. My advice: get some professional help organizing your situation first so you can present not just the problem but also a plan when you talk to him. Show him you're taking responsibility and have concrete steps to fix things. Most partners can forgive financial mistakes if you're honest and actively working to resolve them. Also, the "innocent spouse" protection is stronger if he truly doesn't know, so you're right that he's somewhat protected. But secrets like this tend to create more damage to relationships than the actual problem itself.
Thank you so much for sharing this. My biggest fear isn't even the money - it's losing his respect and trust. Did you find that having a professional already lined up helped with that conversation? I'm thinking maybe I should at least consult with someone before I talk to him, so I'm not just bringing problems but also some solutions. How did you start that conversation? I literally have no idea how to even begin telling him.
Having a professional already consulted absolutely helped. When I talked to my wife, I could say "I've messed up with our taxes, but I've already spoken with a tax professional and have a plan to fix it" instead of just "I've messed up and have no idea what to do." That made a huge difference in how she received the news. For starting the conversation, I chose a time when we were both relaxed and had privacy - not right after work or before bed. I simply said, "I need to tell you something important that I've been struggling with, and I need your support." Then I explained the situation directly without excuses, acknowledged it was wrong to keep it secret, shared the plan I'd developed with the tax professional, and asked for her partnership in moving forward.
One other thing to consider - if you've been a contractor for 8 years without filing, make sure you look into SEP IRAs or Solo 401(k) options as part of your catch-up filing. You might be able to make retroactive retirement contributions for some of those years which could significantly reduce your tax liability. I found out about this when I was catching up on my taxes and it saved me thousands. Obviously talk to a tax pro about this, but just wanted to mention it since it's a lesser-known strategy for self-employed people.
Do you know how far back you can go with those retroactive contributions? I'm in a similar boat (though only 2 years behind) and hadn't considered this option at all.
Omar Fawaz
my sister got a weird letter too last month abt some audit thing but when she called turns out it was for someone with a similar name!!! the irs mixed up her with another person who had like 1 letter different in their last name. maybe check if all ur personal info on the letter is 100% correct
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Chloe Martin
β’This happened to me too! They had my address right but the last 4 digits of the SSN were wrong. I wouldn't have even noticed if I hadn't double-checked everything. Definitely look at all the identifying info carefully.
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Diego Rojas
Whatever you do, DON'T ignore the letter. The IRS will assume their position is correct if you don't respond by the deadline on the notice. Even if you think it's a mistake or doesn't apply to you, you need to respond. Also, check if it's actually from the IRS - there are a lot of scams out there. A real IRS letter will have a notice number and info about your rights as a taxpayer. If you're not sure, you can always call the main IRS number (not necessarily the one on the letter) to verify it's legitimate.
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Anastasia Sokolov
β’This is so important - ignoring IRS notices is the worst thing you can do. My dad thought a letter was a scam and ignored it... ended up with a $2,500 tax bill that grew to over $4,000 with penalties and interest before he finally dealt with it. The IRS doesn't just "forget" about these things!
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