I tried the multiple methods approach and got different answers each time, which is making me even more confused. Does the worksheet split the $3,000 deduction between short-term and long-term losses in a specific way? My losses were all from stock sales if that makes a difference.

The worksheet does handle short-term and long-term losses differently, and that's likely why you're getting different results. For capital losses, there's a specific order of operations the IRS requires. First, short-term losses offset short-term gains. Then, long-term losses offset long-term gains. After that, if you still have net losses in either category, those net losses can offset gains in the other category. Only after all that, if you still have net losses overall, can you deduct up to $3,000 against ordinary income. The worksheet is designed to walk you through this process step by step to ensure the correct ordering. For stock sales, whether they're considered short-term or long-term depends on how long you held them before selling (less or more than a year).

Omg yes this! I was pulling my hair out last year because I was looking at the wrong form entirely when trying to do my capital loss carryover. Make sure you're using the numbers from Schedule D (the summary form) not Form 8949 (where you list all your individual transactions).

That's a good point! I hadn't even thought about the state tax angle. So I guess that's one benefit of living in Florida for tax purposes - not having to worry about an additional state tax return. Do most tax software programs automatically figure out whether you should itemize or take the standard deduction?

Most decent tax software will compare your potential itemized deductions against the standard deduction and recommend whichever gives you the better outcome. They'll run the calculations both ways and show you the difference. The better programs will also alert you if you're close to the threshold and might suggest ways to maximize deductions. Just be careful with the free versions of tax software - they sometimes don't include Schedule A (itemized deductions) and try to upsell you when you need it.

This bunching strategy is smart! I've done something similar with medical expenses. Had a bunch of elective procedures done in one year to cross that 7.5% AGI threshold. Got LASIK, dental work, and a couple other things I'd been putting off. Saved a decent amount overall.

This is actually a great point that hadn't occurred to me! I just checked and you're absolutely right - I apparently signed up for their "Complete Protection Bundle" for $425 which got deducted from my federal refund. The description shows it includes audit defense, tax expert assistance, and identity protection. I honestly have zero recollection of agreeing to this! Must have clicked through too quickly during the filing process. That plus the standard $75 processing fee accounts for almost exactly the missing amount. Mystery solved! Thank you so much for suggesting this - I would have continued freaking out while waiting for some explanation from the IRS that was never going to come. Lesson learned to pay more attention to those "recommended" add-ons during the filing process.

The tax prep companies are so sneaky with this stuff. They make those screens with the add-on services look like you NEED to select something, when really "none" is an option they hide or make look risky. I almost got charged $200 for their "MAX" bundle until I noticed and unchecked it.

Can you explain the stock basis part again? I thought the issue was the difference between original purchase price of the asset and current FMV? How does stock basis factor in?

So there are actually two separate tax events happening in a liquidation: First, the corporation is treated as selling its assets to you at FMV. Since the expensed items have $0 basis to the corporation, the entire FMV is gain that flows through to you as the S-Corp shareholder. Second, you're surrendering your stock in exchange for these assets. You recognize gain/loss based on the difference between the FMV of assets received and your stock basis. Your stock basis includes your original investment plus all income that's flowed through to you minus distributions over the years. If your stock basis is high enough (from retained earnings for example), it can offset the asset distribution value, potentially resulting in no additional gain at the shareholder level.

I did this last year. My accountant had me focus only on items that still had meaningful value and could be sold on the secondary market. We didn't bother with office supplies, furniture under $200, etc. We documented everything with photos and current marketplace listings for comparable items. For really small stuff, we did group some items together as "office equipment" with a reasonable bulk value. The IRS isn't going to audit you over a $30 stapler, but they might care about that $2,000 computer or specialized equipment.

Omg that's terrifying! Did she try getting help from the Taxpayer Advocate Service? I've heard they can sometimes intervene in these penalty situations especially if there was genuine confusion about the requirements.

She did contact the Taxpayer Advocate Service, and they were helpful in getting the IRS to actually review her reasonable cause argument. The process is still ongoing, but they've at least gotten the collection activities paused while they review her case. The TAS representative explained that the IRS considers several factors for reasonable cause: whether she tried to learn about filing requirements, if there was a history of compliance with other tax obligations, and if this was her first time dealing with international tax issues. Having documentation of her efforts to understand the requirements has been crucial to her case.

Thank you for bringing this up. The property isn't currently being rented out, but I might want to do that in the future. Is there a good resource you found that explains all these different forms? I feel like I'm discovering new requirements every day.

The IRS has a decent publication called "U.S. Citizens and Resident Aliens Abroad" (Publication 54) that covers many of these requirements. There's also a specific section on their website about international taxpayers that lists the various forms. I found the most comprehensive help came from a tax attorney who specializes in international taxation. It was expensive, but worth it for the initial setup year. Once I understood all the requirements, I was able to handle most of it myself in subsequent years using tax software that supports international situations. Just be aware that not all tax software handles these specialized international forms well - you might need to use one of the more comprehensive packages.