Thanks for bringing that up. Do you know if there's an easy way to tell if it's a simple or complex trust? The paperwork I have doesn't specifically say either way.

You can usually determine if it's a simple or complex trust by looking at the trust document itself. A simple trust requires that all income be distributed annually to beneficiaries, doesn't allow for charitable contributions, and doesn't distribute principal. A complex trust has more flexibility - it can accumulate income, make charitable contributions, or distribute principal. The K-1 form might also give you clues. If you see distributions of corpus (principal) or if some income is being retained in the trust rather than distributed, it's likely a complex trust. You could also ask the trustee directly - they should definitely know how the trust is structured. This matters because complex trusts might distribute both income and principal, and principal distributions generally aren't taxable to the beneficiary.

I've used H&R Block's software for my son's trust income and found it worked pretty well. It has a specific section for K-1 entries and walks you through each line item. Much more straightforward than trying to figure it out manually. TaxSlayer also has decent K-1 support for a lower price if you're looking for alternatives.

Thanks for this! Do you know if I need to do anything special to prove my income since I won't have a 1099? Should I download all my transaction history from the app as proof?

Yes, definitely download and save all your transaction history from the payment app. I recommend exporting it to a spreadsheet if that option is available, and categorizing each transaction (income vs. deposits that will be returned, etc). For tax filing purposes, you don't need to submit proof of income with your return, but you absolutely should keep those records for at least 3 years in case of an audit. Also make sure you're tracking all your business expenses with receipts - things like needles, jewelry, gloves, cleaning supplies, and even a percentage of your phone bill if you use it to schedule clients. Good record-keeping can save you a lot in taxes through legitimate business deductions.

I used TurboTax last year for my dog walking business which also uses payment apps. It worked pretty well - there's a self-employment section that walks you through entering income and expenses, even without a 1099. Just make sure you get the Self-Employed version, not the basic one.

This is really helpful - I hadn't even thought about who should claim our daughter if we stay with MFS. Is there any downside to me claiming her instead of my wife?

There's no downside to the higher-earning spouse claiming the child in most cases. The value of exemptions and credits typically increases with income (up to certain thresholds). If you're in a community property state (AZ, CA, ID, LA, NV, NM, TX, WA, or WI), there may be additional considerations since income and deductions often must be split equally regardless of who earned what. Check your state's specific rules as they can significantly impact your overall tax situation when filing separately.

Also retirement account options! If your income is too high for Roth IRA contributions when filing jointly, filing separately actually makes it worse, not better. The income limit for MFS is just $10k!

Thanks for this clarification - that makes a lot of sense. I think what I was trying to understand is more about the timing of purchases and legitimate ways to reinvest in the business. Definitely not looking to do anything sketchy or illegal! So for example, if I'm planning to buy that embroidery machine anyway, buying it in December vs January could make a tax difference?

Exactly right! That's legitimate tax planning. If you're going to buy that $5,500 embroidery machine anyway, and you've had a profitable year, purchasing in December lets you deduct it from this year's income (assuming you place it in service before year-end). Remember too that reinvesting profits in your business (buying new equipment, upgrading systems, purchasing inventory) naturally reduces your taxable income because these are legitimate expenses or depreciable assets. This is the legal and proper way to "reduce" taxable income - by growing your business with real expenses, not manufacturing fake ones.

This is great advice! What system do you use to track your materials? I've been trying to figure out a good inventory management approach for my small leather goods business.

That's a really good point I hadn't considered. The money is actually from an inheritance my mom received from her parents last year. Does that change things even though they live in a community property country? Would the entire amount be considered a foreign gift in that case?

Yes, that definitely changes things. Inheritances in Spain (and most community property jurisdictions) typically remain the separate property of the spouse who received them, not community property. Since this money came from your mom's inheritance and would be considered her separate property under Spanish law, the entire gift would likely be treated as coming from a foreign person. However, since you mentioned the gift is around $75,000, you're still under the $100,000 reporting threshold for gifts from foreign individuals for the 2025 tax year. So you likely wouldn't need to file Form 3520 based on the amount, even though the entire gift would be considered from your non-US mother.

Yes, the penalties are brutal. My cousin got hit with a $10,000 penalty for not filing F3520 for a gift from his grandmother in Portugal. He had no idea he needed to file it since no tax was due. He spent almost $5k in accountant and attorney fees fighting it and eventually got it reduced, but it was a nightmare. Don't risk it!