Did you have to deal with any local tax issues beyond state level? Our target firm has employees who would be working from Philadelphia which I know has its own wage tax. Any tips on tracking all these multi-state/local tax obligations?

Yes, local taxes were actually more problematic than state taxes in some cases. Philadelphia wage tax was exactly one we encountered - it's around 3.5% for residents and still applies even when working remotely for an out-of-state employer. The key to tracking multi-jurisdiction obligations was implementing a good workforce management system that logged employee locations. We use a combination of IP logging and employee self-certification of work locations. For tax compliance, we ended up subscribing to a specialized multi-state tax service that alerts us to filing requirements and due dates across all jurisdictions. Initially tried to handle it manually and missed several local tax filings that resulted in penalties.

Unfortunately, a 1031 exchange only applies to real property, not business entities like accounting practices. The goodwill and client lists that make up most of an accounting firm's value don't qualify. Your best bet might be an installment sale (using Form 6252) to spread the tax hit over multiple years.

Do you have any links about that glitch? I'm dealing with a similar issue but my accountant hasn't mentioned anything about a known system problem. Would be helpful to reference when I call them.

I don't have the exact link handy, but it was discussed in a Tax Notes article around February. The issue was specifically with the IRS automated processing system incorrectly flagging certain states as FUTA credit reduction states for the 2023 tax year when they weren't actually on the reduction list. If I remember correctly, the states most commonly affected were Ohio, Kentucky, and Virginia - businesses in these states were incorrectly having the credit reduction applied even though they weren't on the official reduction list for 2023. The article mentioned that the IRS was aware of the issue but hadn't fully resolved it in their automated processing system.

Not the OP but we use Drake Tax software and got the same notice. Our accountant is pretty sure it's the IRS error, not the software, since the calculations checked out when they reviewed everything.

That's really helpful! We might be in that higher AGI category because of the stock sale. So does that mean we'd need to withhold 110% of last year's tax (including the unexpected $9,300) to be safe? And that withholding tip is brilliant - I had no idea the IRS treats withholding as if it happened evenly!

Yes, if your AGI was over $150,000 last year, you'd need to cover 110% of your total tax liability (including that $9,300) to guarantee no underpayment penalty. But that's only if you're using the "prior year tax" safe harbor method. The withholding strategy is a great safety net. Unlike estimated payments which must be made quarterly in the correct amounts, the IRS treats withholding as if it occurred evenly throughout the year regardless of when it actually happened. So increasing your withholding in November/December can retroactively cover your requirements for the entire year. It's a completely legitimate way to avoid penalties if you realize late in the year that you might come up short.

ESPP sales are actually a bit complicated. Companies usually withhold some taxes, but often only at a flat 22% rate for federal (regardless of your tax bracket). If you're in a higher tax bracket, that withholding might not be enough. Also, depending on if it's a qualifying or non-qualifying disposition, the tax treatment differs. Some of the gain might be taxed as ordinary income rather than capital gains.

You're right about the gift tax exclusion, but I think OP's main concern was trying to avoid paying income tax on the portions given away, not about gift tax. Unfortunately, there's no way around paying income tax on the full amount since it was legally their income before they chose to give it away.

Oh good point, I misunderstood the original question then. Yeah, that's unfortunate but makes sense from a tax perspective - can't give away income to avoid the taxes on it. Thanks for clarifying!

That's good to know about the household expenses! For my situation, I do pay the mortgage, utilities, and other household costs for my home. If I can establish that one of my college kids considers my home their main residence when not at school, would I meet that requirement even if they physically spend more time at college and with their mom during breaks?

Yes, you would likely meet the requirement. The IRS looks at whether you pay more than half the cost of maintaining the home where your qualifying person lives. Since college dorms and temporary stays during breaks are considered temporary absences, what matters is that you maintain their primary home. As long as your college student considers your home their main residence when not at school, and you pay more than half the costs of maintaining that home, you should meet the requirement. I'd recommend keeping documentation to substantiate this - things like their permanent address on school records, driver's license, voter registration, and where they receive mail.

I had the same issue with TurboTax. I found that if you go back to the "Personal Info" section and manually select "Head of Household" instead of letting it calculate automatically, then proceed through the qualifying person questions again, it will stick. Sometimes the software doesn't correctly handle these college student temporary absence situations.