Do capital losses offset the Net Investment Income Tax as well? I had some gains but also some pretty big losses this year.

Yes, capital losses do offset gains before calculating the Net Investment Income Tax. The NIIT applies to your "net" investment income, so losses are factored in before determining if this additional tax applies. If your losses exceed your gains, you can use up to $3,000 of the excess to offset your ordinary income, and any remaining losses can be carried forward to future tax years. This can be a helpful strategy if you're near the NIIT threshold.

That's a really good point. Does anyone know which states don't tax capital gains? I'm thinking about moving soon and this could be a factor.

That's right! Tax-free states include Florida, Texas, Washington, Nevada, Alaska, Wyoming, South Dakota, New Hampshire, and Tennessee. There are also states with special treatment for capital gains like Arizona and Montana that offer partial exclusions in some cases. But watch out for other taxes these states might have instead - some have higher property taxes or sales taxes to make up for the lack of income tax. Total tax burden is what really matters for your bottom line.

Thanks for bringing that up - I didn't even think about documentation for an audit! For the CareCredit transaction, I have the initial statement showing the full payment to the provider. For the in-house financing, I have a payment contract and receipts for each payment. Should I also be getting something from my doctor confirming the medical necessity? These were both for necessary procedures, not elective or cosmetic.

Yes, you should get documentation from your doctor confirming these procedures were medically necessary. This could be in the form of a referral, prescription, or even a letter from your doctor stating the medical purpose. For large medical expenses like yours, having this documentation ready is especially important as they're more likely to trigger review. Make sure you keep all these records for at least seven years after filing, as the IRS can audit returns going back several years. It's much easier to gather this documentation now than trying to track it down years later if you do get audited.

Good point! Also worth noting that some states don't allow itemized deductions at all, or they handle them completely differently from federal. I'm in NJ and our state tax system is totally different from federal for medical expenses.

That's a great point about explaining the change in reporting method. Do you think I should file any kind of formal notification about the change, or just include a note with my return?

No formal notification is needed for this type of change. Just include a simple note with your return explaining that due to significant growth in inventory purchases (from under $15k to $189k), you've switched from reporting inventory in Other Expenses to using the proper COGS section. It's not technically a change in accounting method that requires approval - you're just moving to the correct reporting format based on your business growth. But the note helps provide context to anyone reviewing the return.

Not the OP, but I do similar with my seasonal product business. I essentially make one big purchase in spring, sell throughout summer/fall, and deliberately clearance anything remaining in December so I start January with clean books. Works great for tax purposes!

I run a specialty equipment resale business focusing on two product lines that have predictable seasonal demand. I intentionally time my purchasing to match that demand cycle and use progressive discounting in the final months to ensure I sell through everything. For the few items that don't sell, I either use them as promotional giveaways for next season's marketing or donate them (with proper documentation for the deduction). It's not always perfectly zero inventory, but it's usually within a few hundred dollars by year-end.

Can you share more about how your multi-entity structure works? We're considering doing something similar but worried about the complexity and potential issues with IRS.

It's not a perfect solution, but we created a separate entity that holds our intellectual property and handles R&D activities. This allows us to better isolate the Section 174 expenses and manage the tax implications more effectively. The operational entity pays the R&D entity for development services. This approach does have significant complexity and costs in terms of legal structure, transfer pricing considerations, and ongoing compliance. You need good tax and legal advisors to set it up properly. The structure works better for established companies than very early startups due to the overhead involved.

Don't do it! We looked into this extensively. Moving overseas for Section 174 reasons actually backfires because foreign R&D must be amortized over 15 years instead of 5 years for domestic R&D. The cash flow impact is even worse.

How do you track your mileage? Do you use an app or just write it down? I always forget to log my trips and then try to recreate it later which is probably not ideal for documentation.

I use the MileIQ app on my phone. It automatically tracks all my driving and then I just swipe left for personal trips and right for business trips at the end of each day. Takes seconds and creates an IRS-compliant log automatically. For those who prefer manual tracking, keep a small notebook in your car and jot down the odometer reading at the start and end of each trip, along with the date and purpose. The key is consistency - the IRS wants to see a complete log, not just estimates or recreated records.

I did one last year and yes, the timing rules are EXTREMELY strict. You have 45 days from selling your property to identify potential replacement properties in writing, and 180 days total to complete the purchase. NO EXCEPTIONS. Also, you MUST use a qualified intermediary to hold the funds - you can't touch the money yourself or it blows up the whole exchange. And the replacement property has to be of equal or greater value to defer all the gain. We almost messed up because we didn't realize you have to identify specific properties within that 45-day window.