I use TurboTax for my rental properties. When you get to the Schedule E section, there's a field specifically for insurance. What I do is calculate the prorated amount for the tax year (like others have suggested) and enter just that amount. Then I keep a separate spreadsheet tracking my prepaid expenses so I know what to enter next year. The software doesn't have a specific way to track prepaid expenses across tax years, so you have to do that part yourself. In your case, you'd enter $1,385 for 2022 (the $990 + $395 calculation).

9 Would employees still have the correct amounts withheld from their paychecks in this situation? Or would the withholding also be messed up?

22 Yes, the withholding in the paychecks would typically still be correct. The issue was just in how the W-2 forms were generated at the end of the year. The software calculated and withheld the proper amounts throughout the year, but had a bug when transferring that data to the actual W-2 form. In our case, employees had the right amounts withheld for Social Security and Medicare from each paycheck, but those totals didn't show up in boxes 3 and 5 on some W-2s. We had to issue corrected W-2c forms once we discovered the problem.

6 That sounds risky. Wouldn't you have to file an amended return if your employer sends a corrected W-2 later?

That's a great point I hadn't considered! Do you know which states typically don't conform with the federal rules? I have properties in Arizona and Florida besides my home state.

California is the big one that doesn't fully conform to federal bonus depreciation. Florida fully conforms to federal rules, which is good news for you. Arizona partially conforms but has some modifications - they spread the bonus depreciation over 5 years instead of taking it all upfront like the federal. For your situation with Arizona properties, you might not get the full depreciation benefit on your state return that you'd get on your federal return. This makes proper state tax planning really important when you have multiple properties across different states. I learned this the hard way and ended up with an unexpected state tax bill.

Unfortunately, the sales are already complete as part of the divorce settlement. I had to liquidate certain properties by court order, so a 1031 exchange wasn't possible in my situation. That's why I'm scrambling for other tax strategies now.

I'm a graphic designer, so I spend 8+ hours a day at the computer. My thoracic outlet syndrome definitely flares up from all the computer work - that's actually how I developed it. The massage therapy helps me continue working without severe pain. Do you think that would qualify as a business expense? That would be amazing if so!

Yes, that situation has a much stronger case for being a legitimate business expense! Since your condition is directly aggravated by your work activities (extended computer use for graphic design) and the massage therapy allows you to continue working, you can make a strong argument for it being "ordinary and necessary" for your business. Keep detailed records showing the connection between your work and the need for treatment. Have your doctor document that the massage therapy is specifically treating a condition caused or worsened by your work activities. This documentation is crucial if you're ever audited. Also track how the treatment directly enables you to continue your business activities. This approach could save you significantly more than the medical expense deduction route since it directly reduces your self-employment income and tax.

Yeah but you can only set up an HSA if you have a high-deductible health plan. Not everyone qualifies. And FSA is use-it-or-lose-it which is super risky if you're not sure exactly what medical expenses you'll have.

Do you know if Direct Pay works for quarterly estimated tax payments too? I'm self-employed and always forget to mail those vouchers on time.

Yes, Direct Pay works great for quarterly estimated tax payments! That's actually how I use it most often since I'm partially self-employed. You just select "Estimated Payment" as the payment type instead of "Tax Return." It's super convenient because you can schedule all four quarterly payments at once at the beginning of the year (or any time before each due date). The system will send you email reminders before each payment processes, and you can cancel or modify the payment up to two business days before the scheduled date if your situation changes.

Thank you so much for this advice! I actually did take screenshots of my payment confirmation page from TurboTax showing the date I authorized the payment and the account info. I'll make sure to keep those safe. Did the IRS eventually remove the penalties in your case without much trouble once you showed them the proof?

Yes, they did remove all penalties once I provided the documentation, but it wasn't exactly a smooth process. I had to call multiple times and got different answers from different agents. Eventually I had to send a formal written appeal with copies of my screenshots and payment confirmation. About three weeks after submitting that, I received a letter confirming the penalties were removed. The key was having that screenshot showing the exact date and time I authorized the payment. Without that specific evidence, I think they would have kept the penalties in place. So you're already ahead of the game by having those screenshots - just keep them somewhere safe for at least three years!