What about companies that are already cutting R&D specifically because of this tax change? I've seen several businesses in our industry reducing US-based research and moving more overseas because of this issue. Doesn't that defeat the purpose of encouraging innovation?

You're absolutely right that the tax change is having unintended consequences. I have clients who are shifting R&D to countries with more favorable tax treatment, like Canada and the UK, which offer refundable R&D tax credits on top of immediate expensing. This is exactly why there's bipartisan interest in fixing it. The original change was never about discouraging R&D - it was a revenue raiser to offset other tax cuts in the 2017 bill. Many legislators from both parties have expressed concern about the competitiveness impact. But tax policy often moves slowly, especially with divided government. Companies have to make decisions based on current law while advocating for changes. It's a challenging balance.

Great question - it varies by state. Many states use federal taxable income as their starting point, so they automatically adopt federal treatment unless they specifically decouple. California partially conforms to federal tax changes but has its own R&D credit that remains very favorable. Massachusetts has decoupled from this specific federal change, allowing immediate expensing of R&D for state tax purposes. Check with your specific states, but this is an area where you might get some relief at the state level even while the federal issue remains unresolved.

I had a similar underwater property situation. In my case, my tax advisor explained that there's still no cancellation of debt income because of the merger doctrine, but I had to adjust my basis in the property down to its fair market value at the time of inheritance. So if you loaned $300k, but the property was only worth $250k when you inherited it, your basis would be $250k, not the loan amount. The $50k difference isn't treated as COD income but essentially gets "lost" in the transaction. At least that's how it worked for me - definitely check with a professional for your specific situation.

Thanks for sharing your experience! That makes sense about adjusting the basis to fair market value rather than the loan amount. I'll definitely verify with my tax person, but it's reassuring to hear about a similar situation.

That's an interesting variation. With trusts, it depends on whether it's a grantor trust or non-grantor trust. If it's a grantor trust where you're both the grantor and the beneficiary, the merger principle would likely still apply similarly to individual ownership. If it's a non-grantor trust with multiple beneficiaries, the analysis becomes more complex because you don't have complete identity between the lender and new property owner. In that case, there could potentially be some cancellation of debt considerations depending on how the trust is structured and who the beneficiaries are.

I had no idea I might qualify for those credits! Do they apply even if I'm self-employed? And how do they interact with the self-employment tax?

Yes, they absolutely apply to self-employed people! Self-employment income is earned income, so it counts for the EITC calculation. The Child Tax Credit and Child and Dependent Care Credit are available regardless of how you earn your income. These credits don't reduce your self-employment tax directly, but they reduce your overall tax bill. The EITC is even refundable, meaning you can get money back even if you don't owe income tax (though you'd still owe the SE tax).

My accountant advised against S-Corp until hitting at least $80k in profit consistently because the added costs of payroll services and additional tax forms can eat up the savings at lower income levels. Worth getting professional advice on this one!

Wow I had no idea about the insurance angle! Do you think it would be worth talking to an insurance agent before finalizing my NAICS code then? Or should I just research the rates for different potential codes online?

Talking to an insurance agent is definitely worth it. They can give you quotes based on different code classifications and explain the risk factors associated with each. Online research is good for initial information, but insurance rates vary widely by location and specific business details. An agent familiar with small business insurance can explain how different classifications might affect not just your premiums but also your coverage options. In my case, the agent actually identified a more specific subcategory that better represented my custom furniture work versus mass production, which made a significant difference.

That's not entirely true. I work in small business lending at a regional bank, and we absolutely look at industry codes. Certain codes qualify for specialized loan programs with better terms. Also, we use industry codes to compare financial performance against industry benchmarks when evaluating loan applications. Getting the right code won't guarantee a loan, but the wrong code could definitely work against you.

I hadn't thought about splitting the services like that! Do you find that the bookkeeper is knowledgeable enough about tax matters to help you categorize expenses properly? And how did you find a good virtual bookkeeper?

My bookkeeper is definitely knowledgeable about proper expense categorization for tax purposes - that's actually one of the main benefits. She ensures everything is tagged correctly throughout the year so tax filing is much simpler. She also helps identify potential deductions I might have missed. I found my virtual bookkeeper through the QuickBooks ProAdvisor directory. Look for someone who has experience specifically with rental properties and small businesses. I interviewed three before choosing one, asking specific questions about their familiarity with Schedule E, home office deductions, and vehicle expense tracking. The right bookkeeper can save you money not just on CPA fees but on taxes too by keeping meticulous records.

How did you find out they weren't actually licensed? Is there a way to verify CPA credentials before hiring someone?