Hmm that's interesting! So how do I know if my situation counts as "regular business" vs just "other income"? I did babysit for them for about 3 weeks but it was just while their regular childcare was unavailable.

It comes down to whether you're in the "trade or business" of babysitting. If this was a one-off situation where you were helping out a family temporarily with no intention of continuing to offer babysitting services to the general public, you could make a case for "other income." But if you advertise your services, do this for multiple families, or plan to continue babysitting regularly, the IRS would likely consider it self-employment. Since you mentioned it was just for a few weeks during a specific situation, it sounds more like "other income" to me, but this is definitely a gray area where reasonable people disagree.

This is terrible advice. Venmo now reports transactions to the IRS if you receive more than $600 in payments for goods and services. Plus not reporting income is literally tax evasion.

Venmo only reports if you have a business account or mark the payments as goods and services. Regular personal payments aren't reported. And let's be real, the IRS isn't coming after babysitters making a few hundred bucks. They want the big fish.

Are you absolutely sure about this? I've been contributing to an HSA for years and my accountant never mentioned it reduces SE tax. Seems like this would be common advice if true.

Yes, I'm sure. HSA contributions are one of the few "above-the-line" deductions that reduce self-employment income before SE tax is calculated. It's often overlooked because tax software handles it automatically, and many accountants just focus on the income tax benefits. If you look at Schedule 1, HSA contributions are deducted before arriving at your Adjusted Gross Income. Then on Schedule SE, your net earnings from self-employment are calculated using this adjusted figure, which means HSA contributions directly reduce your SE tax base.

How much did it cost you to set up and maintain the S-Corp? I hear there are annual fees and payroll costs that eat into the tax savings. Is there a rule of thumb for when it's worth it?

Setup was about $500 with my state filing fees, then I pay around $1,200/year for payroll processing and my accountant charges an extra $350 for the S-Corp tax return versus Schedule C. So my annual ongoing cost is roughly $1,550. But I'm saving about $4,200 in SE tax, so I'm still ahead by $2,650 each year. The general rule of thumb I've heard is it makes sense when you're consistently making over $60-70K in net profit. The math works out great at higher income levels but gets questionable below $50K profit because of those fixed costs. And there's definitely more paperwork and deadlines to keep track of - quarterly payroll filings, etc. But my accountant handles most of it.

That's a really interesting point! I actually do have a home office I use for my side business that takes up about 15% of my house. If I'm replacing the HVAC system as part of this renovation, could I deduct 15% of that cost as a business expense then? Would the same apply to a roof replacement?

Yes, if you legitimately use that space exclusively as a home office for your business, you could potentially deduct 15% of the HVAC cost as a business expense. The IRS allows this when repairs/improvements benefit both personal and business parts of your home. For a roof replacement, the same principle applies - you could potentially deduct 15% of the cost. However, these would likely need to be depreciated over time rather than deducted all at once. Definitely keep detailed records of all costs and how you calculated the business percentage. This is definitely an area where good documentation is essential if you're ever audited.

This is such important advice! My brother just sold his house and wasn't able to prove about $30k in improvements he had made over the years because he didn't keep receipts. That's potentially thousands in extra taxes he had to pay.

Thanks for mentioning Form 8594. I had no idea about that! If I'm getting some proprietary processes along with the customers, would those be classified differently than just the customer list? And do you know if there's a minimum value threshold for filing Form 8594?

Proprietary processes would likely be classified as "Section 197 intangibles" similar to goodwill, which means they'd also be amortized over 15 years. They might be allocated to a different asset class on Form 8594, but the tax treatment would be similar. There's no minimum threshold for filing Form 8594. If you're acquiring business assets that constitute a trade or business, you need to file it regardless of the amount. The IRS wants to ensure that both buyer and seller are treating the transaction consistently.

This is exactly right. I did something similar a few years ago and got hit with a surprise tax bill because I didn't realize I needed to claim the value of the assets I received as immediate income. Make sure you set aside money for the taxes!

Thanks for all the great advice everyone! So just to make sure I understand: 1) We won't owe capital gains tax on the co-op sale since we've lived there over 2 years and the profit is well under the $500k married exclusion. 2) The gift from my parents and our gift back to them are separate transactions that may require gift tax forms but probably no actual tax. Does that sound right?

Yes, that's exactly right! You won't owe any capital gains tax on the co-op sale because you meet the primary residence requirements and your gain is well below the $500,000 exclusion for married couples. As for the gifts, they're indeed separate transactions. If any single person gives more than $17,000 to another individual in a year, the giver needs to file Form 709 (Gift Tax Return). But this is just for reporting purposes - no actual tax would be due unless someone has already used up their lifetime gift exemption of over $12 million. For example, if your parents are married and gave you $75,000, they could structure it as each giving $17,000 to both you and your wife ($68,000 total) without even needing to file Form 709, with only $7,000 counting against their lifetime exemption.

Do HOA special assessments count toward basis? Our co-op had a major plumbing project and we paid about $8k in special assessments over the years.