Unanswered Tax Questions

Yes, your wife is generally allowed to contribute at the **family level**. According to IRS Publication 969, to be an "eligible individual" for HSA contributions, you must be covered under a High Deductible Health Plan (HDHP) and have no other disqualifying coverage (like Medicare). While **you** are not an eligible individual because you are on Medicare, your wife remains an eligible individual because she is covered under a family HDHP and has no disqualifying coverage of her own. Under the "Rules for Married People" in Publication 969, if **either** spouse has family HDHP coverage, both are treated as having family HDHP coverage. Because she has family-level coverage that includes at least one other person (your son) who is not on Medicare, she is entitled to the full family contribution limit. The fact that you are on Medicare only means that *your* portion of the contribution limit is zero; it does not reduce *her* ability to contribute the full family maximum to her own HSA, provided the HDHP covers at least one other person besides herself. If your son were not on the plan and it was only you and your wife, she would be limited to the individual rate. Since your son is covered, the family limit applies.

New Jersey’s tax landscape for estates is often confused because there are two separate taxes: the **Estate Tax** and the **Inheritance Tax**. 1. **Estate Tax:** You are correct that this was repealed for deaths occurring on or after January 1, 2018. There is no NJ tax based simply on the total value of the assets. 2. **Inheritance Tax:** This still exists and depends entirely on the **relationship** of the beneficiary to the deceased. * **Class A Beneficiaries:** (Spouse, civil union partner, parents, grandparents, children, or grandchildren). They pay **$0** inheritance tax. * **Class C Beneficiaries:** (Siblings, or spouses of a child). The first $25,000 is exempt; amounts above that are taxed at **11% to 16%**. * **Class D Beneficiaries:** (Nieces, nephews, cousins, friends). Amounts up to $700,000 are taxed at **15%**; amounts over that at **16%**. * **Class E Beneficiaries:** (Charities). They pay **$0**. If all beneficiaries are Class A (e.g., children), no set-aside is needed for NJ inheritance tax. If there are Class C or D beneficiaries, you must calculate the tax based on their specific share before final disbursement. Always ensure a "tax waiver" is obtained if required for property transfers.

No. Under IRS regulations, you cannot deduct the value of your own time or services as an expense, nor can it be reimbursed through an accountable plan. An accountable plan is strictly for reimbursing actual out-of-pocket business expenses paid by an employee (including an S Corp owner-employee). Since no cash left your pocket to pay for this training, there is no "expense" to reimburse. Additionally, the IRS generally does not allow a tax deduction for the value of donated services or "lost income," even if provided to underserved populations or charitable organizations. To derive a tax benefit from this arrangement, the S Corp would need to pay the apprentice a wage (if they are providing services to the business) or pay a third-party trainer, both of which would be deductible business expenses. However, your own uncompensated labor remains non-deductible.

Since the tax year 2025 has not yet concluded, the IRS is not currently processing 2025 individual income tax returns. Those returns are generally filed in early 2026. If you received a letter (such as a **5071C** or **4883C**) asking to verify your identity, it is likely regarding your **2023** or **2024** filing. However, if the notice specifically references 2025, it may be a sophisticated phishing scam or a typo in the correspondence. **Steps to take:** 1. **Verify the Notice:** Check the top right corner for a notice number. Go to IRS.gov and search that number to ensure it is legitimate. 2. **ID.me:** The IRS uses ID.me for identity verification. Log in to your official IRS online account to see if there are any outstanding notifications. 3. **Phone Verification:** Call the specific number listed on the letter, but verify it matches a number on the official IRS website first. 4. **Confirm the Year:** Ensure you aren't confusing "Tax Year 2025" with "Fiscal Year" or estimated payments for 2025. If you are certain the IRS is asking for a return that hasn't been filed yet, do not provide personal information until you speak with a representative via the official IRS Taxpayer Assistance Center.

Since the LLC was formed in September 2025, your first filing deadline would typically be April 15, 2026. Even if you received income personally, a foreign-owned single-member LLC (disregarded entity) is generally required to file **Form 5472** and a **Pro Forma 1120** if any "reportable transactions" occurred. Under IRC Section 6038A, reportable transactions include the payment of formation costs, filing fees, or any movement of money between you (the owner) and the LLC. If you personally paid the Wyoming state filing fees or registered agent fees to form the entity, this is technically a reportable contribution of capital. **Requirements and Penalties:** * **Filing:** You must file Form 5472 and the Pro Forma 1120 by the annual deadline. * **Penalty:** The penalty for failure to file a timely or complete Form 5472 is **$25,000** per year. * **Current Status:** If your formation was in 2025, you are not yet late. You must file for the 2025 tax year by April 2026. If the LLC remained entirely dormant with zero financial activity (no fees paid, no capital contributed, no expenses), you might not have a filing requirement, but most practitioners advise filing to report the initial formation costs to avoid the $25,000 penalty risk.

Whether your business and personal taxes are combined depends on your business structure (Entity Type). **Pass-Through Entities (Sole Proprietorship, LLC, S-Corp, Partnership):** Your business income "passes through" to you. It is reported on your personal returns (Form 1040 and AL Form 40NR) and taxed at your individual income tax rates. They are combined. **C-Corporations:** The business is a separate legal entity. It pays its own taxes at the corporate rate (21% Federal; 6.5% Alabama). You only pay personal tax on dividends or salary received. **Alabama Nexus:** Because you operate in Alabama, you must file an Alabama non-resident return. Alabama’s individual income tax rates range from 2% to 5%. You will likely receive a credit on your New York return for taxes paid to Alabama to prevent double taxation. **Calculations:** If a pass-through, the tax is: *(Business Gross Income - Allowable Expenses) × Your Marginal Tax Bracket Rate.* If a C-Corp, the tax is: *(Taxable Income) × 6.5% (AL) and 21% (Federal).* I am unsure of your specific liability amount because it depends entirely on your net profit and total household income.

Option 1 (Reimbursement via an **Accountable Plan**) is generally the more compliant and tax-efficient approach. **Why Option 1 is better:** Under an Accountable Plan, the LLC deducts the reimbursement as a business expense. For the managers, the reimbursement is **non-taxable** and does not appear on their W-2 or K-1 as income. This avoids self-employment tax on the reimbursed amount. **Why Option 2 is difficult:** Partners generally cannot deduct unreimbursed business expenses (UPE) on Schedule E unless the LLC operating agreement specifically requires the partner to pay those expenses without reimbursement. Even then, it often invites higher IRS scrutiny. **Mortgage Interest and Property Taxes:** If the LLC reimburses these, the manager must reduce their personal itemized deductions (Schedule A) by the amount reimbursed to prevent a "double benefit." The reimbursement remains non-taxable to the manager, but they cannot claim the same dollar as both a business reimbursement and an itemized deduction. **Compliance:** Option 1 is superior because it centralizes the deduction at the entity level and ensures the manager is made whole with tax-free dollars. Ensure you maintain strict records (square footage, utility bills, receipts) to satisfy IRS "exclusive use" requirements.

Based on the dates provided (forming in late 2025 and operating in 2026), you have significant compliance requirements. **Required Filings:** As a foreign-owned Single Member LLC (disregarded entity), you must file **Form 5472** and **Form 1120**. Even if no tax is owed, these are information returns used to report "reportable transactions" between you and the LLC (including the initial capitalization or paying expenses). **Missed Deadlines:** For the **2025 tax year** (even if only active for one day), the filing deadline was April 15, 2026. If you did not file or request an extension, you have missed this deadline. **Risk of Penalties:** The penalty for failing to file Form 5472 is severe: **$25,000 per violation**. Because the LLC existed in 2025, the IRS expects a filing for that year. **Best Way to Correct:** You should file the delinquent 2025 forms as soon as possible. To mitigate the $25,000 penalty, you must attach a **Reasonable Cause Statement** explaining why the filing was late (e.g., late EIN issuance or lack of awareness of specific foreign-owner requirements). Prompt "voluntary disclosure" before the IRS contacts you is the best strategy for penalty abatement.

To maintain privacy while ensuring tax compliance, the structure you described (Holding Company owning an Idaho LLC) is common. **Privacy:** To keep your name off public records, your Holding Company should be formed in a "privacy state" (e.g., Wyoming, Delaware, or New Mexico) that does not require disclosure of members/managers. This entity then acts as the sole member of the Idaho LLC. On Idaho’s filings, the Holding Company is listed as the owner, shielding your personal name. **Taxation:** For federal purposes, a single-member LLC is a "disregarded entity." Since the Holding Company owns the Idaho LLC, all income flows to the Holding Company. If you are the sole owner of the Holding Company, all activity ultimately lands on your personal Form 1040 (Schedule C). **Sales Tax & Nexus:** Selling physical items at booths creates "physical nexus." You must: 1. Register for an Idaho Seller’s Permit for local events. 2. For out-of-state events, you generally must register for a temporary or permanent sales tax permit in that specific state for that duration. **Note:** If you are physically working in Idaho, Idaho considers you to have nexus there regardless of where the Holding Company is formed. You will owe Idaho state income tax on earnings generated while working in the state.

Taking a $40,000 distribution from a traditional (taxable) IRA or 401(k) in a year where your other income is only $6,000 is a highly effective strategy known as "bracket topping." **Tax Implications:** Since your total income ($46,000) matches your standard deduction, your taxable income would be $0. You effectively pull money out of a tax-deferred vehicle entirely tax-free. Because you are both over 59½, there are no early withdrawal penalties. **Strategic Alternatives:** Instead of taking a cash distribution to a bank account, consider a **Roth IRA Conversion**. By converting $40,000 from your traditional IRA to a Roth IRA: 1. The amount is still "absorbed" by your standard deduction, resulting in $0 tax now. 2. The funds grow tax-free forever. 3. Future withdrawals from the Roth account will be tax-free. 4. You reduce the balance subject to future Required Minimum Distributions (RMDs). **Cautionary Note:** Monitor your "Modified Adjusted Gross Income" (MAGI). While the distribution may be federal-tax-free due to the standard deduction, it could impact state taxes or increase your Medicare Part B premiums (IRMAA) if your total income exceeds certain thresholds. For 2026, $46,000 is well below those thresholds.