FixKit AI

Learn with Kit / Taxes

AI for taxes

Kit put on a green accountant's visor and is suspiciously excited about receipts.

Tax season without the shoebox

  1. Be the most organized client your CPA has

    AI turned a messy folder of PDFs into a table: every document, what it is, the year, the key amounts — and what's missing versus last year. My preparer's checklist went from weeks to an afternoon.

  2. Read every page, every time

    The thing AI is best at is the thing humans skip: page 9 of a 12-page form. I make it read all of it and flag anything that doesn't add up.

  3. Turn a tax strategy into questions, not actions

    When I hear about a strategy, I ask AI to explain it in plain words, cite the actual IRS code section, list the traps, and turn it into questions for my CPA. The pro decides; I show up prepared.

  4. Proactive beats reactive

    The biggest lesson wasn't a deduction — it was planning during the year with a tax pro instead of scrambling in April.

Your one-minute AI challenge

Open any AI assistant (Grok Bot, Claude, ChatGPT, Grok or Gemini) and paste this. Fill in the [brackets].

Explain [tax strategy I heard about] in plain English. Cite the exact IRS code section with a link, list who it does and doesn't fit, the common traps, and 5 questions I should ask a CPA before doing anything. Don't tell me to do it.

Fix-it-yourself guides for this

Organize your tax documents for your preparer

Tax season is a shoebox of PDFs.

3 tools · 3-step recipe · copy-ready prompt

See where your money actually goes

I want a simple picture of my spending without another app.

5 tools · 3-step recipe · copy-ready prompt

The full guide

This guide shows the legal ways families, people with regular paychecks and small-business owners can lower their taxes — and the rule you must meet before each one applies. It won't do your taxes, and it isn't advice. AI helps because taxes are mostly paperwork and confusing words: it can sort your papers, build your checklist, explain a tax rule in plain English, and help you bring better questions to your tax pro. New to AI? Start with Your AI toolkit (fixkitai.com/learn/ai/).

👵 New to this? Start here

  1. Look at your last pay stub and your last tax return so you know roughly what you earn and what you paid in tax.
  2. Make one folder (paper or digital) for this year's tax papers, and drop each form in as it arrives.
  3. Check whether you're using the tax-saving accounts you already have access to, like a 401(k) or an HSA.
  4. Before the year ends, write down three questions and ask a licensed tax pro (CPA or enrolled agent) about them.
  5. Never act on a tax 'secret' until the person who signs your return agrees to sign it.

🎬 Real-life scenarios

Real situations — many from my own life, names removed — showing exactly what was asked and which AI did what.

A W-2 family checks their withholding in 20 minutes

👤 A married couple with two kids, both working regular salaried jobs

The problem: They got a surprise tax bill last April and didn't understand why, since tax comes out of every paycheck.

  1. Opened their latest pay stubs and covered the account numbers.
  2. Asked Claude: 'Explain each line of this pay stub in plain English and tell me which line is federal tax withheld. Don't give me tax advice.'
  3. Used the free IRS Tax Withholding Estimator on IRS.gov, with Claude explaining any question they didn't understand.
  4. Printed the estimator's suggested Form W-4 and asked Claude to explain each step of the form.
  5. Gave the new W-4 to one employer's payroll site and set a phone reminder to re-check in six months.

What happened: The estimator showed they were on track to be about $2,000 short again. One spouse raised withholding by roughly $80 a paycheck, and the next April they owed close to nothing.

ClaudeIRS Tax Withholding EstimatorPhone reminders

💡 Most April surprises are a W-4 problem you can fix in the middle of the year.

Building the organizer packet for the CPA

👤 A dad of three who works as a healthcare executive and has a small side business

The problem: His CPA sent a long organizer and a document checklist, and papers were scattered across email, a desk drawer and five websites.

  1. Scanned every paper tax form with a desk scanner straight into one cloud folder named for the tax year.
  2. Pasted the CPA's checklist (no account numbers) into Claude and typed: 'Turn this into a table: item, who sends it, when it usually arrives, status. Don't give me tax advice.'
  3. Saved the table as a spreadsheet and asked Claude, once a week, to compare the folder's file names against the checklist and list what was still missing.
  4. Used his family 'operating system' app, which shows accounts read-only, to confirm every bank and brokerage that should send a 1099.
  5. Uploaded the finished packet through the CPA's secure portal and wrote the upload date next to each item.

What happened: The checklist went from about 20 open items to 2 in three weeks; the last two were forms other people still owed him.

ClaudeDesk scannerCloud folderSpreadsheetFamily dashboard app

💡 AI can't find your papers for you, but it's tireless at keeping the list and spotting what's missing.

The late S-corp election that couldn't be backdated

👤 A small-business owner with a one-person LLC

The problem: He filed a late S-corporation election asking for it to count for the year before. Months later he found an IRS letter that had sat unread in his business's online mailbox: the IRS only accepted it starting the next year.

  1. Typed the letter's text (personal details removed) into Claude and asked: 'In plain English, what did the IRS decide, what deadlines are in this letter, and what should I ask my CPA? Don't give me advice.'
  2. Asked Claude to read the IRS's late-election relief procedure and list the conditions in plain words, as questions for the CPA.
  3. Sent the letter to his CPA the same day so the earlier year's return could be prepared the right way.
  4. Set a weekly reminder for an AI assistant to check the business's online mailbox and email him a summary of anything new.

What happened: The earlier year had to be filed without S-corp treatment, but the election stood for every year after. Nothing new was missed after the weekly mailbox check started.

ClaudeBusiness online mailboxWeekly AI reminderEmail

💡 Elections have deadlines, and IRS letters only help if someone actually opens them.

The K-1s that arrived late

👤 A family with a few investments in partnerships (an energy deal and a film deal)

The problem: Their return couldn't be finished because two investment tax forms called K-1s hadn't arrived, and the deadline was getting close.

  1. Asked ChatGPT to explain what a Schedule K-1 is and why partnerships often send them late.
  2. Asked Claude to add a 'K-1 tracker' tab to their tax spreadsheet: investment, who sends the K-1, date expected, date received.
  3. Had Claude draft a short, polite email to each sponsor asking for an expected K-1 date, and sent it from Gmail themselves.
  4. Asked their CPA whether to file an extension; the CPA filed Form 4868, and they paid an estimate of what they owed by the April deadline, because an extension gives more time to file, not more time to pay.

What happened: One K-1 came in August and the last in late September. The return went in before the October extended deadline with no late-filing penalty.

ChatGPTClaudeSpreadsheetGmail

💡 If you own partnership investments, plan on an extension, and still pay what you expect to owe by April.

Reading every page of a 12-page tax form

👤 A busy parent whose CPA sent a draft return for review

The problem: The draft included a 12-page partnership form. He had skimmed the first three pages before and assumed the rest was boilerplate.

  1. Checked the page count first, then uploaded the form to Claude with personal details covered.
  2. Typed: 'Go page by page. For each page, tell me in plain English what it shows and list anything that looks inconsistent with earlier pages. Don't give tax advice. Stop after the last page.'
  3. Made sure Claude confirmed it had read all 12 pages, not just the first few.
  4. Wrote down the two questions Claude flagged and emailed them to the CPA.

What happened: Page 9 showed an address that didn't match the rest of the paperwork. The CPA fixed it before filing; it would have caused mail to go to the wrong place.

Claude

💡 Count the pages, then make sure every page gets read — the problem is often on the page you skipped.

Keeping a daily bitcoin-mining ledger

👤 A dad of three who runs a few hosted bitcoin-mining machines as a small business

The problem: His mining pool paid rewards straight to his wallet with no tax form, and he couldn't tell whether the machines were earning what the seller had projected.

  1. Asked Claude to design a spreadsheet: date, coins received, price that day, value in dollars, power and hosting cost, and 'projected vs actual'.
  2. Each morning an AI agent copied yesterday's payout from the pool's web page into the sheet and looked up that day's price.
  3. Once a month he asked Claude: 'Summarize actual vs projected earnings in plain money, one table. Don't give investment or tax advice.'
  4. Kept the coins from mining tracked separately from coins he had bought, and shared the sheet with his CPA at year end.

What happened: Actual earnings came in at well under half of the projection because one machine was often offline. His CPA got clean income and cost records instead of a guess.

ClaudeAI agentSpreadsheetMining pool website

💡 With no 1099, your own daily record is the tax record, and it also tells you whether an investment is working.

An HSA receipt shoebox becomes a searchable ledger

👤 A family of five with a health savings account (HSA)

The problem: They paid many doctor and pharmacy bills out of pocket and wanted to be able to reimburse themselves from the HSA later, but receipts were in a shoebox.

  1. Snapped a phone photo of each receipt, which saved automatically to a shared cloud folder.
  2. On the computer, asked Claude to read each photo and add a row to a spreadsheet: date, provider type, amount, who it was for, paid from HSA (yes/no).
  3. Asked Claude to flag receipts that didn't show a date or amount clearly so they could request a copy.
  4. Kept the original photos in the folder as proof.

What happened: About 60 receipts became one sheet in an afternoon, and the family knew roughly how much they could reimburse themselves with proof in hand.

Phone cameraCloud folderClaudeSpreadsheet

💡 A phone photo today saves a lost receipt years from now.

A chief-of-staff bot that keeps tax deadlines on the radar

👤 A busy executive who uses several AI helpers

The problem: He had separate AI helpers for finances, research and household paperwork, and tax deadlines kept slipping between them.

  1. Set up one 'manager' AI assistant whose only job is to collect short updates from the other helpers each week.
  2. Told the finance helper to list any tax form still missing from the CPA checklist and any estimated-tax payment due in the next 30 days.
  3. Told the research helper to note any IRS announcement about rules he was using, with a link to IRS.gov.
  4. Had the manager send one weekly email: 'what's due, what's missing, what changed', with no advice, just facts and links.

What happened: Instead of checking five places, he read one short email each Sunday. He made his next two quarterly Form 1040-ES payments on time.

Manager AI botFinance botResearch botEmail

💡 Several AIs work best when one of them is in charge of the summary — and a human still makes the decisions.

Logging business mileage by voice from the car

👤 A small-business owner who drives to client meetings

The problem: He kept forgetting to write down business trips, and rebuilding a mileage log from memory at year end was guesswork.

  1. Turned on the Grok voice assistant in his truck and, after each trip, said: 'Note a business drive: today, 18 miles, client meeting about a kitchen job.'
  2. The same assistant on his phone kept the notes, so they showed up on his computer too.
  3. Each Friday he asked Claude on the computer to turn the week's notes into rows in his mileage spreadsheet: date, miles, purpose.
  4. At year end he shared the spreadsheet with his CPA along with the business's other records.

What happened: He logged about 4,000 business miles with a date and purpose for each, written at the time instead of guessed later.

Grok (car)Grok (phone)Claude (computer)Spreadsheet

💡 A 10-second voice note made the same day beats a careful guess made a year later.

Checking a 'deduction multiplier' pitch before saying yes

👤 A two-income couple who got a December sales call

The problem: A promoter said that if they invested $50,000 before December 31 they'd get a $200,000 deduction, and asked them to wire money within a week.

  1. Asked Claude: 'Here is the pitch with names removed. List the tax rules it relies on, where the extra $150,000 of deduction comes from, and the questions I should ask a CPA. Don't tell me whether to invest.'
  2. Had Claude compare the pitch with the current IRS Dirty Dozen list and the at-risk rules (§ 465).
  3. Sent the promoter three questions in writing: which code section, who repays the loan, and when the K-1 arrives.
  4. Booked 30 minutes with their CPA and asked, 'Would you sign a return that takes this position?'

What happened: The extra deduction came from a loan nobody expected them to repay. Their CPA said she couldn't sign without much more proof, and they passed. Total cost: one CPA call.

ClaudeIRS.govEmail

💡 Year-end pressure plus a deduction several times your cash is a reason to slow down, not speed up.

Decoding an IRS letter about a missing 1099

👤 A retired teacher

The problem: She got an IRS notice (a CP2000) saying her return was missing some interest income and proposing extra tax of about $90.

  1. Covered her name, address and Social Security number, then pasted the letter's text into Claude.
  2. Asked: 'In plain English, what is this letter, what does it want, and by what date? Don't give me tax advice.'
  3. Found the bank 1099-INT the letter mentioned and confirmed the interest was really hers.
  4. Followed the letter's instructions to respond by the deadline, with help from her preparer.

What happened: The income was real, so she agreed and paid the roughly $90. She avoided extra interest and penalties by answering on time.

Claude

💡 An IRS letter is usually a question with a deadline — read it, check it, and answer on time.

Working with a proactive CPA (and using AI as your organizer)

A tax preparer fills in forms for a year that's already over. A planning-minded CPA (certified public accountant) helps you make choices before the year ends. The plan only works if your papers are organized and on time, and that's exactly the part AI is great at.

Know the difference: preparer vs. planner

A tax preparer fills out last year's forms; a tax planner helps you make choices before the year ends so you owe less, legally.

📖 Example

Maria earns $90,000 and starts a small side business in March. If she only sees a preparer next April, the choices about how to set up the business and what records to keep are already behind her. If she meets a planner in June, they can talk through options while there is still time to act on them.

Most people only meet their tax person once a year, after the year is over. By then, almost every decision is locked. A planning-minded CPA or enrolled agent meets with you during the year, models scenarios, and tells you what has to happen before December 31. Check credentials before you hire anyone — the IRS explains what CPAs, enrolled agents and attorneys can each do.

🤖 How AI helps: AI can turn a CPA's planning call notes into a plain-English to-do list with deadlines, so nothing discussed gets lost.

✅ Your first step: Write down the name of whoever does your taxes and one sentence on whether they ever talk with you before December.

IRS: Choosing a tax professional ↗ · Tax Alchemy (a tax-strategy firm I learned a lot from — a resource, not an endorsement) ↗

The organizer and the document checklist

Your tax person needs a pile of papers from you, and a simple list helps you see what's still missing.

📖 Example

Tom gets a checklist with 12 items: his W-2, three 1099 forms from banks and a brokerage, his mortgage interest form (Form 1098), and receipts for gifts to charity. He marks 10 as 'have' and 2 as 'waiting'. One of the missing ones is a K-1 from an investment, which often comes late, so he asks his preparer whether they should plan to file an extension.

Good firms send an 'organizer' — a questionnaire about your year — and then a checklist of documents they still need: W-2s, every 1099, brokerage cost basis, mortgage interest, charitable receipts, K-1s from investments, and closing statements for anything you bought or sold. My biggest lesson: a missing K-1 from someone else can hold up your whole return, so track who owes you what.

🤖 How AI helps: Paste the checklist into AI and ask it to make a tracker: item, who sends it, expected date, status. Then update it as documents arrive. New to AI chat? Your AI toolkit (fixkitai.com/learn/ai/) shows how to paste a list and ask for a table.

✅ Your first step: Make a note on your phone titled 'Tax papers this year' and list every place that pays you or holds your money.

Try this prompt
Here is my tax preparer's document checklist: [paste checklist, no account numbers or SSNs]. Turn it into a table with columns: Item, Who provides it, Usually arrives by, Status (Have / Waiting / Not sure if it applies). Ask me one question at a time about any item marked 'Not sure'. Do not give me personal tax, legal or investment advice and do not tell me what to do. Stop when every row has a status.

IRS Publication 17 (your federal income tax) ↗

Silence doesn't mean done

Just because nobody has complained doesn't mean your tax person got everything, so keep your own list.

📖 Example

Ana uploads 8 documents to her CPA's secure website in May. In August the CPA asks for 2 of them again; they never came through. Because Ana wrote down what she uploaded and the date, she fixes it in 5 minutes instead of digging for an hour.

When documents go through a CPA's secure portal, there's no 'sent' email to prove it happened. I learned to keep my own list of what was uploaded and when, and to reconcile it against the firm's list regularly. Also check every mailbox the IRS might use — including a business's mail service. An important IRS letter can sit unread for weeks.

🤖 How AI helps: AI can compare two lists (yours and the CPA's) and show what's missing on either side.

✅ Your first step: Check the mailbox or online inbox where official tax letters for you (or your business) would arrive, and open anything unread.

IRS: Understanding your IRS notice or letter ↗ · IRS: Your online account ↗

Never paste secrets into AI

AI can help you organize taxes without ever seeing your Social Security number, account numbers or passwords.

📖 Example

Instead of uploading a whole bank tax form, Joe types: 'a 1099-INT from my bank showing about $40 of interest.' The AI can still put it on his checklist and explain what the form is for. His real numbers and account details stay in his own locked folder.

AI is a great organizer, but it doesn't need your Social Security number, account numbers, or passwords to help you. Redact them, or describe the document instead ('a 1099-DIV from my brokerage'). Keep the original documents in a secure folder you control.

🤖 How AI helps: Ask AI to help you build a redacted summary of each document — type, issuer category, year — instead of uploading the raw form. For the basics of using an assistant safely, see Your AI toolkit (fixkitai.com/learn/ai/).

✅ Your first step: Before your next AI chat about money, cover or blacken the account number on one document you plan to describe.

Ask the 'will you sign it?' question

The person who signs your tax return is responsible for it, so ask them if they'd put their name on an idea before you try it.

📖 Example

Kevin hears a podcast promising a big deduction. He emails his CPA a 3-sentence summary and asks, 'Would you sign a return that takes this position, and what papers would you need?' The CPA explains what proof would be needed, and Kevin decides with full information instead of a sales pitch.

Anyone can teach a strategy. Only the preparer who signs your return is on the hook for it. Before you act on something you heard in a course, podcast or sales call, ask your preparer whether they'll sign a return that takes that position. Preparers face penalties for unreasonable positions, so their answer tells you a lot.

🤖 How AI helps: AI can help you write a short, neutral summary of a strategy you heard about so your CPA can quickly say yes, no, or 'here's what's missing'.

✅ Your first step: Write one tax idea you've heard about in three plain sentences so you're ready to ask your preparer about it.

IRS: Circular 230 (rules for tax professionals) ↗

W-2 earners and families: withholding, retirement, HSA and giving

If you get a regular paycheck, your best tax moves are usually simple ones made through your job's benefits website and your W-4 form (the form that sets how much tax comes out of each check). They're also the most certain.

Withholding and estimated tax

Tax is supposed to be paid during the year, through your paycheck or quarterly payments, or you may owe a small penalty.

📖 Example

Sam earns $80,000 at a W-2 job and also makes $20,000 freelancing, with no tax taken out of that side income. He can raise his paycheck withholding on a new Form W-4, or send quarterly payments with Form 1040-ES. A 'safe harbor' generally protects him from the penalty if he pays in at least last year's total tax (or 110% if his income is higher), or 90% of this year's. Rules and dollar limits can change from year to year, so check the current figure.

Your W-4 form tells your employer how much tax to take out of each paycheck. If too little comes out during the year, you can owe a small penalty (IRC § 6654) even if you pay everything by April. You're generally protected by a 'safe harbor' if you paid in at least as much as last year's total tax (a bit more if your income is higher), or 90% of this year's. Some families with big planned deductions choose to have less withheld — that only works if a pro checks the math first.

🤖 How AI helps: AI can explain your pay stub line by line and walk you through the IRS Tax Withholding Estimator questions before you use it.

✅ Your first step: Find your last pay stub and circle the 'federal income tax withheld' amount for the year so far.

IRS Tax Withholding Estimator ↗ · IRS: Estimated taxes ↗ · 26 U.S.C. § 6654 (Cornell Law School) ↗

Two jobs in one year? Check Social Security

If two employers both took Social Security tax out of your pay, you may have paid too much and can get it back on your return.

📖 Example

Lisa earns $120,000 at one job and $90,000 at a second job in the same year. Each employer takes out 6.2% for Social Security up to that year's wage cap, without knowing about the other. If her total of $210,000 is above the cap, the extra she paid comes back as a credit on her Form 1040. Rules and dollar limits can change from year to year, so check the current figure.

If you changed employers (or had two at once), each employer withholds Social Security tax without knowing about the other. If your total wages went over the yearly wage base, you may have paid too much — and that excess comes back as a credit on your return. It's easy to miss.

🤖 How AI helps: AI can add up the Social Security boxes across your W-2s and flag whether it's worth asking your preparer about.

✅ Your first step: If you had more than one employer last year, put your W-2s side by side and look at Box 4 on each.

IRS Tax Topic 608: Excess Social Security tax withheld ↗ · 26 U.S.C. § 6413 (Cornell Law School) ↗

401(k) and IRA: two different limits

A 401(k) is a retirement account through your job, and it has one limit on what you put in from your paycheck and a bigger one on everything together.

📖 Example

Dan earns $100,000 and puts part of each paycheck into his 401(k), up to the yearly 'employee' limit. His employer adds a match, which counts toward a separate, larger 'total' limit. If his plan allows extra after-tax money that can be moved into a Roth, he may be able to save even more. Rules and dollar limits can change from year to year, so check the current figure.

Your 401(k) has an elective deferral limit (§ 402(g)) that is per person across all your plans, and a separate overall limit on all contributions (§ 415(c)). Some plans also allow after-tax contributions that can be converted to Roth — often called the 'mega backdoor Roth' — but only if your plan document allows it. Limits change every year, so check the current year's numbers on IRS.gov rather than trusting a blog.

🤖 How AI helps: AI can turn your plan's summary plan description into a plain list of what your plan does and doesn't allow.

✅ Your first step: Log in to your 401(k) website and find the page or document that says whether 'after-tax contributions' are allowed.

IRS: 401(k) contribution limits ↗ · 26 U.S.C. § 402 (Cornell Law School) ↗ · 26 U.S.C. § 415 (Cornell Law School) ↗

The backdoor Roth IRA

If you earn too much to put money straight into a Roth IRA, you can sometimes put it into a regular IRA first and then move it over.

📖 Example

Priya earns $250,000, which is above the income limit for a direct Roth IRA. She puts money into a traditional IRA without taking a deduction, then converts it to a Roth, and reports it on Form 8606. If she already had $50,000 of pre-tax money in another IRA, part of her conversion would be taxed, which is the trap to ask about. Rules and dollar limits can change from year to year, so check the current figure.

Above certain incomes you can't contribute directly to a Roth IRA. The 'backdoor' is a nondeductible traditional IRA contribution followed by a conversion to Roth, reported on Form 8606. The trap is the pro-rata rule: if you already have pre-tax IRA money, part of the conversion becomes taxable. Check the current income limits and contribution limits each year.

🤖 How AI helps: AI can walk you through what Form 8606 is asking for, in plain English, so you know what to bring to your preparer.

✅ Your first step: Check whether you have any old IRA or rollover IRA accounts and write down roughly what is in each.

IRS: IRA contribution limits ↗ · IRS: About Form 8606 ↗ · IRS Publication 590-A ↗ · 26 U.S.C. § 408A (Cornell Law School) ↗

The health savings account (HSA)

An HSA is a savings account for medical bills that lowers your taxes going in, while it grows, and when you spend it on care.

📖 Example

Grace has a qualifying high-deductible health plan and puts $3,000 into her HSA. That $3,000 is not taxed, it can be invested and grow, and when she pays a $400 dentist bill from it, that's tax-free too. She reports the account on Form 8889 and keeps every receipt. Rules and dollar limits can change from year to year, so check the current figure.

The HSA is the only account that's deductible going in, grows tax-free, and comes out tax-free for qualified medical costs (§ 223). The gate: you must be enrolled in a qualifying high-deductible health plan, which is a choice you make at open enrollment, not in April. Keep every medical receipt — you'll need them if you reimburse yourself later.

🤖 How AI helps: AI can help you build a simple receipt log (date, provider type, amount, paid from HSA or not) from photos you take.

✅ Your first step: Look at your health plan card or benefits website and see whether your plan is labeled 'HSA-eligible'.

IRS Publication 969 (HSAs) ↗ · 26 U.S.C. § 223 (Cornell Law School) ↗

Give smarter: appreciated stock, donor-advised funds and QCDs

How you give to charity can save more tax than the same gift given as cash.

📖 Example

Ruth wants to give $5,000. She owns stock she bought for $2,000 that is now worth $5,000. If she gives the stock itself instead of selling it, she generally avoids tax on the $3,000 gain and may deduct $5,000 if she itemizes. A donor-advised fund at a sponsor such as Fidelity Charitable (one example, not a recommendation) lets her give in one year and choose charities later; non-cash gifts over $500 also go on Form 8283.

If you give to charity anyway, how you give matters. Giving stock you've owned more than a year generally lets you deduct what it's worth today and skip the tax on its growth (§ 170). A donor-advised fund lets you put several years of giving into one year so itemizing pays off. Once you reach the qualifying age, a 'qualified charitable distribution' sends IRA money straight to a charity without counting as income (§ 408(d)(8)) — but it can't go to a donor-advised fund. Get a written thank-you letter from the charity before you file.

🤖 How AI helps: AI can keep a giving log, flag which gifts still need an acknowledgment letter, and list your biggest-gain holdings so you can ask your CPA which make sense to give.

✅ Your first step: Find last year's charity receipts and check that each larger gift has a written thank-you letter from the charity.

IRS Publication 526 (charitable contributions) ↗ · IRS: Donor-advised funds ↗ · 26 U.S.C. § 170 (Cornell Law School) ↗ · 26 U.S.C. § 408 (Cornell Law School) ↗

Owner retirement plans, self-directed IRAs and business credit

Owning a business opens up bigger retirement plans and 'self-directed' accounts that can hold more than stocks and funds. The rules are strict and mistakes are costly, so learn the basic words here before you talk to a pro.

The solo 401(k)

A solo 401(k) is a retirement plan for a business owner with no employees except maybe a spouse.

📖 Example

Rosa runs a one-person design business and earns $60,000 profit, reported on Schedule C. With a solo 401(k), she can put money in as the 'employee' and add more as the 'employer', up to yearly limits. Once the plan grows past a set amount, she must file Form 5500-EZ each year. Rules and dollar limits can change from year to year, so check the current figure.

A one-participant 401(k) covers a business owner with no employees (or the owner and spouse). You contribute twice: as the employee (elective deferrals up to the annual limit) and as the employer (a percentage of compensation). Once plan assets pass a threshold, an annual Form 5500-EZ filing is generally required. Check current-year limits on IRS.gov.

🤖 How AI helps: AI can build a simple calendar of plan deadlines (contribution dates, Form 5500-EZ) for you to confirm with your plan provider and CPA.

✅ Your first step: Write down whether you have any business income outside a regular paycheck, and roughly how much last year.

IRS: One-participant 401(k) plans ↗ · IRS: Retirement plans for self-employed people ↗ · IRS Publication 560 (small business retirement plans) ↗

Self-directed IRAs: what they can hold

A self-directed IRA is a retirement account that can own unusual things like a rental house or a private loan, not just stocks.

📖 Example

Frank moves $50,000 into a self-directed IRA and the account lends it to a local builder. The IRA, not Frank, is the lender, and the interest goes back into the IRA. The custodian holds the paperwork but usually does not judge whether the loan is wise or follows the rules.

There's no IRS list of 'approved' IRA investments, so a self-directed IRA can hold things like real estate, private loans or private company shares. But IRAs can't hold life insurance, and most collectibles are treated as distributions. The custodian usually doesn't check whether your investment is a good one — or whether it breaks the rules.

🤖 How AI helps: AI can summarize a custodian's fee schedule and account agreement in plain English and list what they will and won't do for you.

✅ Your first step: Look at your IRA statement and find the name of the company that holds it (the custodian).

IRS: Retirement plan investments FAQs ↗ · 26 U.S.C. § 408 (Cornell Law School) ↗

Prohibited transactions: the account-killer

Your IRA can't do deals with you or close family, and breaking that rule can make the whole account taxable at once.

📖 Example

Gary's IRA owns a $200,000 beach condo. If Gary stays there for a weekend, or his son rents it at a discount, that is a prohibited transaction. The IRS can treat the whole $200,000 as if it were taken out of the IRA that year, with tax (and possibly penalties) due.

Your IRA can't do business with you or 'disqualified persons' like your spouse, parents, children or companies you control (§ 4975). No personal use of a property it owns, no doing the repairs yourself, no lending to family. If an IRA owner engages in a prohibited transaction, the account can stop being an IRA — treated as if the whole thing was distributed (§ 408(e)(2)).

🤖 How AI helps: AI can turn a proposed self-directed deal into a list of everyone involved so you can ask an attorney whether any of them is a disqualified person.

✅ Your first step: If you have any account holding something other than stocks and funds, write down who else is involved with that investment.

Try this prompt
I'm considering a self-directed IRA investment. Here is a plain description with no account numbers: [describe the investment, who is involved, and how each person is related to me]. List every person and company involved and, for each, the question I should ask a tax attorney about whether they could be a 'disqualified person' under IRC 4975. Do not give me personal tax, legal or investment advice and do not tell me what to do. Stop after the list.

IRS: Retirement topics — prohibited transactions ↗ · 26 U.S.C. § 4975 (Cornell Law School) ↗

Leverage inside a retirement account (UBTI)

If your retirement account borrows money to buy property, some of the income can be taxed inside the account.

📖 Example

Helen's IRA buys a $300,000 rental using $150,000 of its own money and a $150,000 loan. Roughly the borrowed share of the profit can be taxed as 'unrelated business income', even though it's in an IRA. Certain 401(k)-type plans have an exception for real estate that IRAs don't, which is why it's worth asking.

If an IRA buys property with a loan, part of the income can be 'debt-financed' and taxed as unrelated business taxable income inside the account (§§ 511, 514). Certain qualified plans have a real-estate exception (§ 514(c)(9)) that IRAs don't — so a solo 401(k) and an IRA are not interchangeable for leveraged real estate. A retirement account also gives up depreciation and capital-gain rates on what it holds.

🤖 How AI helps: AI can explain a sponsor's UBTI disclosure in plain English so you can bring specific questions to your CPA.

✅ Your first step: Write down one question for a CPA: 'Does any investment in my retirement accounts use borrowed money?'

26 U.S.C. § 511 (Cornell Law School) ↗ · 26 U.S.C. § 514 (Cornell Law School) ↗

Tapping retirement money early — and ROBS

Taking money out of retirement accounts before about age 59½ usually costs an extra 10% on top of regular tax.

📖 Example

Ben takes $20,000 out of his old 401(k) at age 45. On top of income tax, he usually owes an extra $2,000 (10%) unless an exception applies. A plan called ROBS uses retirement money to buy stock in your own new business; the IRS has found frequent problems with these, so it's one to research carefully first.

Taking money out of a retirement plan before age 59½ usually adds a 10% extra tax on top of regular income tax (§ 72(t)), unless an exception applies. I learned this the hard way when old employer stock got cashed out early. A different idea, called ROBS ('rollovers as business start-ups'), uses retirement money to buy stock in your own new company. The IRS has found frequent problems with ROBS, so ask about filings, valuation and fees first.

🤖 How AI helps: AI can list the early-withdrawal exceptions and the IRS's ROBS findings as questions for your CPA, before any money moves.

✅ Your first step: Before taking out any retirement money, write down the exact amount and the question 'Do any exceptions to the 10% extra tax apply to me?'

IRS: Tax on early distributions ↗ · 26 U.S.C. § 72 (Cornell Law School) ↗ · IRS: Rollovers as business start-ups compliance project ↗

Business credit basics

Business credit is a credit history for your business, separate from your personal one, built by paying business bills on time.

📖 Example

Nina opens a small bakery. She gets a free EIN from the IRS, a free D-U-N-S number from Dun & Bradstreet, and a business bank account, and pays her flour supplier on time each month. After a year, her business has its own credit record, though lenders may still ask her to sign a personal guarantee.

A new business's loans usually depend on the owner's personal credit, so start there. Then keep the business separate: its own tax ID number (EIN), its own bank account, and bills paid on time in the business's name. The SBA points owners to a free D-U-N-S number and to business credit reports from Dun & Bradstreet, Experian and Equifax. Be careful with paid 'business credit' programs that promise big credit lines fast, and look for 'personal guarantee' in the fine print.

🤖 How AI helps: AI can make a monthly checklist for building business credit (pay on time, check reports, separate expenses) and explain any loan term sheet in plain English.

✅ Your first step: Get your free personal credit reports at AnnualCreditReport.com and check one for accounts you don't recognize.

SBA: Plan your business — establish business credit ↗ · IRS: Get an employer identification number ↗ · Dun & Bradstreet: D-U-N-S Number ↗ · CFPB: Credit reports and scores ↗ · AnnualCreditReport.com ↗

Business owners: entities, home office, accountable plans and family

A real business can deduct real costs, but only if the business is genuine and the paperwork is done before the money moves. Just forming an LLC saves nothing by itself; the choices you make and the records you keep do.

Sole prop, LLC or S corporation?

How you set up your business changes the paperwork, and sometimes the tax, but just forming an LLC doesn't lower your tax by itself.

📖 Example

Carlos makes $70,000 profit cleaning offices. As a sole proprietor or one-person LLC, he files Schedule C and pays self-employment tax on the whole profit on Schedule SE. If he elects S-corporation status with Form 2553, he pays himself a fair salary and takes the rest as distributions, which can lower that tax, but adds payroll and a separate business return. Rules and dollar limits can change from year to year, so check the current figure.

A one-owner LLC is taxed just like you on your own (a 'sole proprietor') — same return, same tax. It mainly helps with legal protection and organization. Electing to be taxed as an S corporation (Form 2553) can lower self-employment tax by splitting profit into a salary and 'distributions'. I learned a hard lesson: the election has a deadline, and the IRS's relief for late elections has conditions — so don't assume it can be backdated. Check every mailbox the IRS might write to, because the answer comes by letter.

🤖 How AI helps: AI can make a side-by-side table of what each structure means for filing, payroll and paperwork, which you then review with your CPA.

✅ Your first step: Write down how your business (if you have one) is set up today: no entity, LLC, or corporation.

IRS: Business structures ↗ · IRS: Limited liability company ↗ · IRS: Instructions for Form 2553 ↗ · Rev. Proc. 2013-30 (late election relief) ↗ · 26 U.S.C. § 1362 (Cornell Law School) ↗

S-corp 'reasonable compensation'

If you own an S corporation and work in it, you have to pay yourself a fair salary before taking the rest as profit.

📖 Example

Jen's S-corp earns $150,000. Paying herself only $10,000 in salary and $140,000 as distributions would look like a token salary. If similar jobs pay about $70,000, a salary near that, backed by notes on her duties, is far easier to defend.

If you elect S status and work in the business, you must pay yourself a reasonable salary before taking distributions. A token salary is the most common S-corp mistake the IRS looks for. A defensible number comes from what you'd pay someone else to do your job, documented.

🤖 How AI helps: AI can help you list your actual duties and hours so a CPA or compensation study has real facts to work from.

✅ Your first step: List the main jobs you do in your business and roughly how many hours a week each one takes.

IRS: S corporation compensation and medical insurance issues ↗ · 26 U.S.C. § 1402 (Cornell Law School) ↗

Home office and the accountable plan

If part of your home is used only for your business, you may be able to deduct some home costs.

📖 Example

Mike uses a 200-square-foot spare room only as his office. Under the IRS simplified method of $5 per square foot (up to 300 square feet), that's a $1,000 deduction, with no depreciation to track. If his business is a corporation, a written reimbursement policy (an 'accountable plan') adopted in advance is the clean way to get paid back. Rules and dollar limits can change from year to year, so check the current figure.

A home office must be used regularly and exclusively as your principal place of business (§ 280A(c)). There's a simplified method or actual expenses. If your business is a corporation, the clean way to get reimbursed for home office, mileage and phone is a written accountable plan, adopted before reimbursements start, with receipts and return of any excess.

🤖 How AI helps: AI can draft a checklist for your accountable-plan records (date, purpose, amount, receipt) for your CPA or attorney to review.

✅ Your first step: Measure your workspace and write down its square footage and whether it is used for anything else.

IRS: Home office deduction ↗ · Rev. Proc. 2013-13 (simplified method) ↗ · 26 CFR § 1.62-2 (accountable plans, Cornell Law School) ↗ · 26 U.S.C. § 280A (Cornell Law School) ↗

The 'Augusta rule' — renting your home for 14 days or less

If you rent your home out for fewer than 15 days a year, that rent money isn't taxed to you.

📖 Example

Pat's corporation holds 4 real planning meetings at Pat's house in a year. Similar meeting spaces nearby rent for about $500 a day, so the business pays Pat $2,000 and keeps an agenda and invoice for each day. The business may deduct it as a business expense, and Pat doesn't report the $2,000 as income because it was under 15 days. It doesn't work if the 'business' is just Pat in a one-person LLC taxed as Pat.

Under § 280A(g), if you rent out your home for fewer than 15 days in a year, you don't pay tax on that rent. Some business owners rent their home to their business for real meetings. The rules: the business must be truly separate from you (not a one-person LLC taxed as you), the rent must match what similar spaces charge, the meeting must be real, and the money must actually be paid. Keep an agenda, a list of who attended and an invoice for every day.

🤖 How AI helps: AI can help you build a per-meeting file template and a simple fair-market-rent comparison table from listings you find.

✅ Your first step: Look up what a local meeting room or event space charges for one day and save the screenshot.

26 U.S.C. § 280A(g) (Cornell Law School) ↗

Hiring your children

If you own a business, you can pay your children fairly for real work, and in some setups no Social Security tax is taken out.

📖 Example

Kim, a sole proprietor, pays her 15-year-old $5,000 a year to scan receipts and pack orders. Because Kim's business is a sole proprietorship, those wages generally aren't subject to Social Security and Medicare tax (normally 7.65% from each side). The child's standard deduction usually covers income tax, but the job must be real and on payroll with a W-2. Inside an S-corp, the Social Security exemption doesn't apply.

Wages a sole proprietor (or a partnership owned only by the parents) pays to their own child under 18 aren't subject to Social Security and Medicare tax (§ 3121(b)(3)(A)). That exemption disappears inside an S-corp or C-corp — a common, expensive mistake. The work must be real, age-appropriate, paid at a fair rate, and run through actual payroll.

🤖 How AI helps: AI can help you write a simple job description and a weekly time log for your child's real tasks.

✅ Your first step: Write a list of real, age-appropriate tasks your business needs done each week.

IRS: Family help ↗ · 26 U.S.C. § 3121 (Cornell Law School) ↗ · 26 U.S.C. § 3306 (Cornell Law School) ↗

Ordinary and necessary — and the QBI deduction

A business can deduct normal costs of doing business, and many small owners get an extra deduction of up to 20% of their profit.

📖 Example

Leo runs a landscaping business with $80,000 profit after deducting fuel, tools and insurance on Schedule C. Under the qualified business income rule, he may also deduct up to 20% of that profit, about $16,000, subject to income limits and rules for some service businesses. Each fuel receipt should note the job it was for. Rules and dollar limits can change from year to year, so check the current figure.

Business expenses must be ordinary and necessary for your trade or business (§ 162), and travel and meals need records of amount, time, place and business purpose (§ 274(d)). Many pass-through owners can also take the qualified business income deduction (§ 199A), but it has income thresholds and limits for certain service businesses. Ask your CPA which side of the line you're on before setting your salary.

🤖 How AI helps: AI can sort a year of card transactions into draft categories so you can flag the business ones and add the purpose.

✅ Your first step: Pick one business expense from this week and write the date, amount, and business reason on the receipt.

IRS: Qualified business income deduction ↗ · IRS Publication 463 (travel, gifts, car) ↗ · 26 U.S.C. § 162 (Cornell Law School) ↗ · 26 U.S.C. § 199A (Cornell Law School) ↗

Real estate: depreciation, cost segregation and the passive-loss wall

Real estate has some of the most powerful tax rules, and the most sales hype. The main rule: losses from a rental usually can't lower the tax on your paycheck, except in a few special cases.

Depreciation and cost segregation

Depreciation lets you deduct the cost of a rental building a little each year, and a cost study can move some of it into earlier years.

📖 Example

Rita buys a rental for $400,000, with $300,000 for the building. A home rental is usually spread over 27.5 years, about $10,900 a year on Form 4562 and Schedule E. A cost segregation study might show $60,000 of it is carpet, appliances and landscaping that can be deducted faster, but she may pay some back as 'recapture' when she sells. Rules and dollar limits can change from year to year, so check the current figure.

Rental buildings are depreciated over years, not deducted all at once (§ 168). A cost segregation study breaks a building into shorter-lived parts so more can be deducted sooner, sometimes with bonus depreciation. But it speeds up deductions — it doesn't create new ones — and you may pay some back as 'recapture' when you sell.

🤖 How AI helps: AI can explain a cost segregation report's categories in plain English and list questions about recapture for your CPA.

✅ Your first step: If you own a rental, find the closing statement and write down what you paid and the date you bought it.

IRS Publication 946 (depreciation) ↗ · IRS Publication 527 (residential rental property) ↗ · IRS: About Form 3115 (catching up missed depreciation) ↗ · 26 U.S.C. § 168 (Cornell Law School) ↗

The passive activity loss rules

Losses from a rental usually can only cancel out rental-type income, not your paycheck.

📖 Example

Omar earns $200,000 at work and has a $15,000 loss on a rental. Because his income is high, the small allowance for rental losses is gone, so the $15,000 can't lower the tax on his salary this year. It gets carried forward on Form 8582 and can be used later, such as when he sells the property.

Losses from passive activities generally only offset passive income (§ 469). There's a small allowance for people who actively participate in rentals, but it phases out as income rises. Losses you can't use aren't lost — they're 'suspended' and carry forward, sometimes for many years. A big deduction you can't use this year isn't a refund.

🤖 How AI helps: AI can help you track suspended losses year by year from your returns so they don't get forgotten.

✅ Your first step: Look at last year's tax return for Form 8582 and see if any losses were 'carried forward'.

IRS Publication 925 (passive activity and at-risk rules) ↗ · IRS Tax Topic 425: Passive activities ↗ · 26 U.S.C. § 469 (Cornell Law School) ↗

Real estate professional status

If real estate is truly your main job, your rental losses can cancel out other income, but the time tests are hard to meet.

📖 Example

Ellen works full time as a nurse, about 2,000 hours a year, and spends 400 hours on her rentals. She fails both tests: real estate isn't more than half her working time, and she's under 750 hours. Her husband, who works only in real estate for 1,200 hours with logs, might qualify on his own.

Under § 469(c)(7), a real estate professional's rentals aren't automatically passive. The tests are strict and measured per person: more than half your working hours and more than 750 hours a year in real property businesses. Someone with a full-time W-2 job almost never qualifies. Contemporaneous time logs are everything.

🤖 How AI helps: AI can turn calendar entries into a draft hour log — but only real work counts, and you must review every line.

✅ Your first step: Write down roughly how many hours you worked at your main job last year.

26 U.S.C. § 469(c)(7) (Cornell Law School) ↗ · 26 CFR § 1.469-9 (real estate professionals, Cornell Law School) ↗

The short-term rental rule

If guests usually stay a week or less, a rental follows different rules, but you have to do a lot of the work yourself.

📖 Example

Jay owns a cabin where guests stay 3 nights on average. Because the average stay is 7 days or less, he can use its losses against other income if he 'materially participates', such as working on it over 100 hours and more than anyone else. If his family uses the cabin more than 14 days (or 10% of rented days), much of the benefit can disappear.

If guests stay seven days or less on average, the property follows different rules: you don't need to be a real estate professional, but you do need to 'materially participate' — do much of the work yourself. The catches: one long booking can break the average, you must work more hours on it than any property manager, and too many family-use days (§ 280A(d)) can wipe out the benefit. I decided this one wasn't for my family — it's a lifestyle commitment, not just paperwork.

🤖 How AI helps: AI can build a booking-length tracker and a material-participation log template.

✅ Your first step: If you rent any property, list last year's bookings and add up the total nights to find the average stay.

26 CFR § 1.469-1T (rental activity exceptions, Cornell Law School) ↗ · 26 CFR § 1.469-5T (material participation tests, Cornell Law School) ↗ · 26 U.S.C. § 280A (Cornell Law School) ↗

1031 exchanges

When you sell an investment property and buy another, you can sometimes put off paying tax on the profit.

📖 Example

Ray sells a rental for $500,000 with a $150,000 gain. A middleman called a qualified intermediary holds the money, he names replacement properties within 45 days, and closes within 180 days. If he does it right, the tax on the $150,000 is put off until a later sale.

Selling investment real estate and buying replacement real estate can defer the gain (§ 1031). The deadlines are strict — 45 days to identify, 180 days to close — and a qualified intermediary must hold the money. Since 2018 it covers real property only.

🤖 How AI helps: AI can build a countdown calendar from your closing date so you never miss the 45- and 180-day marks.

✅ Your first step: If you might sell an investment property, find and save the name of one qualified intermediary to ask questions later.

26 U.S.C. § 1031 (Cornell Law School) ↗

Energy, film and other code-incentivized investments

Congress uses the tax code to encourage certain industries, like energy and film. The tax breaks are real, but you have to put real money into something hard to sell, often pitched by someone earning a commission. Ask first whether it's a good investment, then about the tax break.

Oil and gas: intangible drilling costs

Investing directly in drilling oil or gas wells can give a large first-year deduction, but you take on real risk and liability.

📖 Example

Walt invests $50,000 as a direct 'working interest' owner in a new well. Often much of that money goes to drilling costs that may be deducted in the first year, and because his liability isn't limited, the loss can count against his wages. If the well comes up dry or the sponsor fails, he can lose the money, and he may owe more as an owner.

Most of the cost of drilling a well (labor, mud, chemicals — called 'intangible drilling costs') can generally be deducted the year you pay it (§ 263(c)). Even more unusual: under § 469(c)(3), a direct 'working interest' in a well can count against your wages, if you hold it in a way that doesn't limit your legal liability. That means real, uninsured risk is the price of the deduction, and holding it inside an LLC or limited partnership can cancel the exception. Producing wells may also get a 'depletion' deduction (§ 613A).

🤖 How AI helps: AI can read the offering summary and list exactly how the interest is titled and what happens if the sponsor converts units later — questions for your CPA and attorney.

✅ Your first step: Read the 'risk factors' section of any energy offer you've been sent and highlight every mention of 'liability'.

26 U.S.C. § 263 (Cornell Law School) ↗ · 26 U.S.C. § 469(c)(3) (Cornell Law School) ↗ · 26 U.S.C. § 613A (Cornell Law School) ↗

Film and TV: IRC § 181 (check the status)

Section 181 lets film investors deduct production costs early, but the law text shows it ends for productions started after 2025.

📖 Example

Suppose Dana puts $40,000 into a TV series that began filming in 2024; under § 181 she might deduct her share of production costs early. If the same pitch is for a film starting in 2026, Cornell's copy of the law says § 181 doesn't apply unless Congress extends it, so she should ask what other rule (like bonus depreciation) the deal relies on. Rules and dollar limits can change from year to year, so check the current figure.

Section 181 lets investors choose to deduct qualified film and TV production costs right away instead of over time. As of this writing, the text of the law on Cornell Law School's free site says § 181 does not apply to productions that start after December 31, 2025. So any pitch for a newer production must explain what rule it relies on (such as bonus depreciation) and whether Congress has extended § 181. Many film deals base the deduction on your cash plus a loan, which brings in the 'at risk' rules below.

🤖 How AI helps: AI can pull the start-of-production date, the financing structure and the K-1 timing out of an offering packet so you can ask the right questions.

✅ Your first step: If you've been offered a film deal, find the date filming started and write it next to the deal name.

26 U.S.C. § 181 (Cornell Law School) ↗ · 26 U.S.C. § 168(k) bonus depreciation (Cornell Law School) ↗

What 'at risk' means

You can only deduct a loss up to the money you could really lose.

📖 Example

Ted puts in $25,000 cash and signs a $75,000 note, and is told he can deduct $100,000. If nobody really expects him to repay the $75,000, he may only be 'at risk' for $25,000, and the rest of the deduction can be denied. Form 6198 is where at-risk limits are figured.

You can only deduct losses up to what you can actually lose (§ 465). When a deal promises a deduction several times your cash, the difference is usually a loan. If that loan is non-recourse in substance — nobody really expects you to repay it — the deduction can fall apart in an audit. Ask who owes the debt, what happens if it's called, and get the note terms in writing.

🤖 How AI helps: AI can turn a promissory note into plain English and highlight who is personally liable — then you take it to an attorney.

✅ Your first step: On any investment with a loan, write down in one line who has to repay it if things go badly.

26 U.S.C. § 465 (Cornell Law School) ↗ · IRS Publication 925 (at-risk rules) ↗

Passive or non-passive? Prove your hours

Whether your losses count against your paycheck often depends on how many real hours you worked in the activity.

📖 Example

Sue invests in a business and logs 520 hours of real work: meetings, hiring, and managing daily tasks. That meets one IRS test (more than 500 hours). Hours spent watching webinars or reading reports usually don't count.

Even a valid deduction may only offset passive income unless you materially participate. The regulations list seven tests — such as more than 500 hours, or more than 100 hours and more than anyone else. Webinars, research and investor-style monitoring generally don't count.

🤖 How AI helps: AI can keep a dated activity log as you go, but the hours have to be real and recorded at the time.

✅ Your first step: Start a simple log today: date, hours, and what you did for any investment you help run.

26 CFR § 1.469-5T (material participation, Cornell Law School) ↗

The ceiling over everything: excess business losses

There's a yearly cap on how much business losses can lower the tax on your wages.

📖 Example

Paul and Ann, married, earn $900,000 in wages and have $1,000,000 of business losses from several deals. Suppose the cap that year were about $600,000 for a married couple (a made-up round number). They could use $600,000 now, and the other $400,000 becomes a loss carried to future years. Rules and dollar limits can change from year to year, so check the current figure.

Even after you pass every other test, § 461(l) caps how much total business loss can offset non-business income like wages in one year. The excess becomes a net operating loss carried forward. Stacking film, energy and real estate deals all compete for the same allowance — something sales decks almost never model.

🤖 How AI helps: AI can help you list every deduction-generating investment you hold so your CPA can model them together, not one at a time.

✅ Your first step: List every investment you own that sends you a K-1, so a pro can look at them all together.

26 U.S.C. § 461 (Cornell Law School) ↗

Bitcoin and crypto taxes

For federal taxes, crypto is treated like property, not money. So selling, trading or spending it is usually a taxable event, and rewards from mining or staking count as income when you get them.

Crypto is property

The IRS treats crypto like property, so selling, trading or spending it can create a taxable gain or loss.

📖 Example

Lucy buys $1,000 of bitcoin and later uses it to buy a $1,500 laptop. That counts as selling bitcoin for $1,500, so she has a $500 gain. She reports it on Form 8949 and Schedule D, long-term if she held the bitcoin more than a year.

IRS Notice 2014-21 says virtual currency is treated as property. When you sell, trade one coin for another, or buy something with it, you have a gain or loss: what you got minus your basis (§ 1001). Held over a year, it's long-term; a year or less, short-term. Every federal return also asks a yes/no digital-asset question.

🤖 How AI helps: AI can turn a messy exchange export into a clean list of buys, sells and swaps, with dates, for you or your preparer to check.

✅ Your first step: On your last tax return, find the yes/no question about digital assets near the top of Form 1040 and see how it was answered.

IRS: Digital assets ↗ · IRS Notice 2014-21 ↗ · 26 U.S.C. § 1001 (Cornell Law School) ↗

Mining income is taxed twice — on two different events

When you earn crypto by mining, it's income the day you get it, and selling it later can create a second gain or loss.

📖 Example

Carl's mining machine earns him a coin payout worth $1,000 the day it reaches his wallet, so he reports $1,000 of income. That $1,000 becomes his cost. If he sells later for $1,300, he has a $300 gain; if the price falls and he sells for $700, he has a $300 loss, but he still owed tax on the $1,000 when it arrived.

First, when a mining reward lands in a wallet you control, it counts as regular income at what it's worth that day (IRS Notice 2014-21; Rev. Rul. 2023-14). That value becomes your 'basis' — your starting cost. Second, when you later sell, you have a gain or loss compared with that basis. The hard lesson: if the price drops after you get it, you still owe income tax on the higher value from the day it arrived. If mining is a real business, costs like power and hosting may be deductible (§ 162), and the income may also owe self-employment tax.

🤖 How AI helps: AI can record each payout's date, amount and the price at that moment, the day it arrives — before it's hard to reconstruct.

✅ Your first step: If you receive any crypto rewards, write down today's payout date, amount, and the price on that day.

Try this prompt
I received crypto mining payouts. Here is a list of dates and coin amounts: [paste dates and amounts, no wallet addresses]. Make me a table with columns: Date received, Coins, Price source I should look up, USD value (leave blank for me to fill), Running total. Explain in plain English why the receipt date matters. Do not give me personal tax, legal or investment advice and do not tell me what to do. Stop after the table and explanation.

IRS Rev. Rul. 2023-14 ↗ · 26 U.S.C. § 61 (Cornell Law School) ↗ · 26 U.S.C. § 1012 (Cornell Law School) ↗

Nobody sends you a 1099 for pool payouts

If crypto rewards land straight in your wallet, no tax form may arrive, so you have to keep your own records.

📖 Example

Mia's mining pool pays her 6 times in a year, each straight to her wallet. No 1099 ever comes. Because she saved each date and price in a spreadsheet, her preparer can report the income and she knows her cost when she sells.

Rewards paid straight to your wallet usually come with no tax form. That means you are the record keeper. And when mined coins get mixed with coins you bought on an exchange, figuring out basis later gets hard unless you kept records at the time.

🤖 How AI helps: AI can help you keep a separate 'mined coins' ledger so they're never confused with purchased coins.

✅ Your first step: Make a spreadsheet with four columns: date received, coins, price that day, and value.

Form 1099-DA and Form 8949

Crypto brokers now send a tax form (Form 1099-DA) when you sell through them, and you report sales on Form 8949.

📖 Example

Hank sells $3,000 of crypto through an exchange in the year. The exchange sends him a Form 1099-DA showing the sale. He checks it against his own records of what he paid, and his preparer reports the sale on Form 8949; any mining or staking income goes on Schedule 1.

Brokers that hold your crypto must report sales on the new Form 1099-DA, beginning with transactions on or after January 1, 2025. You report sales of digital assets held as capital assets on Form 8949; mining, staking and similar income goes on Schedule 1. Compare the broker's form against your own records — they don't always match.

🤖 How AI helps: AI can line up a 1099-DA against your own trade list and flag differences for your preparer.

✅ Your first step: Log in to any crypto app you use and find the 'tax documents' or 'statements' page.

IRS: About Form 1099-DA ↗ · IRS: About Form 8949 ↗

The wash-sale question and loss limits

Investment losses can cancel out gains, and up to $3,000 a year of extra loss can lower other income.

📖 Example

Ivy has $10,000 of losses and $4,000 of gains in a year. The losses cancel the $4,000 of gains, then $3,000 lowers her other income, and the last $3,000 carries to next year. Whether the 'wash sale' rule for buying back too soon applies to crypto is a question to ask a CPA under current law.

Capital losses offset capital gains, and up to a limited amount of other income each year, with the rest carried forward (§ 1211(b)). The wash-sale rule (§ 1091) applies to 'stock or securities'; how it applies to digital assets is a question to ask your CPA under current law, not one to guess at.

🤖 How AI helps: AI can summarize your realized gains and losses so far this year from your own records.

✅ Your first step: Write down any investment you sold at a loss this year and the date you sold it.

26 U.S.C. § 1211 (Cornell Law School) ↗ · 26 U.S.C. § 1091 (Cornell Law School) ↗

Audit-proofing, record keeping, and what NOT to do

The best tax plan is one you can prove with papers. The worst is one someone sold you that the IRS already lists as a scam.

Keep records like someone will ask

Keep papers that prove what's on your tax return, usually for at least three years, and longer for things you own.

📖 Example

Bob files his return in April 2026. The IRS generally has three years to ask questions, so he keeps those papers until at least April 2029. For his house, he keeps the purchase and improvement records until several years after he sells it.

The law requires you to keep records that support your return (§ 6001). The IRS can generally assess more tax for three years after you file, longer in some cases (§ 6501). Keep receipts, logs, closing statements and basis records for property until well after you sell it.

🤖 How AI helps: AI can design a folder structure (year → entity → category) and name files consistently so anything can be found in a minute.

✅ Your first step: Create one folder named with this year, and put one tax paper in it today.

IRS: How long should I keep records? ↗ · IRS Publication 583 (starting a business and keeping records) ↗ · 26 U.S.C. § 6001 (Cornell Law School) ↗ · 26 U.S.C. § 6501 (Cornell Law School) ↗

Contemporaneous beats reconstructed

Notes written at the time are much stronger proof than notes rebuilt later from memory.

📖 Example

Alan logs each business drive the same day: date, miles, and reason. Eve tries to rebuild a year of mileage from memory in April. If they're ever asked, Alan's log is far more believable.

Mileage logs, hour logs and meeting files are worth much more when made at the time than rebuilt a year later. A padded log is worse than none — it undermines everything else. Penalties for substantial understatements can apply on top of the tax (§ 6662).

🤖 How AI helps: AI can remind you weekly to update your logs and turn quick voice notes into dated entries.

✅ Your first step: Open your phone's notes app and make a note called 'Business log' with today's date.

26 U.S.C. § 274 (Cornell Law School) ↗ · 26 U.S.C. § 6662 (Cornell Law School) ↗

Watch the IRS Dirty Dozen

Every year the IRS publishes a list of common tax scams, and it's worth a quick read.

📖 Example

Fay gets a text saying she owes the IRS and must pay with gift cards. She checks the IRS scam list and sees that the IRS doesn't demand payment that way. She deletes the text and doesn't click the link.

Every year the IRS publishes its 'Dirty Dozen' list of tax scams — from fake charities and identity theft to abusive avoidance schemes pushed by promoters. If a strategy you're being sold looks like one on the list, stop.

🤖 How AI helps: AI can compare a pitch you received against the current Dirty Dozen list and point out similarities to ask a pro about.

✅ Your first step: Visit the IRS Dirty Dozen page and read the titles of this year's scams.

IRS: Dirty Dozen tax scams ↗ · IRS: Tax scams and consumer alerts ↗

Syndicated conservation easements and listed transactions

Some land-donation deals promise deductions far bigger than what you put in, and the IRS flags many of them as abusive.

📖 Example

Glen is offered a deal: put in $50,000 and get a $250,000 deduction for 'protecting land'. The IRS calls many deals like this 'listed transactions', which means they must be reported on Form 8886, and penalties can be steep. A deduction five times the cash is a reason to get independent advice before signing anything.

The IRS identified certain syndicated conservation easement deals as 'listed transactions' (Notice 2017-10), which means special disclosure duties and serious penalties for not disclosing (§ 6707A). They've been heavily litigated. If someone offers you a deduction many times your investment from land preservation, get independent advice first.

🤖 How AI helps: AI can summarize what 'listed transaction' means and what disclosure is required, in plain English.

✅ Your first step: If you've received any 'deduction multiplier' offer, write down the ratio they promise (for example 4 to 1).

IRS Notice 2017-10 ↗ · 26 U.S.C. § 6707A (Cornell Law School) ↗

Hobby or business?

If you aren't really trying to make money, the IRS may call it a hobby, and hobby losses usually can't lower your other taxes.

📖 Example

Nora sells crafts and loses $4,000 a year for five years with no plan to profit. The IRS could treat it as a hobby, so the $4,000 losses wouldn't lower her other income. If she keeps a separate bank account, tracks sales and changes prices to make money, it looks more like a real business on Schedule C.

An activity you don't run to make a profit is a hobby, and hobby losses generally can't offset other income (§ 183). Treat a side business like a business: separate account, a plan, records, and real effort to make money.

🤖 How AI helps: AI can help you write a simple business plan and profit plan you'd show a CPA.

✅ Your first step: Write one sentence about how your side activity will make a profit.

26 U.S.C. § 183 (Cornell Law School) ↗

Ask for help when the IRS writes

If you get an IRS letter, don't panic; read it, note the deadline, and share it with your tax person.

📖 Example

Vic gets a CP2000 notice saying a $600 1099 was missing from his return. He finds the 1099, sees it was real income, and sends the letter to his preparer before the deadline. If he gets stuck, the Taxpayer Advocate Service can help.

If you get an IRS letter, read it carefully, note the deadline, and send it to your preparer right away. If you're stuck, the Taxpayer Advocate Service is an independent office inside the IRS that helps people resolve problems.

🤖 How AI helps: AI can explain an IRS notice in plain English (with personal info redacted) and list what it's asking for and by when. Your AI toolkit (fixkitai.com/learn/ai/) explains how to remove personal details before you paste.

✅ Your first step: Find any IRS or state tax letters you've received this year and write each one's deadline on the envelope.

Try this prompt
Here is the text of an IRS letter with my personal details removed: [paste letter text]. In plain English, tell me: 1) what the letter is about, 2) what it asks me to do, 3) the deadline, 4) what documents I should gather for my tax professional. Do not give me personal tax, legal or investment advice and do not tell me what to do. Stop after those four points.

Taxpayer Advocate Service ↗ · IRS: Understanding your notice or letter ↗

Your options at a glance

OptionWhat it isGood forWatch out
Adjust W-4 withholding / estimated paymentsMatch what comes out of your paycheck to what you'll actually owe (§ 6654 safe harbors).Anyone whose income or deductions changed this yearUnderpaying without a safe harbor triggers a penalty even if you pay in April
401(k) deferrals, 'mega backdoor' and backdoor Roth IRAPre-tax or Roth deferrals, after-tax contributions converted to Roth if the plan allows, and nondeductible IRA contributions converted to Roth (Form 8606).W-2 earners whose plan document permits itSeparate limits (§ 402(g), § 415(c)), the IRA pro-rata rule; check current-year limits on IRS.gov
Solo 401(k) / self-directed IRAOwner retirement plans and IRAs that can hold alternatives like real estate or private loans.Business owners with no employees; investors who understand the alternative assetProhibited transactions (§ 4975) can disqualify the whole IRA; borrowing inside the account can trigger tax there (§ 514)
Health savings account (HSA)Deductible in, tax-free growth, tax-free out for medical costs (§ 223).People enrolled in a qualifying high-deductible planEligibility is set at open enrollment; keep every receipt
S-corporation electionSplit business profit into reasonable wages and distributions to cut self-employment tax (§ 1362).Owners with steady, meaningful business profitReasonable salary required; deadline matters and late relief has conditions; extra payroll and return costs
Accountable plan + home officeBusiness reimburses owner for home office, mileage and phone under a written plan (Reg. § 1.62-2; § 280A(c)).Owners who truly work from a dedicated spacePlan must exist before reimbursements; 'exclusive use' is strict
Augusta rule (§ 280A(g))Rent your home to your business for real meetings, under 15 days a year, tax-free to you.Owners whose business is a separate taxpayer and holds genuine meetingsFair-market rent, real purpose, real payment and a file for every day
Hiring your childrenPay your kids for real work; may avoid FICA in a parent-owned sole prop (§ 3121(b)(3)(A)).Sole proprietors or parent-only partnerships with real tasks for kidsFICA exemption doesn't apply inside a corporation; must be real payroll
Cost segregation on a rentalEngineering study that accelerates depreciation (§ 168).Owners who can actually use the losses against their other incomeLosses may be stuck until later if the rental is 'passive'; some tax comes back when you sell (recapture)
Short-term rental / real estate professional statusTwo routes for rental losses to be non-passive (Reg. § 1.469-1T; § 469(c)(7)).Households with real hours to put in and logs to prove itStrict hour tests; personal-use days can erase the benefit
Oil and gas working interestDeduct intangible drilling costs (§ 263(c)); non-passive if liability isn't limited (§ 469(c)(3)).High earners who accept illiquidity and real liabilityTitling inside an LLC/LP can kill the exception; volatile, uneven payouts
Film / TV production deductionElective expensing of qualified production costs (§ 181) — check status, LII text shows a 2025 end date.Investors who understand film economics and leverageAt-risk rules (§ 465), borrowed money in the deal, late K-1s, and the yearly cap on business losses (§ 461(l))
Donate appreciated stock / donor-advised fundGive long-held stock at fair value and skip the capital gain (§ 170).People who already give and itemizeOnly helps if you itemize; percentage-of-income limits
Tax-loss harvestingRealize losses to offset gains (§ 1211(b)).Investors with taxable accounts and realized gainsWash-sale rule (§ 1091); only a small amount offsets ordinary income each year

🚩 Red flags

  • "Invest X and get a deduction four or five times X" — ask where the rest comes from (usually debt).
  • The promoter can't name the code section the strategy relies on.
  • A strategy that only works if no credentialed preparer has to sign the return.
  • Year-end urgency: "wire by December 31 or lose the deduction."
  • "Just form an LLC and you'll save on taxes" — a single-member LLC is taxed the same as you.
  • Promises that any income can be wiped to zero, regardless of your facts.
  • Material-participation hours that come from webinars, sales calls or 'research'.
  • Non-recourse or never-collected loans propping up a deduction.
  • Syndicated conservation easements or anything on the IRS Dirty Dozen list.
  • Advice to backdate an election, plan or document.
  • A K-1 that historically arrives after the filing deadline, every year.
  • Unsolicited calls, texts or emails claiming to be the IRS demanding payment.

🙋 Questions to ask a pro

  • Will you sign a return that takes this position — and what documentation would you need to see?
  • Can this loss lower the tax on my paycheck, or is it 'passive' and stuck until later?
  • With everything else I'm doing this year, will the yearly cap on business losses (§ 461(l)) limit this?
  • What is my at-risk amount in this deal, and is any of the debt non-recourse?
  • Am I covered by an estimated-tax safe harbor this year if I change my withholding?
  • Does my 401(k) plan allow after-tax contributions and in-plan Roth conversions?
  • Would an S-corp election make sense for my business, and what reasonable salary could we defend?
  • What records should I keep, starting now, so this deduction holds up in an audit?
  • What does this cost me when I sell — recapture, ordinary income, or state tax differences?
  • Does my state follow the federal rule here (for example, bonus depreciation)?
  • Is § 181 still available for this production, and if not, what rule is the deal relying on?
  • How should I track the basis of crypto I mined or received as income?

Plain-English glossary

Basis
What you're treated as having paid for something; gain or loss is measured from it.
Deduction vs. credit
A deduction lowers taxable income; a credit lowers the tax itself, dollar for dollar.
Marginal rate
The tax rate on your next dollar of income — what a deduction is actually worth to you.
Safe harbor (estimated tax)
Paying in enough during the year to avoid an underpayment penalty, even if you owe more in April.
Passive activity
A business or rental you don't materially participate in; its losses usually only offset passive income.
Material participation
Working in an activity on a regular, continuous and substantial basis, measured by IRS tests.
At risk
The amount you could genuinely lose in an investment; it caps your deductible losses.
Suspended loss
A loss you can't use this year that carries forward to a future year.
Depreciation recapture
Tax you pay on sale to 'give back' some of the depreciation you deducted earlier.
Cost segregation
An engineering study that splits a building into parts that depreciate faster.
K-1
The tax form a partnership, S-corp or trust sends showing your share of its income or loss.
Reasonable compensation
The fair salary an S-corp owner must pay themselves for the work they do.
Accountable plan
A written company policy for reimbursing business expenses tax-free with receipts.
Intangible drilling costs
Non-salvageable costs of drilling a well, like labor and chemicals, often deductible right away.
Working interest
A direct ownership share in an oil or gas well that carries costs and liability.
Listed transaction
A type of deal the IRS has flagged as abusive and that must be specially disclosed.
Fair market value
What a willing buyer would pay a willing seller; used to value crypto rewards, rents and donations.
Donor-advised fund
An account at a sponsoring charity where you give now and recommend grants later.
Extension (Form 4868)
Extra time to FILE your return — not extra time to PAY what you owe.
Enrolled agent
A tax professional licensed by the IRS who can prepare returns and represent you.

Sources

People I learn from

Where I start

Tax planning and asset protection

Small-business and self-employed tax

Bookkeeping, financial statements, CFO skills

Small-business bookkeeping

Self-directed retirement accounts and tax strategy

Beginner real estate investing

Small-business basics and financing

Business credit building

Business credit and financing readiness

Listed because I've learned from them — not endorsements, not sponsors, and they don't know FixKit AI exists (yet).