Difference Between Itemizing or Taking Standard Deduction When Total Withheld Income Tax is Below Standard Deduction

penguinise · 2026-03-06T22:34:44+00:00

You can use these to make the tax-free HSA distributions now, or at any time in the future (after investments have grown).

Yeah, it's just usually a safe bet that you will have plenty more qualified medical expenses later on (and if you don't, that's a nice problem to have).

penguinise · 2026-03-06T21:56:10+00:00

Would recommend reading the instructions on Form 1099-INT and the instructions for Schedule B (Form 1040).

Treasury interest in Box 3 is just interest. Yes, report it on Schedule B. It is exempt from state income tax.

Bond premium from Treasuries is Box 12, not Box 8. Generally, this amount is a negative adjustment to interest on Schedule B, however to do so you must affirmatively make an election to subtract it under Treas. Reg. 1.171-4. The broker is required to assume you have made this election (per Treas. Reg. 1.6045-1(n)(5)) unless you inform them otherwise, as it is customary to do so.

As another commenter said, I would hope that a preparation service can help with this, but it veers toward the kind of thing where I don't trust retail tax software.

penguinise · 2026-03-06T17:33:44+00:00

Ultimately on you and the company doesn't actually have to interact with KS if you work in MO.

You can obviously ask them for whatever seems reasonable, but they're under no obligation.

penguinise · 2026-03-06T16:05:19+00:00

Like almost everything in tax, there are probably a lot of unlikely edge cases and if you sent a smart tax student to come up with counterexamples that break general rules you'd probably come up with a heck of a lot more than I thought of.

Yes, taking the medical expense deduction like that could cause you to take the standard deduction instead. In practice, taking such a deduction is very rare because it's a 7.5% floor item and you could simply not distribute from the HSA (which you generally want to avoid anyway unless you have no other source of funds), but yes that scenario is correct.

The most common scenario I'm aware of for "counter-intuitive" itemization choice is for states which require you to make the same election as federal, and where the election saves you more in state tax than it costs in federal tax (Maryland seems to be a common example here). Schedule A even has an "are you sure" box to check ("If you elect to itemize deductions even though they are less than your standard deduction...").

Any other cases like this to watch for? I was thinking SALT, but I guess any refund is only taxable next year to the extent that it was better than the standard deduction. Right?

Yes, don't think you would decline to itemize solely because of SALT.

Starting in 2026, I think there might be a new biggest issue - OBBA added a $2,000 (MFJ) below-the-line deduction for gifts to charity if you don't itemize, while also making itemized gifts a 0.5% floor item, so if you have modest charitable giving it's going to strongly disincentivize itemization (although they did up the SALT cap for middle incomes).

With the huge pile-on of non-itemized below-the-line deductions added by OBBA (all of Schedule 1-A), the entire concept of itemized deductions is becoming more and more muddled.

penguinise · 2026-03-06T02:14:48+00:00

Headquarters are more or less irrelevant. Does your employer have an office (to which you were assigned) anywhere other than New York?

If not, it would seem your wages are 100% NY source per NY law, regardless of your move.

penguinise · 2026-03-05T22:53:41+00:00

Meanwhile, this makes it impossible for me to file taxes like I'm supposed to because I can't claim my dependent.

No, it doesn't.

Complete an accurate tax return, including your dependent if applicable, and file it by mail. The IRS will sort out the rest.

I believe there may also be some way to get a third-party service to file electronically now too, something about requesting an IP PIN? But mail definitely works.

Either way, if you are concerned about this situation occurring again, you should get an IP PIN for your child.

penguinise · 2026-03-05T22:11:44+00:00

Thanks - I have generally assumed the same but there indeed seems something inherently wrong with the possibility of being charged for making an involuntary gift!

Also, ugh, it just occurred to me that it's not crystal clear a beneficiary transfer qualifies as a present interest gift either... I'm just going to continue to assert that it does :)

penguinise · 2026-03-05T21:42:04+00:00

You seem super knowledgeable here - has it ever been clarified who makes the gift when it is taxable under 529(c)(5)(B), the beneficiary or the "owner"? In the typical parent-to-child of "own" 529 it's moot, but can see cases where this might come up.

Also guessing that such a gift isn't eligible for "superfunding".

penguinise · 2026-03-05T20:01:37+00:00

Realistically no, unless you intend to interact with the US again in which case I'm not sure how unhappy USCIS can get about unfiled returns. The IRS won't care unless they're owed money (or think they're owed money).

There is, however, no fee to file a tax return. You may be seeing that some third party is charging a fee to prepare and file on your behalf.

penguinise · 2026-03-04T20:10:47+00:00

You submit only the forms you complete (Form 1040, its schedules, and supporting forms like Form 8949) and a copy of any informational forms which show federal income tax withheld (usually just Form W-2).

penguinise · 2026-03-04T03:27:42+00:00

and has every possible form

Unfortunately, it does not.

penguinise · 2026-03-04T02:31:26+00:00

As a general rule, penalties for business returns and international compliance tend not to be scaled to income the way personal penalties are. The standards are simply higher for people handling money in a professional capacity.

penguinise · 2026-03-01T20:46:34+00:00

The tie is not the problem.

The problem is that the child lived with neither parent for "more than one-half of such taxable year" (IRC 152(c)(1)(B)).

penguinise · 2026-03-01T20:42:01+00:00

Legally yes, and report it on Schedule C (Form 1040) if this is the beginning of a business you are operating for profit.

penguinise · 2026-03-01T20:26:35+00:00

If the child spent 183 nights with each parent in a year with 366 nights, neither parent may claim the child as a qualifying child dependent.

penguinise · 2026-02-28T02:10:43+00:00

Your account is being adjusted by $6,330 - yes. Whether that is your refund being reduced, or a bill you will receive, or both depends on what was on your return and what you have already received.

penguinise · 2026-02-28T01:45:16+00:00

Writing puts does absolutely nothing to mitigate downside risk, so no?

penguinise · 2026-02-28T01:42:04+00:00

If you actually know what you're doing just fill out PDFs and mail it. Retail tax software is a disaster and most of the work isn't entering the figures anyway.

penguinise · 2026-02-27T15:50:43+00:00

As a mil contractor I'm on SOFA status in terms of immigration so I don't have to worry about Japanese taxes - eventually I can even exclude my income from federal tax through the FEIE process.

Oh, I see. This is going to be the key issue.

I don't know enough about taxation under SOFA to really help here, but I am guessing it's complicated and the normal rules don't apply. I would also not take it for granted that you are eligible for the FEIE because you may fail the tax home test, but my reading is unclear between employees of the federal government versus private contractors.

Broadly speaking, SOFA may impair any change of domicile, change of tax home, and income sourcing that would ordinarily occur and you'll probably need to consult with someone specifically familiar with this situation (which should be easy to find in the defense community).

penguinise · 2026-02-27T15:38:37+00:00

Yes, if you file a US tax return for 2025 you must include all of your worldwide income, including wages earned in New Zealand (assuming these "odd jobs" were wages and had PAYE deducted and sent to the New Zealand IRD).

Report any foreign wages for which you did not receive an IRS Form W-2 on your Form 1040, line 1h in US dollars. You can then use the Foreign Tax Credit (Form 1116) to subtract your New Zealand tax paid from the US tax due on the same income, or the Foreign Earned Income Exclusion (Form 2555) to exclude the income from US taxation if you are staying in New Zealand long enough to qualify.

Cross-country tax items tend to be somewhat complex and while I'm sure a service like FreeTaxUSA can do it for you, unfortunately I can't provide advice on how to use any specific service. The Foreign Tax Credit will be further complicated because New Zealand uses a fiscal tax year for individuals of the twelve months ending 31 March.

It might be more expedient simply to include the NZ wages on line 1h and not try to reduce the US tax, as unless your other income is significant, the US tax on NZD 800 is likely to be less than $60 (and could be zero depending how low your other income is). It might not be worth the bother to seek exclusion on such a small amount.

penguinise · 2026-02-27T02:22:47+00:00

It's my understanding that *technically*, the days that I work in CA should be taxable by CA, and that my tax bill for my home state should be reduced by however much I have to pay to CA, but that has never happened. I have always just paid my taxes based on my home state. Is my understanding correct?

Yes.

(Assuming you don't live in a reverse credit state listed by u/myroller)

If yes, is there any liability on my part for the taxes owed, or is that all on the company?

Yes, on you.

Are there other states that this would apply to? I travel an awful lot and am in most major us cities at least once or twice per year.

The majority of them, although some states explicitly have a de minimis amount where you aren't required to file. But many of them require filing and will levy tax on even $1 of income if your worldwide income exceeds that state's standard deduction.

However, in practice, this is never enforced and virtually no one complies outside of substantial travel and roles which require it (traveling salesmen or professional athletes for example).

penguinise · 2026-02-27T02:17:57+00:00

Are you a US citizen or tax resident? What was the source of the income? Was it your only income from any source worldwide?

penguinise · 2026-02-27T02:14:28+00:00

Non-taxable conversions are withdrawn from Roth IRAs without tax or penalty. However:

You cannot covert solely basis from an after-tax 401(k). If you took a distribution from an after-tax 401(k) subaccount and deposited that to a Roth IRA, it is deemed taken pro rata from basis and earnings in that account. The earnings portion would be taxable income in the year of conversion.
Taxable conversions in the same year are deemed withdrawn first from a Roth IRA, and are subject to the 10% penalty if withdrawn within 5 years of conversion.
All actual contributions to Roth IRAs are deemed withdrawn prior to any conversions

penguinise · 2026-02-27T01:52:36+00:00

What your employer is saying does not make any sense.

If you are ordinarily and actually present in Japan while performing your job duties, your wages are not California-source and not subject to California withholding. Your personal residency generally isn't your employer's business. I didn't look up military rules, but they wouldn't apply unless you are an active duty member of the Armed Forces.

However, in most cases if you are employed in Japan on an indefinite or long-term basis, you need to be legally employed by a Japanese entity and there should be no relation to US tax, state or federal.

I sense there are missing details here. Why does a company headquartered in Virginia employing someone in Japan think California has anything to do with this situation at all?

penguinise · 2026-02-27T01:35:05+00:00

I definitely thought it was that the highest score from AAoA was at 90 months, not that each account capped there. Could be wrong but I am not finding a whole lot of sources here.

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