Be careful with the terminology here. In a C Corp, technically you don't take "draws" like you would in an LLC or partnership. You take either salary (through payroll) or dividends (distributions of profit). The IRS is very particular about C Corp owners taking reasonable compensation through payroll before taking dividends. This is because they want to collect those FICA taxes. If you try to bypass this by taking only dividends, they can reclassify those payments and hit you with penalties. Also, distributing invested capital back to shareholders is a whole different issue - that's actually a return of capital and has different tax implications than either salary or dividends. You should definitely talk to a CPA about this specific situation.

This is a great discussion and really highlights the complexity of C Corp compensation rules. I'm glad you updated your post to mention setting up proper payroll - that's absolutely the right approach. One additional point I'd add is that the IRS has specific guidelines for what constitutes "reasonable compensation" that go beyond just market rates. They look at factors like the company's financial condition, your role and responsibilities, time devoted to the business, and the company's dividend history. For pre-revenue startups, this often means you can justify below-market salaries, but you still need to document your reasoning. Also, regarding the investment capital distribution issue - it's worth noting that many investment agreements actually include provisions about founder compensation. Some investors expect founders to take reasonable salaries as part of the investment structure, while others prefer founders to have more "skin in the game" with lower compensation. Always check your investment docs before making these decisions. The key takeaway is that the IRS wants to see active shareholders receiving W-2 wages before taking any distributions. Even if it means higher payroll costs in the short term, it protects you from much bigger problems down the road.

I feel your pain on this fiscal year deadline confusion! I went through the exact same thing with my small manufacturing business a couple years ago. The September 15th deadline for June 30 fiscal year corporations is one of those weird exceptions that catches so many people off guard. Since you're already past the September 15, 2024 deadline for your first year, here's what I'd recommend based on my experience: 1. File immediately - don't wait another day. The failure-to-file penalty is 5% of unpaid tax per month and stops growing once you file, even if you still owe money. 2. Include a reasonable cause letter with your return explaining the confusion about fiscal year deadlines. I did this and the IRS accepted it as reasonable cause for a first-time filer. 3. Look into First-Time Penalty Abatement if you have a clean compliance history. You can request this after filing by calling the IRS or including a letter with your return. 4. For next year, set up proper reminders for your September 15 deadline, and consider filing Form 7004 for an automatic extension to March 15 if you need more time. The good news is that this type of deadline confusion is actually pretty common for new corporations with fiscal years, and the IRS recognizes it as reasonable cause. Don't let the stress paralyze you - just get that return filed ASAP and deal with any penalties after the fact. You've got options to reduce or eliminate them.

I can totally relate to this fiscal year confusion! As someone who's helped many small business owners navigate these deadlines, the June 30 fiscal year exception trips up almost everyone initially. Since you missed the September 15, 2024 deadline, here's my recommended action plan: **Immediate Steps:** 1. File your Form 1120 THIS WEEK - seriously, don't wait another day 2. Include a reasonable cause statement explaining the fiscal year deadline confusion 3. Pay any taxes owed to minimize failure-to-pay penalties **Penalty Relief Options:** - First-Time Penalty Abatement (if you have clean compliance history) - Reasonable cause relief for the deadline confusion - The IRS is generally understanding about fiscal year filing confusion for new corporations **Going Forward:** - Mark September 15 in your calendar for future years - Consider filing Form 7004 next year for automatic extension to March 15 - Set up quarterly estimated payment reminders (Oct 15, Dec 15, Mar 15, Jun 15) The failure-to-file penalty (5% per month) is way steeper than failure-to-pay (0.5% per month), so getting that return filed immediately should be your top priority. Once filed, you can work on penalty abatement. Don't beat yourself up over this - the fiscal year deadline rules are genuinely confusing, and you're definitely not the first business owner to get caught by this!

I'm dealing with a very similar situation right now - sold my timeshare for $2,300 after paying $21,500 originally. Just got my 1099-S and was hoping I could somehow use that massive loss on my taxes, but clearly that's not happening! Reading through all these responses has been incredibly educational. I had no idea about the Form 8949 requirements or the code "L" adjustment process. The fact that we still have to report it even though there's no tax benefit seems like bureaucratic overkill, but I definitely don't want to mess around with IRS matching systems. One thing I'm wondering about - for those of you who have been through this process, how long did it take to actually complete the sale once you decided to get rid of your timeshare? I've been trying to sell mine for months and the whole resale market seems pretty brutal. Did anyone find certain companies or methods that worked better than others? Also, has anyone had their tax software automatically handle the adjustment calculation, or did you have to manually figure out the code "L" part? I'm using FreeTaxUSA this year and hoping it can walk me through the process without too much confusion. Thanks everyone for sharing your experiences - it's strangely reassuring to know so many other people have survived this same financial nightmare!

I'm going through this exact same situation right now! Just received my 1099-S for a timeshare I sold for $1,400 after originally paying $17,900. It's painful to see that loss on paper, but reading through everyone's explanations has really clarified the reporting requirements. The breakdown about Form 8949 and the code "L" adjustment was especially helpful - I had no idea you could zero out the loss that way while still properly reporting the transaction. It seems like such a waste of paperwork when there's no tax benefit, but I definitely don't want to risk IRS matching issues by ignoring the 1099-S. Has anyone dealt with a situation where the timeshare company issued the 1099-S with the wrong information? My form shows the gross proceeds but doesn't account for the $200 in transfer fees I paid, so I'm wondering if I should request a corrected form or just adjust it myself when filing. I want to make sure I'm reporting the actual net proceeds correctly. Thanks to everyone for sharing their experiences - it's oddly comforting to know this timeshare nightmare is so common that there's basically a standard playbook for handling the tax implications!

Your accountant is being appropriately cautious, and here's why this situation is genuinely complex beyond just the basic 2-out-of-5 rule: **Primary residence exclusion complexity**: You'll only get the capital gains exclusion on 25% of your gain (the portion you lived in). But calculating that "gain" isn't straightforward when you've been depreciating 75% of the property for years. **Depreciation recapture nightmare**: Every dollar of depreciation you've claimed (or should have claimed) on the rental units over 7 years gets "recaptured" and taxed at 25%. If you haven't been taking depreciation deductions, the IRS still treats it as if you did for recapture purposes. **Section 1250 vs 1202 considerations**: Different parts of your gain may be taxed at different rates depending on how long you've owned it and your income level. **Documentation requirements**: The IRS scrutinizes mixed-use property sales heavily. Your accountant knows that giving you a number now without proper documentation review could leave you exposed later. My suggestion: Ask your accountant to walk you through the calculation methodology and what specific documents they need from you. Then you can at least understand the framework even if the final number has to wait until closing. The "it's complicated" response, while frustrating, is actually protecting you from nasty surprises down the road.

Your accountant's response is frustrating but actually makes perfect sense from a professional liability standpoint. Multi-family property sales with mixed personal/rental use are genuinely some of the most complex tax situations in real estate. Here's what's likely making your accountant cautious beyond the basic calculations others have mentioned: **Basis allocation headaches**: With 7 years of ownership, you've probably made improvements that need to be allocated between personal and rental use. Even "shared" improvements like a new roof get tricky - did you depreciate the rental portion? How do you split the basis increase? **State-specific complications**: Depending on your state, the tax treatment might be completely different from federal rules. Some states don't recognize the primary residence exclusion for mixed-use properties at all. **Audit risk factors**: The IRS flags mixed-use property sales for review more often than standard residential sales. Your accountant knows that any estimate they give you now could come back to haunt both of you if the actual calculation is wrong. **Income timing issues**: Your total tax liability depends on your other income for the year, which might not be finalized until December. Instead of asking for a specific dollar amount, try asking your accountant to explain the calculation framework and what range of outcomes you should prepare for. That way you can plan financially while acknowledging the variables that genuinely can't be pinned down yet. The complexity is real, but it's manageable with proper preparation and realistic expectations.

This entire thread has been so educational! I've been dreading updating my W4 at my new job because I kept hearing how confusing the new form was compared to the old allowance system. After reading through everyone's experiences and explanations, I finally feel like I understand the logic behind it. What really helped me was understanding that each step has a specific purpose: Step 3 is only for actual dependents (not for gaming the system like we used to with allowances), Step 4(b) is for legitimate additional deductions you'll actually claim, and Step 4(c) is where you can fine-tune your withholding amount. I love the advice about doing a "trial run" approach and checking your withholding after a few paychecks. That takes so much of the anxiety out of potentially getting it wrong initially. And the tip about using your effective tax rate from last year's return as a baseline is genius - I never would have thought of that approach. Thanks to everyone who shared their real-world experiences with the tools mentioned too. It's helpful to hear which resources actually work when you need more personalized guidance beyond the basic IRS instructions. This thread should definitely be bookmarked for anyone dealing with W4 confusion!

This has been such an incredibly helpful discussion! As a newcomer to this community, I'm amazed by how thoroughly everyone has broken down the W4 changes and shared real-world strategies. I'm in a slightly different situation - I'm switching from contractor work (1099) to W2 employment for the first time in several years, so I'm not only dealing with the new W4 format but also transitioning from making quarterly estimated payments to having taxes withheld from my paychecks again. From what I've gathered here, it sounds like I should be extra careful about Step 4(a) since I'll likely have some 1099 income early in the year before my W2 job starts. And based on everyone's advice about being conservative, I'm thinking I should definitely use Step 4(c) to have additional withholding to account for the complexity of my transition year. The recommendation about using tools like the IRS withholding estimator mid-year seems especially important for someone like me with a mixed income situation. Thanks to everyone who shared their experiences with both the official IRS tools and the third-party options - it's really helpful to know what actually works in practice! This thread has given me so much more confidence about tackling my W4. I'll definitely be bookmarking this for reference!