Just want to add one more consideration that might be relevant for your situation - timing of when you actually start paying interest matters for tax reporting. If you're borrowing the money next month but won't start making interest payments until later in the year, your uncle will only need to report the interest he actually receives during the 2025 tax year. So if you borrow in May but don't start paying interest until August, he'd only report 5 months of interest income on his 2025 return. Also, since you mentioned this is for a car down payment, just be aware that unlike mortgage interest, the interest you pay on this personal loan won't be tax-deductible for you (even though your uncle still has to report it as income). Personal loan interest generally isn't deductible unless it's used for business or investment purposes. The written agreement others mentioned is really crucial here - I'd suggest including the specific purpose of the loan (car purchase) and maybe even the VIN once you buy the car. This helps establish it as a legitimate loan rather than a gift if anyone ever questions it later.

One additional point to consider that hasn't been mentioned much - if your family loan extends into multiple tax years, both you and your uncle need to be consistent about how you handle the reporting each year. I had a situation where my aunt loaned me money for graduate school over a 4-year repayment period, and we had to make sure she reported the interest income every year she received it, even when the amounts varied based on my payment schedule. Also, keep copies of all your payment records (bank transfers, checks, etc.) and the original loan agreement together in one file. If either of you ever gets audited, having that complete documentation package makes the process much smoother. The IRS likes to see that family loans are treated with the same formality as commercial loans. One last tip - consider setting up automatic payments if possible. It creates a consistent paper trail and ensures you don't accidentally miss payments, which could complicate the loan's legitimacy if questioned later. Good luck with your car purchase!

5 Can someone explain the pro-rata rule issue with backdoor Roths? My financial advisor mentioned it could be a problem but didn't really explain it clearly.

This is a great question that highlights one of the most confusing aspects of retirement tax law. The income restrictions on Roth IRAs were originally designed as a revenue protection measure - Congress wanted to limit the immediate tax revenue loss from allowing high earners to contribute after-tax dollars that would grow tax-free forever. However, what many people don't realize is that the "backdoor Roth" strategy exists because of legislative oversight, not intentional design. When Congress removed income limits on Roth conversions in 2010 (primarily to generate short-term tax revenue), they didn't anticipate how this would interact with the existing rule allowing anyone to make non-deductible traditional IRA contributions. The IRS has been aware of this strategy for over a decade and has essentially given it tacit approval. In fact, they've published guidance on how to properly report these transactions. It's become such an accepted practice that many major brokerages now offer "backdoor Roth" as a standard service option. From a practical standpoint, if you're a high-income earner, this strategy remains completely legitimate and widely used. Just make sure you understand the pro-rata rule implications if you have existing traditional IRA balances, and document everything properly for tax reporting purposes.

I went through something very similar with my single-member LLC last year. The key thing that saved me was immediately opening a properly designated IOLTA (Interest on Lawyers' Trust Account) style trust account specifically for client funds, even though I'm not a lawyer. Many banks will set up similar trust accounts for other professionals. The critical part is having ironclad documentation showing these are client funds held in trust, not your operating income. I had to provide retainer agreements, invoices showing the funds were for future services, and a clear paper trail separating client deposits from my earned income. Also, don't wait until you're more liquid to contact the IRS. Call them now and explain your situation - they're actually more willing to work with you if you're proactive rather than reactive. I was able to get a Currently Not Collectible status temporarily while I sorted out my finances, which stopped all collection activity. The IRS revenue officer I spoke with told me that being upfront about the client funds situation and showing proper documentation was much better than them discovering it during a levy. They appreciate transparency and it can actually work in your favor during negotiations.

This is exactly the kind of situation where you need to act fast but also be very careful about how you handle it. As others have mentioned, the IRS absolutely can levy your single-member LLC account for personal tax debt since it's a disregarded entity. Here's what I'd recommend doing immediately: 1) **Document everything** - Get written proof that certain funds belong to clients. This means retainer agreements, invoices showing advance payments, anything that proves the money isn't yours. 2) **Contact the IRS proactively** - Don't wait for them to levy. Call and explain you have client funds mixed in the account that need protection. They're more likely to work with you if you're upfront. 3) **Set up proper separation** - Open a designated trust account for client funds if you haven't already. But be careful about the timing - moving money after receiving collection notices can look suspicious. The $78k debt is substantial, but the IRS has options like installment agreements and Currently Not Collectible status if you truly can't pay right now. The key is being proactive and transparent rather than trying to hide assets. Also, for future reference, consider electing S-Corp status for your LLC to create better separation between personal and business tax liabilities, though that won't help with your current situation. Don't panic, but don't delay either. The sooner you address this head-on, the more options you'll have.

This is really helpful information! I'm in a similar situation with my first-year S-Corp that had a $6,200 loss. I was completely confused about whether to even bother with Schedule M-2, but reading through these responses makes it clear that I need to track the AAA properly from day one. One quick follow-up question - when you have that negative AAA balance carrying forward, does it affect the shareholders' basis calculations at all? Or are those tracked completely separately? I want to make sure I'm not missing any other pieces of this puzzle before I file. Thanks everyone for sharing your experiences - this community is so much more helpful than trying to decipher the IRS instructions on my own!

As someone who's been preparing S-Corp returns for over 15 years, I want to emphasize that your approach is absolutely correct, Astrid! You should definitely maintain the AAA account from the very beginning, even with losses. A few additional points that might help you and others in similar situations: 1. The negative AAA balance of -$4,700 will indeed carry forward to next year's beginning balance. This is crucial for determining the tax character of future distributions. 2. When you do have profits in future years, the AAA will be restored dollar-for-dollar before any distributions are treated as tax-free return of capital to shareholders. 3. Keep detailed records of your AAA calculations each year. The IRS can ask for this information going back several years, especially if there are questions about distribution treatment. 4. Remember that the AAA is adjusted for income and deductions, but NOT for tax-exempt income or non-deductible expenses (those go to the Other Adjustments Account if applicable). Never leave Schedule M-2 blank - it's a required schedule for S-Corps and proper AAA tracking is essential for compliance and future planning. You're doing the right thing by getting this straight from year one!

Anyone else find it weird that even though we attach these documents electronically, the IRS still asks for faxes or mail? It's like their systems don't talk to each other at all! I ended up having to fax AND mail my sister's Form 1310 stuff last year. Such a headache.

I went through this exact same situation with my father's estate return two years ago. The IRS kept requesting Form 1310 even though I had already submitted it electronically. After three rounds of back-and-forth, I learned that the issue was actually with how the electronic filing system handles certified documents. Here's what worked for me: I called the IRS number on the letter and asked them to specify exactly what format they needed the court certificate in. Turns out they needed the actual raised seal to be visible, which obviously doesn't transmit well electronically. I ended up having to get a new certified copy from the probate court with clearer certification language and sent it via certified mail with a cover letter referencing the notice number. The whole process took about 10 weeks from start to finish, but once I sent the properly certified documents, they processed the refund without any further issues. Don't give up - it's just a matter of getting them the documentation in the exact format their system requires.