Just to add to all the great advice here - when you set up the IP PIN for your kids, make sure to also notify any tax preparer you use (if you don't do your own taxes). They'll need to know you have IP PINs so they can include them when filing. I've seen people get their returns rejected because they forgot to tell their tax pro about the PINs. Also, if you move or change addresses, you'll need to update that info with the IRS before requesting new PINs each year. The whole process has been a lifesaver for peace of mind though!

This is such important info - thanks everyone for sharing your experiences! I had no idea child identity theft was so common. Quick question for those who've done this: do you need any specific documents beyond the kids' SSNs when setting up the IP PINs? Like birth certificates or anything? Want to make sure I have everything ready before I start the process.

Great question! I went through this exact confusion last year. Your $67.5k distributions should definitely NOT go on line 7 of Form 1120S - that's only for officer compensation (your $60k salary). Here's the correct treatment: - Line 7 (Form 1120S): Your $60k salary as officer compensation - Schedule K-1, Box 16 Code D: Your $67.5k distributions The key thing to remember is that distributions aren't a deductible business expense - they're just you taking out profits that have already been taxed at the corporate level. TaxAct should handle this correctly if you categorize them as "shareholder distributions" in the software. One tip: make sure your books show these distributions coming out of retained earnings or current year profits, not as an expense account. This will help everything flow correctly through the tax software and avoid any confusion during filing.

Just to add another perspective - I've been running my S-Corp for 6 years now and this distributions vs. salary classification is one of the most common mistakes I see new S-Corp owners make. You're absolutely right to double-check this! Your setup sounds very similar to mine. The $60k salary goes on line 7 as officer compensation (and should match your W-2), while the $67.5k distributions only appear on your K-1 in Box 16, Code D. One thing that helped me understand this better: think of distributions as withdrawing money you've already earned and will pay personal income tax on (via the K-1), while salary is a business expense that reduces the S-Corp's taxable income. That's why distributions can't be deducted on the 1120S - they're not an expense, just a withdrawal of profits. Your salary-to-distribution ratio looks reasonable for IRS purposes too. Keep good records of when you took each distribution throughout the year - it helps if you ever get questioned about the timing or amounts.

Wait, I'm confused. Can I deduct the registration fees I pay annually on my leased car too? In my state (California), the registration includes a "vehicle license fee" which they say is based on the value of the car, so it's basically a property tax, right?

This is a great question that highlights one of the more confusing aspects of tax law! The key distinction really comes down to legal ownership and payment structure. With your leased vehicle, you're typically considered the "lessee" who has certain ownership-like responsibilities, including being liable for property taxes in many states. The lease agreement usually breaks out these taxes separately, making them directly attributable to you as a deductible expense. With rental property, you're paying for the right to occupy the space, but you have no ownership interest whatsoever. The landlord maintains full ownership and is the one legally responsible for property taxes. Even though those costs are certainly factored into your rent, there's no direct legal connection between your rent payment and the property tax obligation. It's definitely one of those tax code quirks that seems illogical on the surface, but it's based on the underlying legal relationships rather than the economic reality of who's ultimately bearing the cost. The IRS focuses on who has the legal obligation to pay the tax, not who's economically impacted by it.

Has anyone dealt with this by sending a letter through certified mail? I'm in a similar situation and wondering if regular mail is good enough or if I should spend the extra money on certified mail with return receipt.

I went through almost the exact same thing last year! The IRS penalty notice made no sense since I had clear proof of payment before the deadline. Here's what I learned from my experience: First, get your account transcript from the IRS website (irs.gov) - it's free and shows exactly how they've recorded your payments. In my case, the transcript revealed that my payment was applied to the wrong tax year due to a data entry error on their end. Second, gather ALL your payment documentation - bank statements, confirmation numbers, screenshots from your tax software, anything that shows the payment date and amount. The IRS will need this to correct their records. Third, respond to the notice in writing with copies of all your proof. I sent mine certified mail with return receipt (costs about $7 but gives you proof they received it). In my letter, I requested penalty abatement under "reasonable cause" since I had paid on time and it was their processing error. The whole process took about 6 weeks, but they completely removed the penalty and sent me a letter confirming the correction. Don't just ignore it hoping it goes away - these penalties can grow with interest if not addressed promptly. The frustrating part is that these processing errors happen more often than the IRS likes to admit, especially during busy filing season. But they will fix it once you provide the documentation.

I went through this exact same situation about 18 months ago! The backup withholding removal process is definitely not automatic, which is super frustrating. Here's what worked for me: First, you need to request a "Statement of Account" from the IRS that specifically shows your backup withholding status has been removed. This is different from regular transcripts. When you call (I know, easier said than done), ask specifically for the "backup withholding department" and request documentation showing the removal. The key thing I learned is that the IRS sends notices to payers when backup withholding is imposed, but they don't always send removal notices automatically. Some of your clients may still be withholding because they never got updated information. Once you get the IRS documentation, send it to ALL your clients - even ones not currently withholding, because they might start withholding on future payments if they have the original notice on file. I created a simple letter explaining the situation and attached the IRS documentation. Also, make sure to keep detailed records of all the excess withholding that happened after you became compliant - you can claim this as additional tax payments when you file your return. It took about 3 months total to get everything sorted, but it was worth the effort to stop losing 24% of every payment!

I'm dealing with a similar backup withholding situation right now, so this thread has been incredibly helpful! I wanted to add that if you're having trouble getting through to the IRS by phone, you might also try visiting a local Taxpayer Assistance Center (TAC) in person. I went to mine last month for a different issue, and while you do need to make an appointment, the representative was able to pull up my account and print documentation on the spot. They can see your backup withholding status in real-time and provide official documentation if it's been removed. The wait time for an appointment was about 2 weeks in my area, which might be faster than trying to get through on the phone depending on your situation. Also, just a heads up - make sure you're prepared with all your documentation when you do speak with someone (either by phone or in person). They'll want to verify your identity and may ask about your filing compliance, so having your recent returns and payment confirmations ready will speed up the process significantly. The excess withholding recovery mentioned by others is definitely worth pursuing - that money adds up quickly when you're dealing with 24% on every payment!