What percentage do you have withheld from your RMDs? I'm trying to figure out the right amount so I don't withhold too much or too little.

I have 20% withheld from my RMDs, which covers my federal tax liability with a bit of cushion. I'd rather get a small refund than worry about penalties. For state taxes, I have an additional 5% withheld since my state has a flat income tax rate. If you're in a state with variable tax rates or no income tax, you'd need to adjust accordingly.

Thanks for explaining the calculation part! Can I take more than the required minimum if I want/need to? Or is there a maximum I shouldn't exceed?

You can absolutely take more than the required minimum - there's no maximum limit on how much you can withdraw from your traditional IRA each year. The RMD is just the minimum amount you MUST take to avoid penalties. Many people take exactly the RMD amount to minimize their current tax liability and preserve the tax-deferred growth for as long as possible. But others take larger distributions for various reasons - maybe they need more income, want to reduce future RMD amounts, or are trying to stay in a lower tax bracket before other income kicks in. Just remember that any amount you withdraw (whether it's the minimum or more) will be taxed as ordinary income, so factor that into your planning.

This is actually really smart advice! I did this with my parents when I was in school. If they pay the institution directly, it doesn't count against the annual gift limit AND avoids the payment app reporting problem entirely.

Thanks for bringing this up! My S-Corp is pretty straightforward and doesn't have those other accounts yet, but it's good to know about this complexity for the future. Does QuickBooks track these different accounts automatically or is this something you need to manually keep records of?

QuickBooks doesn't automatically track AAA, OAA, or PTI accounts properly in my experience. You really need to set up separate ledger accounts and maintain them manually or with specialized S-Corp tax software. Regular accounting software just isn't designed to handle these tax-specific tracking accounts.

Did they actually audit you for this or just send a correction notice? I've been doing my own 1120-S returns for three years and honestly have never filled out the AAA section... now I'm worried.

@Luca Ricci You should definitely start tracking your AAA properly! It wasn t'a full audit in my case - just a correction notice asking me to file an amended return with the AAA section completed. But the IRS agent warned me that consistently leaving it blank could trigger more scrutiny later, especially when you start taking distributions. The AAA account is required reporting for S-Corps, not optional. Even if you ve'been getting away with it for three years, it s'better to correct this going forward. You might want to consider amending your previous returns to include the AAA tracking, or at least make sure you start doing it correctly from this year forward.

Thanks for this advice. I've definitely started keeping much better records now. Did you end up having to pay the employer portion of taxes too, or were you able to avoid that somehow?

I initially got stuck with the whole tax bill including the employer portion, which was painful. But after filing Form SS-8 (to determine I was actually an employee) and Form 8919 (Uncollected Social Security and Medicare Tax on Wages), the IRS adjusted things and ultimately my former employer got hit with their share plus penalties. The process took about 8 months though, so be prepared for a wait. Definitely keep every bit of evidence you can - text messages about schedules, bank deposits, anything that proves you were an employee rather than an independent contractor.

Ok fine, but then how do you explain all these cash businesses that go years without getting caught? My uncle's been running his handyman business cash-only for like 15 years and never had an issue.

Your uncle might think he's never had issues, but the IRS often takes years to catch up with unreported income cases. They use data matching from bank records, third-party payments, and lifestyle analysis. Just because someone hasn't been audited yet doesn't mean they won't be - and when they are, the penalties and interest compound over time making it much worse. The difference here is that OP is an employee, not truly self-employed. Employee wage theft (which is essentially what this is) gets flagged much faster than independent contractor situations because there are more data points for the IRS to cross-reference.

This happened to my brother too! He transposed two numbers and his second portion of his refund never arrived. Had to wait forever for the IRS to figure it out and issue a check.