One thing I haven't seen mentioned yet is the importance of keeping detailed records beyond just usage logs. As someone who went through an S-Corp audit a few years back, the IRS auditor wanted to see not just percentages, but actual evidence of business necessity. For cell phones specifically, they asked for things like: business contact lists showing client calls, screenshots of business apps used regularly, email records showing business communications, and even call logs if available. The more you can demonstrate that the phone is genuinely essential for business operations, the stronger your position becomes. Also, if you're buying a high-end phone like the latest iPhone, be prepared to justify why that level of device is necessary for your business. A basic smartphone might be easier to defend than a $1200+ flagship model. The IRS sometimes questions whether premium features are truly business-necessary or just personal preferences. The key is building a paper trail that tells a consistent story about legitimate business use. Documentation is your best friend if you ever get audited!

As a tax professional who's helped numerous S-Corp clients navigate these exact issues, I want to emphasize something that's been touched on but bears repeating: consistency and documentation are absolutely critical. The mixed advice about deducting 100% of the purchase but only 80% of monthly bills is indeed problematic. The IRS expects logical consistency in your deductions. If you determine through proper tracking that your business use is 80%, then both the initial purchase and ongoing service should reflect that same percentage. Here's what I recommend for S-Corp owners specifically: 1. **Track usage for at least 90 days** - Keep a detailed log of business vs personal calls, texts, and data usage. This creates your baseline percentage. 2. **Document business necessity** - As others mentioned, maintain records showing why you need the phone for business: client contact lists, business apps, work-related communications. 3. **Consider the reimbursement approach** - Have your S-Corp reimburse you for the business portion under an accountable plan rather than taking it as a shareholder deduction. This is cleaner from a tax perspective. 4. **Be reasonable about the device cost** - If you're buying premium equipment, document why those features are necessary for your specific business operations. Remember, the goal isn't to maximize deductions at all costs - it's to take legitimate business deductions that you can confidently defend if questioned. The peace of mind is worth more than squeezing out a few extra percentage points that might trigger scrutiny.

This is exactly the type of complex partnership tax issue that trips up so many small business owners! Based on your description, you're dealing with a classic scenario where the partnership has legitimate business expenses that just happen to be non-deductible for tax purposes. A few additional considerations that haven't been fully addressed yet: 1. **Documentation is crucial** - Make sure you have detailed records showing these expenses were ordinary and necessary for the business, even though they're non-deductible. This helps if you ever face an audit. 2. **Consider the timing** - Some of these expenses might be partially deductible. For example, if your meals were business meals, 50% should still be deductible. Make sure you're not treating the entire amount as non-deductible. 3. **State implications** - Don't forget that some states have different rules for these expenses. What's non-deductible federally might have different treatment at the state level. 4. **Cash flow planning** - Since you're essentially paying tax on money you spent on non-deductible expenses, factor this into your quarterly estimated tax payments to avoid underpayment penalties. The basis reduction issue mentioned by others is particularly important for your future loss deduction capacity. Given that you're expecting potential losses next year, you might want to consider making additional capital contributions before year-end to maintain adequate basis for loss deductions. Have you considered whether any of these expenses might qualify for different treatment under IRC Section 162 vs. other sections?

Great discussion here! I'd like to add one more perspective that's been really helpful for our partnership. We discovered that maintaining a detailed "basis tracking spreadsheet" throughout the year has been invaluable, not just for tax preparation but for making business decisions. Our spreadsheet tracks each partner's beginning basis, adjustments for income/losses, capital contributions, distributions, and most importantly - the impact of non-deductible expenses. This gives us a real-time view of each partner's ability to deduct losses and helps us plan distributions strategically. One thing that surprised us was how certain partnership debt can actually increase your basis and offset some of the reduction from non-deductible expenses. Under the at-risk and passive activity rules, this becomes particularly important if you're in a consulting partnership like yours where income can be variable. Also, regarding the meals issue - make sure you're not missing the new 100% deduction for business meals that was temporarily available for 2021-2022. While it's back to 50% now, there might be some carryover effects depending on when your expenses were incurred. For your $5,200 in non-deductible expenses, I'd strongly recommend running scenarios for how this affects each partner's basis and future loss deduction capacity, especially given your expectation of potential losses next year from equipment purchases. The interaction between basis limitations and equipment depreciation can create some unexpected tax planning opportunities.

Congrats on seeing the 846 code! That's definitely the light at the end of the tunnel. I've been through this process a few times and can confirm what others are saying - once you see 846, you're basically guaranteed to get your refund within 1-5 business days. In my experience, most direct deposits hit around 2-3 AM, so check your account first thing Monday morning. The date on your transcript (03/22) is more of a "by this date" rather than an exact date, so you might even see it earlier. Just make sure your banking info is exactly what you put on your return - I learned that the hard way one year when a small name variation caused a rejection. But assuming everything matches, you should be golden! The hardest part is definitely the waiting game once you know it's coming.

This thread is so helpful! I just checked my transcript after seeing this post and found code 846 with a date of 03/24/2024. I've been waiting for my refund for almost 8 weeks now, so seeing that code finally appear is such a relief. Based on everyone's experiences here, it sounds like I should expect the direct deposit within the next few days. I'm with Bank of America - has anyone had experience with how quickly they process IRS refund deposits? I'm trying not to get my hopes up too high, but after all this waiting, I'm cautiously optimistic that this nightmare is almost over!

Don't forget about the "recapture" when you eventually sell! I learned this lesson the hard way. When you sell a rental property, you'll have to "recapture" all that depreciation you've been taking over the years and pay taxes on it (at a rate up to 25%). Even if you don't actually claim the depreciation on your tax returns, the IRS will treat it as if you did when you sell, so you might as well take the deduction. Just be prepared for that tax bill down the road when you sell. Something to consider in your long-term planning.

Great discussion here! As someone who went through this conversion process a few years ago, I can confirm what others have said about using the lower of adjusted basis or FMV at conversion time. One thing I'd add that hasn't been mentioned yet - make sure you're tracking your depreciation carefully each year, even if you can't currently deduct the losses due to passive activity limitations. The IRS requires you to reduce your basis by the depreciation you're "allowed or allowable," so even if the losses are suspended, you still need to calculate and track the annual depreciation. I use a simple spreadsheet to track my original basis, improvements, annual depreciation, and accumulated depreciation. This becomes crucial when you eventually sell the property for calculating gain/loss and depreciation recapture. It's much easier to maintain good records from the start than trying to reconstruct everything years later! Also, don't forget about the possibility of qualifying for the $25,000 rental loss allowance if your income drops below the phase-out thresholds in future years due to job changes, retirement, etc.

I have a client who owes tax debt for 2022-2024 for $13000, and I am trying to prepare an OIC for them as Doubt of Collectability, as well as a low-income certification. Tax liability is SE due to being a freelance writer on Schedule C who is unmarried, has no car or any assets, and only made $10875.00 this year. Her grandfather helps her pay her half of the utilities and helps with other things she needs since she isn't paid regularly. This is my first one, and after entering all the income for the RCP, it only shows 336 future income. I was wondering what a reasonable offer should be. Since it is a Schedule C, I would send 6 months of bank statements, correct?

Based on your client's situation, an offer around $336-500 would be reasonable since your RCP calculation shows $336 in future income and minimal assets. For someone making $10,875 annually with no significant assets, this falls well within acceptable parameters for Doubt as to Collectibility. A few important points for your first OIC: 1. Yes, include 6 months of bank statements for Schedule C income - the IRS wants to see the irregular income pattern that's typical for freelancers. 2. Document the grandfather's assistance carefully. Since he's helping with utilities and necessities, make sure to show this isn't "income" to your client but genuine family support for basic living expenses. 3. The low-income certification is smart here - with income at $10,875, she likely qualifies and this waives the application fee and initial payment requirements. 4. Consider going slightly above your RCP calculation (maybe $400-450) to show good faith and account for any minor assets or income the IRS might value differently than you did. 5. Include a detailed hardship letter explaining how the irregular freelance income makes it impossible to maintain consistent payments, and how family assistance is necessary just for basic survival. The key is showing that even your minimal offer represents her true ability to pay given the circumstances. Good luck with your first OIC!