This is a great question that a lot of freelancers wonder about! The bottom line is that cashing checks at the issuing bank versus depositing them in your own account makes absolutely no difference for tax purposes. The IRS tracks income based on who paid you and why, not how you converted the check to cash. Here's what actually matters: if you're doing legitimate freelance work and getting paid over $600 from any single client during the year, they're required to send you a 1099-NEC and report that payment to the IRS. Even if no 1099 is issued (for payments under $600), you're still legally required to report ALL income on your tax return. The good news is that as a freelancer, you can deduct legitimate business expenses like equipment, supplies, home office space, etc. to reduce your taxable income. I'd recommend setting aside 25-30% of each payment for taxes and keeping detailed records of your income and expenses. Don't risk tax evasion charges by trying to hide income - it's just not worth it when there are legal ways to minimize your tax burden through proper deductions and planning.

Great question Emma! I'm also relatively new to freelance work and had similar confusion about this. From what I've learned through research and talking to other freelancers, the method of cashing checks definitely doesn't change your tax obligations. What helped me understand this better is thinking about it from the payer's perspective - if a business pays you $1000 for freelance work, they're going to report that as a business expense regardless of whether you deposit the check, cash it at their bank, or frame it and hang it on your wall. The IRS can match their reported expenses against your reported income. I'd echo what others have said about setting aside money for taxes. I use a simple system where I immediately transfer 30% of any freelance payment to a separate "tax savings" account. It's painful at first, but it saves you from scrambling come tax time. Also, definitely keep track of all your business expenses! Things like your laptop, software subscriptions, even a portion of your home internet can often be deducted. Just make sure everything you deduct is legitimate and well-documented. Better to be conservative and sleep well at night than to get aggressive and worry about audits.

This is exactly why I always recommend consulting with a tax professional BEFORE making any major payroll decisions. That said, you're not the first person to find themselves in this situation, and there are definitely paths forward. Given the substantial income amount ($135k), I'd lean toward the S-corp election route rather than trying to deduct the wages on Schedule C. The IRS has specific procedures for late S-corp elections with reasonable cause, and "lack of knowledge of the filing requirements" is often accepted if you can document it properly. Key steps I'd recommend: 1. Have your accountant prepare Form 2553 with a detailed reasonable cause statement 2. File Form 1120S for the corporate return immediately 3. Be prepared to show you acted in good faith and are now trying to comply properly The Schedule C route is risky because those wage deductions will almost certainly trigger an audit - the IRS systems will match your SSN as both the payer and recipient of those W2s. Time is critical here since there are deadlines for the S-corp election, so work with your accountant to get this filed ASAP. The sooner you address it, the better your chances of approval.

Dylan, you're definitely in a tricky situation but it's not insurmountable. I went through something very similar two years ago with my consulting business - put myself on W2 payroll without realizing sole proprietors can't technically be employees of themselves. After researching extensively and working with a CPA who specializes in entity elections, here's what I learned: The S-corp route with reasonable cause is usually your best bet, especially with income at your level. The IRS Revenue Procedure 2013-30 provides a streamlined process for late S-corp elections, and "inadvertent failure to file" due to lack of knowledge is specifically mentioned as acceptable reasonable cause. A few critical points for your situation: - You'll need to file Form 2553 with a detailed explanation letter citing specific reasons why the election is late - The corporate tax return (1120S) should be filed for the year you want the election to be effective - You may need to pay reasonable compensation to yourself as an S-corp shareholder-employee, but this legitimizes the W2 wages you already paid The double taxation issue others mentioned is real - if you stay as a sole prop and can't deduct those wages, you'll essentially pay tax twice on that income. The S-corp election, if approved, would make those W2 wages legitimate business expenses. Time is definitely of the essence here. The longer you wait, the harder it becomes to argue reasonable cause. I'd strongly recommend getting this filed within the next few weeks if possible.

My wife and I went through this exact situation! In case it helps, we found the best solution was for both of us to check the "Married but withhold at higher Single rate" box (if using the old W-4) or checking box 2(c) on the new form. We make almost identical incomes, so this worked perfectly. If your incomes are very different though, you might want to use the IRS withholding calculator or the Multiple Jobs Worksheet (Step 2(b) on the W-4) for more precise withholding.

I went through this exact same situation when I got married! The key thing to understand is that when you select "married filing jointly" without any other adjustments, the tax tables assume you're the only income earner in the household, which dramatically reduces withholding. Here's what worked for me and my spouse (we have similar incomes): 1. **Use the IRS Tax Withholding Estimator** - It's free and way more accurate than guessing. You'll need both of your most recent pay stubs and last year's tax return. 2. **Only ONE of you should check box 2(c)** - If both spouses check this box, you'll likely overwithhold significantly. 3. **Consider using Step 4(c) for additional withholding** - Based on the estimator results, you might want to have an extra $50-100 withheld per paycheck to catch up on the underwithholding from earlier in the year. Since you mentioned you're only having $35 withheld on $1,300 biweekly pay, that's definitely too low for most tax situations. The estimator will give you specific guidance based on both your incomes combined. Don't wait until next year to fix this - you can submit a new W-4 anytime!

I'm going through this exact same situation right now and this thread has been absolutely invaluable! Just received my second 60-day letter this week after filing in February, and like everyone else here, I've been stuck with that completely useless "Where's My Refund" tool showing nothing but "still processing" for months. What really gets me is how the IRS clearly has all this detailed information about what's happening with our returns (based on all these transcript codes people are discussing), but they deliberately keep us in the dark with these vague, anxiety-inducing form letters. The not knowing is honestly worse than the actual delay - I've been losing sleep wondering if I made some major error or if there's something seriously wrong with my return. I had absolutely no idea about downloading tax transcripts from the IRS website until reading through these comments. It's honestly shocking that such a valuable resource isn't more prominently featured or explained anywhere on their official site. After 9 months of being completely in the dark, I'm definitely going to download my transcript tonight and try those AI analysis tools people have mentioned. Thanks to everyone who shared their experiences and solutions here. It's both comforting to know this is such a widespread issue and infuriating that we all have to figure out these workarounds ourselves instead of getting proper communication from the IRS. At least now I have concrete steps to take instead of just waiting helplessly for the next 60-day letter!

I'm going through this exact same frustrating situation right now! Just got my second 60-day letter last week after filing in March, and honestly, reading through this entire thread has been both a huge relief and incredibly eye-opening. Like so many others here, I've been stuck staring at that completely useless "Where's My Refund" tool for months - just "still processing" with zero helpful details. The anxiety of not knowing whether I made some catastrophic error or if it's just routine delays has been eating away at me for weeks. I had absolutely no idea about downloading tax transcripts until reading everyone's experiences here. It's honestly ridiculous that the IRS has all this detailed information tracking our returns but keeps us completely in the dark with these generic form letters. After 8 months of wondering what the heck is going on, I'm definitely downloading my transcript tonight and trying those AI analysis tools people mentioned. The most reassuring thing I'm taking away from this thread is that these delays seem to be incredibly common right now and usually aren't signs of serious problems - just verification processes that got backed up in their system. Still frustrating as hell, but at least I can stop imagining that I'm heading for an audit! Thanks to everyone who shared their solutions and experiences. It's both comforting and maddening to realize how widespread this issue is, but I finally have concrete steps to take instead of just waiting helplessly for the next 60-day letter to show up in my mailbox.

I've been working with taxpayers on IRS issues for over a decade, and I wanted to share a few additional troubleshooting steps that haven't been mentioned yet. First, if you're getting errors specifically during the identity verification step, make sure you're entering your prior year AGI (Adjusted Gross Income) from the correct tax year. The system asks for your "prior year AGI" which would be from your 2023 return if you're filing 2024 taxes. I've seen people accidentally use their current year AGI, which will cause authentication failures. Second, check if you have any browser extensions that modify web forms or auto-fill data. Extensions like LastPass, Dashlane, or even Google's built-in password manager can sometimes interfere with the IRS forms by changing field values or formatting. Try using an incognito/private browsing window which disables most extensions. Third, if you've recently changed banks or closed accounts, make sure you're not trying to use old banking information for direct debit setup. The system will fail if it can't verify your account details, even if everything else is correct. The 6-8 AM timeframe recommendation is absolutely spot-on. I always tell my clients to try during those early hours when server load is minimal. The IRS systems are notoriously overloaded during peak hours, especially during tax season.

I've been following this thread and want to add another potential solution that might help. If you're still getting errors after trying all these great troubleshooting tips, check if you have any outstanding tax liens or levies on your account. I had a similar issue where the payment plan system kept rejecting my application with generic error messages. It turned out there was an old state tax lien that was somehow affecting my federal payment plan eligibility, even though they should be completely separate systems. You can check for federal tax liens by searching the Treasury Department's lien database online, or call the IRS Centralized Lien Unit at 1-800-913-6050. If there are any liens, you might need to get them released or subordinated before you can set up a new payment plan. Also, make sure you don't have any other active payment plans with the IRS. The system won't let you set up a new installment agreement if you already have one in place, even if it's for a different tax year. You'd need to modify your existing agreement instead of creating a new one. Hope this helps someone who's tried everything else but is still stuck with those frustrating error messages!