Does anyone know if this is different for LLC vs sole proprietor? I have a single-member LLC but file Schedule C.

This is such a common confusion point for self-employed folks! I went through the exact same thing when I started my consulting business. The key is proper documentation - make sure your invoices clearly separate the reimbursed expenses from your service fees. I use a simple format like "Service Fee: $X, Travel Reimbursement: $Y" on each invoice. This makes it crystal clear to both you and the IRS that these are genuine reimbursements, not additional income. One tip that helped me: I keep a separate spreadsheet tracking each reimbursed expense with the corresponding receipt and invoice number. Makes tax time so much easier and gives you bulletproof documentation if questions ever come up. TurboTax handles this pretty well if you enter everything in the right categories - just make sure you're consistent about how you classify things. The peace of mind of doing it right from the start is definitely worth the extra bookkeeping effort!

One thing to be careful about - if you're claiming an exception to the 10% penalty, make sure you're using the right code! I messed this up last year and had to file an amended return. The IRS has specific codes for different exceptions (medical expenses is code 05, first-time home purchase is 09, etc). Also, some free software might let you fill out Form 5329, but won't guide you through figuring out if you qualify for exceptions. That's where I got tripped up - I ended up paying the 10% penalty when I actually qualified for an exception.

I went through this exact same headache last year! After trying multiple "free" services that all wanted to charge me for Form 5329, I ended up using the IRS Free File Fillable Forms directly from the IRS website. It's definitely not as polished as the commercial software, but it's completely free and includes all the forms you need. The interface is pretty basic - it's essentially just fillable PDFs - but it does the calculations for you and e-files directly to the IRS. You'll need to be a bit more careful about entering everything correctly since there's less hand-holding, but for Form 5329 it's pretty straightforward. Another tip: before you file, double-check if you qualify for any exceptions to the 10% penalty. I almost paid the penalty unnecessarily until I realized my medical expenses qualified for an exception. The Form 5329 instructions on the IRS website list all the exception codes - it's worth spending a few minutes reviewing them to see if any apply to your situation. Paper filing is always an option too if you're comfortable with that route. Sometimes the old-fashioned way is the most reliable!

Has anyone used the IRS's Interactive Tax Assistant for this question? It literally has a tool specifically for determining if you should file jointly or separately. Saved me tons of research time!

Just to clarify a key point that might be confusing from your question - married couples cannot claim each other as dependents, period. That's not an option available to you. Your only choices are filing jointly or filing separately. Given your situation (you made $7,800 as a student, husband made $65,000), filing jointly will almost certainly be better. Here's why: 1. **Higher standard deduction**: $27,700 for married filing jointly vs. $13,850 each if filing separately 2. **Education credits**: As a student, you'll likely qualify for the American Opportunity Credit or Lifetime Learning Credit, which are more beneficial (or only available) when filing jointly 3. **Income averaging effect**: Your low income will help bring down your combined tax rate The only scenario where filing separately might make sense is if one of you has significant student loans on an income-driven repayment plan, since those payments are based on income. But even then, you'd need to calculate whether the loan payment savings outweigh the tax benefits lost. I'd strongly recommend running the numbers both ways before deciding, but for most couples in your situation, joint filing saves significantly more money.

Based on everything discussed here, it sounds like you have a classic case of worker misclassification. The fact that they're controlling your schedule (9-5 weekdays), providing equipment (laptop), requiring you to attend team meetings, and having you report to a supervisor are all red flags that you should be classified as a W-2 employee, not a 1099 contractor. If you're truly misclassified, then yes - they should be withholding taxes from your pay, but they should also be treating you as an employee with proper benefits and paying their portion of employment taxes. The payment discrepancy you're experiencing might actually be them incorrectly trying to withhold taxes while still classifying you as a contractor - which creates problems for both of you. I'd recommend taking a two-pronged approach: 1) Get immediate clarity on the payment discrepancy by requesting an itemized breakdown, and 2) Research worker misclassification rules and consider whether your working relationship actually meets the criteria for independent contractor status. The IRS has clear guidelines on this, and misclassification can have significant financial implications for both you and your employer.

Welcome to the community! This is a really common issue that trips up a lot of new contractors. From reading through all the responses, it sounds like you've got two potential issues here: either worker misclassification (which seems likely given the set hours, company equipment, and supervision you described) or undisclosed deductions in your contract. The good news is that both have solutions. If it's misclassification, getting properly reclassified as a W-2 employee would actually benefit you since you'd stop paying the employer portion of Social Security and Medicare taxes (that extra 7.65% everyone mentioned). If it's just contract deductions, at least you'll know what you're actually agreeing to going forward. I'd suggest starting with that itemized payment breakdown request - it's the quickest way to get clarity. Most legitimate companies should be able to provide this within a day or two. If they can't or won't explain the discrepancy clearly, that's another red flag that something isn't right with how they're handling your employment status. Keep us updated on what you find out! These kinds of posts really help other newcomers who might be facing similar situations.

This is really comprehensive advice everyone! As someone who's been through the LLC to S Corp transition myself (different industry though), I'd add one more consideration specific to insurance agents - the potential impact on professional liability insurance costs. When I was researching this for my own business, I discovered that some E&O insurance carriers have different premium structures or coverage requirements based on your business entity type. Since E&O insurance is mandatory for insurance agents and can be a significant expense, it's worth checking with your current carrier before making the S Corp election to ensure there won't be any surprises. Also, @Diego, given that your friend is brand new to the industry, he might want to focus on establishing consistent sales processes and building his client base first before getting bogged down in tax optimization strategies. The administrative burden of S Corp compliance (payroll, quarterly filings, etc.) can be a real distraction when you're trying to learn the ropes of a new business. Once he's got a solid foundation and predictable income flow, then the S Corp election becomes much more straightforward to evaluate. The $100k threshold everyone's mentioning is solid, but having consistent monthly income patterns is almost as important as hitting that dollar amount.

Great discussion everyone! I'm a CPA who specializes in small business taxation, and I've worked with quite a few insurance agents over the years. One aspect I'd add to consider is the timing of the S Corp election itself. If your friend decides to go this route, he needs to file Form 2553 within 75 days of forming the LLC (or by March 15th of the tax year he wants the election to take effect). Missing this deadline means waiting until the following tax year. Given that he's brand new, I'd actually recommend he start with the LLC and focus on understanding his business cash flows first. Insurance agents often have irregular income patterns - big commission months followed by slower periods. This irregularity makes it harder to manage the required payroll obligations that come with S Corp status. Also, since he's solo right now, he should consider whether he plans to hire employees eventually. If so, the S Corp structure might make more sense down the road when he has multiple people to manage payroll for anyway. But for a true solopreneur, the added complexity often isn't worth it until that $100k threshold that others have mentioned. The key is having enough consistent income to justify both the additional accounting costs AND the required regular salary payments to himself as an employee of his S Corp.