11 Whatever you do, make sure to get the stock sale documented properly with a written agreement signed by all parties. I left an S corp a few years back without proper documentation and it was a nightmare when the IRS questioned the transaction later.

One additional consideration that hasn't been mentioned yet - since you're an S corp shareholder exiting at a significant discount to fair market value, you should also think about the impact on any buy-sell agreements or operating agreements that might exist. Many S corps have provisions that could be triggered by share transfers, and selling at par value when the actual value is much higher might create complications with existing shareholders' rights or trigger valuation disputes later. Also, if your S corp has ever made Section 1202 qualified small business stock elections, there could be additional tax planning opportunities or pitfalls to consider with the timing and structure of your exit. The 5-year holding period and other QSBS requirements might affect whether a redemption vs. cross-purchase makes more sense from a long-term capital gains perspective. I'd definitely recommend running this by both a tax professional and the company's attorney before finalizing anything, especially given the complexity that can arise when there's a big gap between sale price and fair market value.

Has anyone tried using a payment app like Venmo or Cash App for these private seller transactions? I'm wondering if the digital receipt from that would be sufficient documentation.

Great question! As someone who's been running a small carpentry business for 3 years, I can share what's worked for me. You definitely need documentation for all business expenses, even from private sellers. Here's my system: I created a simple receipt template on my phone that I fill out on the spot. It includes: seller name, contact info, date, detailed description of materials (species, dimensions, quantity), purchase price, and payment method. I have the seller sign it if they're willing, take a photo of the materials, and note the intended business use. For sellers who won't sign anything, I still document everything I can and take timestamped photos. I also photograph my cash withdrawal receipt if I paid cash, which creates a paper trail. The IRS wants to see that you have adequate records to substantiate your business expenses. Consistency is key - use the same documentation method every time. I keep all my receipts (both formal and self-created) organized by month in both physical and digital folders. One tip: if you're buying expensive specialty wood, consider bringing a witness who can verify the transaction if the seller is hesitant about paperwork. This has helped me a few times with valuable hardwood purchases from estate sales.

This is such a valuable discussion! As someone who's been running a small consulting firm for a few years, I wish I had known about the Augusta Rule earlier. Reading through everyone's experiences, it's clear that proper documentation is absolutely critical. One thing I'm curious about - for those of you who have successfully implemented this, how do you handle the business expense side on your LLC's books? Do you categorize it as "meeting room rental" or something more specific? I want to make sure I'm accounting for it correctly on both the business and personal sides. Also, has anyone dealt with state tax implications? I know the 14-day rule applies federally, but I'm wondering if some states have different rules or if there are any state-specific considerations I should be aware of. The documentation checklist idea that @Omar Fawaz mentioned is brilliant - I'm definitely going to create one of those. It seems like the key is treating this as seriously as any other business transaction, which makes perfect sense from a compliance standpoint.

This has been an incredibly informative thread! As someone who's been running a small marketing agency for about 18 months, I had heard whispers about the Augusta Rule but never really understood how it worked in practice. Reading through everyone's experiences has been eye-opening. What strikes me most is how much emphasis everyone places on legitimate business purpose and thorough documentation. It's clear this isn't just a "set it and forget it" tax strategy - it requires ongoing attention to detail and genuine business activities. The documentation checklist idea and the emphasis on treating this as a real business transaction (with actual invoices and payments) makes perfect sense from a compliance perspective. I'm particularly interested in the point about researching comparable meeting spaces to establish fair market value. In my area, there's a huge range depending on the venue type and amenities, so having that research documented upfront seems crucial for justifying the rates. One question for those who've implemented this - do you find it changes how you plan your business meetings throughout the year? I'm wondering if having this 14-day limit makes you more strategic about when and how you use your home for business purposes versus meeting elsewhere. Thanks to everyone who shared their experiences and resources. Definitely going to explore this further for next tax year!

I went through this exact same situation two years ago! The confusion between refund amount and actual tax liability is so common. What helped me understand it was thinking of it this way: imagine you owe $10,000 in taxes for the year. If you had $12,000 withheld from your paychecks, you get a $2,000 refund. But if you only had $8,000 withheld, you owe $2,000. The actual tax you owe ($10,000) didn't change - just the timing of when you paid it. When both spouses work, the withholding system breaks down because each employer calculates withholding as if that's your only income. So if you each make $50k, each employer withholds as if you're in the tax bracket for $50k income, but you're actually in the bracket for $100k combined income. That's why you end up underwithholding. The good news is this is totally fixable for next year! Update both your W-4s and you'll be back to getting the refund you expect.

As someone who just went through this exact scenario, I wanted to add that it's also worth checking if your state has different rules for married filing. In our case, we live in a state with no income tax, but my coworker found out that her state actually penalizes married couples more than the federal system does. She ended up filing jointly for federal but separately for state to minimize her overall tax burden. Also, don't forget that filing jointly gives you access to certain tax credits and deductions that you can't get when filing separately - like the American Opportunity Tax Credit for education expenses and higher income limits for IRA contributions. These benefits often more than make up for any bracket concerns. The withholding issue everyone's mentioned is spot on though. We learned this the hard way and now make sure to have extra withheld from the higher earner's paycheck to avoid that end-of-year surprise.

Has anyone here actually gone through a real audit where the IRS questioned your Section 121 exclusion? I'm in a similar situation (owned home before marriage) and my tax software is giving me conflicting information from what's being discussed here.

Thanks for sharing your audit experience! This is really helpful for those of us in similar situations. Just to clarify - when you say you kept records showing both spouses used it as primary residence, what specific documentation did the IRS want to see during the audit? I'm asking because my husband owned our home for 8 years before we married, and we've been living there together for 3 years since. I want to make sure I'm keeping the right paperwork in case we get audited when we eventually sell. Did they ask for things like utility bills in both names, voter registration, or something more specific?