Congrats on finally seeing that 846 code! What a journey you've been on with the amended return and refund freeze. From my experience and what I've seen others post here, paper checks typically arrive 5-7 business days after the 846 date, so since yours shows 01-07-2025, you should hopefully see it by this Friday or early next week. That progression from the 811 "refund freeze removed" on 12-21 to the 846 on 01-07 is exactly what you want to see - shows everything is finally moving through properly. Plus getting interest with that 776 code is a nice bonus after all the waiting! Definitely sign up for USPS Informed Delivery if you haven't already - you'll get photos of your mail each morning so you know when it's coming. Keep us posted when it arrives! 🤞

Awesome news about your 846 code finally showing up! That's such a relief after everything you've been through with the amended return and freeze. From what I've seen here, paper checks typically take 5-7 business days after the 846 date to arrive. Since yours is dated 01-07-2025, you should hopefully see it by this Friday or early next week. The timeline from your 811 "refund freeze removed" on 12-21 to the 846 on 01-07 looks perfect - everything's finally moving! And that 776 interest code is a nice bonus for all your patience. Definitely recommend setting up USPS Informed Delivery if you haven't already - you'll get daily email previews of your mail so you'll know exactly when that check is coming! 🙌

A creative solution some companies use is providing experiences rather than physical gifts. Team outings, special lunches, or tickets to events are sometimes classified differently than direct gifts if they serve business purposes like team building or promoting company culture. I personally think the best approach is transparency - if you're going to give something taxable, just be upfront that it might impact their taxes slightly but is still meant as a genuine thank you. Most employees would rather have a taxable gift than no gift at all!

From my experience working in payroll, the $200-250 range your manager is considering will definitely be treated as taxable compensation. The IRS is pretty strict about this - any gift from employer to employee in a work context gets taxed, regardless of the genuine appreciation behind it. One thing to consider is asking your manager to "gross up" the gifts - essentially increase the amount to cover the tax burden so employees receive the intended net value. For example, if she wants each person to effectively receive $200, she might need to give around $270-280 to account for federal, state, and payroll taxes. Another approach is splitting the appreciation into multiple smaller components: maybe a $50 gift card (taxable but smaller impact) plus a nice company-branded item under $75 (potentially de minimis) plus a team celebration lunch (generally non-taxable when occasional). This way the total appreciation is still meaningful but the tax hit is reduced. The key is being transparent with your team about any tax implications upfront so there are no surprises come W-2 time!

Has anyone dealt with the AMT implications of ISOs even with a disqualifying disposition? I exercised some ISOs last year but had to sell a few months later below the FMV at exercise, and I'm trying to figure out if I still need to worry about AMT.

Thanks everyone for the detailed explanations! This thread has been incredibly helpful. I just wanted to add one more consideration that caught me off guard when I dealt with a similar ISO disqualifying disposition situation. Make sure to keep detailed records of your exercise date, FMV at exercise, exercise price, sale date, and sale price for each batch of shares. The IRS may want documentation to support your calculations, especially when you're claiming the "lesser of" rule applies. Also, if you exercised ISOs across multiple tax years but sold in a single year, each batch needs to be calculated separately. I made the mistake of averaging everything together initially, which would have resulted in incorrect tax treatment. One last tip - if you're doing this manually, double-check your math on the ordinary income calculation. It's easy to accidentally use the spread at exercise instead of your actual gain when the sale price is below FMV at exercise. The difference can be significant on your tax bill!

Has anyone actually gone through the process of amending a return for this specific issue? I'm in a similar situation but wondering if the hassle of amending is worth it. How long did it take to get your refund for the overpaid NIIT?

I went through this exact same situation a couple years ago! My tax preparer had been classifying my S-Corp income as passive for THREE years before I caught it. Like you, I'm the sole owner-employee doing all the work - there was nothing passive about it. The material participation tests that Connor mentioned are key here. Since you're the only employee, you almost certainly qualify under multiple tests, especially the "substantially all the work" test (#2) and likely the 500+ hours test (#1) as well. I ended up filing amended returns for all three years I was eligible to amend (you have 3 years from the original filing date). The total NIIT refund was substantial - over $12,000 combined. Each amended return took about 4-5 months to process, but it was absolutely worth it. One tip: when you meet with your EA about this, bring documentation showing your hours worked and level of involvement in the business. Even though it should be obvious that you materially participate, having records helps support the classification change. Also, make sure they understand this affects both your Schedule E AND your Form 8960 calculation. Don't let them brush this off as "not important" - the NIIT savings alone make it worth correcting, and you want to make sure it's done right going forward.

Great question about tax software! Most professional tax software (like ProSeries, Lacerte, or Drake) will automatically calculate both Form 7203 and Schedule M-2, but they don't always flag discrepancies between them for you. The software typically handles the basic calculations correctly - like increasing basis for income and decreasing for distributions. But it's still important to manually review because the software might not catch more complex situations like: - Loans you've made to the business that affect debt basis but not AAA - Prior year adjustments that need to be reconciled - Tax-exempt income that affects basis differently than AAA - If you've made additional capital contributions during the year I always recommend doing a manual reconciliation at year-end, especially if you have loans to the business or made any capital contributions. The software is great for the calculations, but understanding the relationship between these forms really helps you make better business decisions about distributions and planning. TurboTax Business and other consumer software might not handle these calculations as thoroughly, so definitely double-check if you're using those.

This is such a timely question! I just went through this exact confusion with my S Corp last month. What finally helped me understand it was thinking of Form 7203 as "my personal scorecard" and Schedule M-2 as "the company's scorecard." Your basis on Form 7203 starts with what you originally invested in the company, then goes up with profits (which you pay tax on) and down with distributions you take out. But it also includes any loans you've made to the business - that's your "debt basis." Schedule M-2 is totally different - it's tracking the company's accumulated earnings that have been taxed but not yet distributed (the AAA account). It doesn't care about your original investment or any loans you made. In your situation with $87,500 profit and $65,000 distributions, your basis calculation would be: [starting basis] + $87,500 - $65,000. The M-2 would show $87,500 added to AAA and $65,000 taken out, leaving $22,500 in AAA. The key insight for me was realizing these numbers will almost never match because they're measuring completely different things - your total investment vs. the company's retained taxable earnings. Hope this helps clarify it!