This is a complex situation but definitely not unfixable. I've helped several clients through similar partnership/payroll reclassification issues. Here's what you need to prioritize: 1. **Immediate assessment**: Gather all your payroll records, LLC operating agreement, and any state/federal filings to confirm your tax status and the scope of corrections needed. 2. **Consider penalty relief**: Look into First Time Penalty Abatement if you qualify, or Reasonable Cause relief for the late 1065 filings. The IRS is sometimes more lenient when businesses proactively correct mistakes. 3. **Sequential filing strategy**: File the 1065s in chronological order starting with the earliest year. This helps establish the pattern of corrections and makes it easier for the IRS to process. 4. **Partner's individual impact**: The partner who was paid through payroll will likely owe additional self-employment taxes, but they may also be eligible for some credits they missed as a partner (like the Section 199A deduction if applicable). 5. **Professional help**: Given the 4-year scope and multiple return types involved, seriously consider hiring a tax professional experienced in partnership corrections. The cost will likely be offset by avoiding bigger mistakes and potentially reducing penalties. The key is being proactive and systematic about the correction process. The IRS generally works with taxpayers who voluntarily come forward to fix mistakes.

One thing I haven't seen mentioned yet is the importance of documenting your correction process thoroughly. Keep detailed records of every amended return filed, every payment made, and all correspondence with the IRS. This documentation becomes crucial if there are any disputes later or if the IRS has questions about your corrections. Also, consider requesting penalty abatement letters for each tax year once you've filed the corrections and made payments. The IRS sometimes grants relief for reasonable cause, especially when businesses proactively correct mistakes. Your cooperation in fixing this voluntarily could work in your favor. For the partner who was incorrectly paid through payroll, make sure they understand they'll need to file amended individual returns (1040X) for each affected year. The timing matters here - generally you have 3 years from the original due date to amend and claim refunds, so depending on when those original returns were filed, some years might be getting close to that deadline. Finally, once this is all corrected, establish proper ongoing procedures to prevent this from happening again. Set up quarterly partnership meetings to review tax obligations and consider working with a bookkeeper or accountant who understands partnership taxation.

I know I'm late to this conversation but wanted to add something important - ask your employer about an IRS form called a W-4. If these commissions are part of your regular employment (W-2 income), you can adjust your W-4 to increase withholding from your regular paychecks to cover the taxes on your commissions too. That might be easier than doing separate quarterly payments!

Great thread everyone! As someone who's been through this exact situation, I wanted to add a few practical tips: 1. **Keep detailed records** - Whether your commissions end up being W-2 or 1099 income, track every payment with dates and amounts. I use a simple spreadsheet but even a notebook works. 2. **Set aside money immediately** - I learned the hard way to put 25-30% of each commission payment into a separate "tax account" right when I receive it. This prevents the shock of owing money you've already spent. 3. **Consider estimated payments even for W-2 commissions** - Even if your commissions are W-2 income, if they're large enough, your regular withholding might not cover the extra tax burden. Better safe than sorry with penalties. The key is getting clarity from your employer ASAP about how they're classifying these payments. Once you know that, everything else falls into place much easier. Don't stress too much - this is a common situation and totally manageable once you understand the process!

Hey Steven! I totally get the confusion - taxes are intimidating when you're just starting out. Here's what I wish someone had told me when I started doing freelance work as a teen: The good news is that at 15 with casual art commissions, you're probably not going to owe a ton in taxes even if you do need to file. The main thing to watch is that $400 threshold for self-employment tax that others mentioned - once you hit that in profit (not total earnings, but profit after expenses), you'll need to file. Start keeping track now even if you're not making much yet. I use a simple notes app on my phone to jot down each commission payment and any art supplies I buy. Takes like 30 seconds per transaction but saves hours later. Also, don't stress about understanding everything perfectly right away. Even adults find taxes confusing! The most important thing is being honest about your income and keeping good records. You've got time to learn the details as your art business grows. One last tip - if you do start making decent money from commissions, consider setting aside like 20-25% of each payment in a separate savings account for taxes. Better to have extra money sitting there than scramble to pay taxes later!

Hey Steven! I was in your exact situation two years ago when I started selling my digital art at 16. The tax stuff seemed super scary at first, but it's really not as complicated as it sounds once you break it down. Here's the simple version: You'll need to file taxes if you make more than $400 profit from your art commissions (that's income minus expenses like art supplies, software subscriptions, etc.). Being under 18 doesn't exempt you from this - I learned that the hard way! The key thing is to start tracking everything NOW, even before you hit that $400 threshold. I use a simple Google Sheets document with columns for date, client, amount received, and any expenses. Every time I get paid or buy art supplies, I add a line. Takes maybe 2 minutes but saves so much stress later. Also, talk to your parents about this! They need to know you're earning money since it might affect how they file their taxes (though you'd still file your own return). My parents were actually really helpful once I explained what I was doing - they helped me set up a separate bank account just for my art business. Don't let the tax stuff scare you away from pursuing your art! It's honestly pretty manageable once you get into the habit of tracking things. Plus there's something really satisfying about running your own little business at 15. You've got this!

I went through this same confusion last year! The key thing to remember is that even though you received the 1099-PATR through your land loan relationship, you're still required to report it as taxable income. One thing that helped me was understanding that the bank issuing your 1099-PATR is likely structured as a cooperative or credit union, which is why they distribute these patronage dividends to customers. It's essentially their way of sharing profits with members. For your $175, you'll definitely want to report it properly. As others mentioned, it goes on Schedule 1 as "Other Income." In TurboTax, look for the "Less Common Income" section and select "Patronage Dividends" or "1099-PATR." The software will walk you through entering the payer information and amount. Don't stress too much about it - it's actually one of the simpler forms to deal with once you know where it goes!

I'm going through the exact same situation right now! I received a 1099-PATR from my farm credit association for a personal land purchase loan, and I was completely baffled about what to do with it. After reading through all these responses, I feel so much better knowing this is a common situation. I had no idea that many agricultural lenders are structured as cooperatives - that explains why I got that surprise dividend check last month that seemed to come out of nowhere. It sounds like the consensus is pretty clear: report it as "Other Income" on Schedule 1, and most tax software will have a specific section for 1099-PATR or patronage dividends under "Less Common Income" or similar. The fact that it's for a personal loan rather than business use actually makes it simpler to report. Thanks to everyone who shared their experiences - it's really helpful to know I'm not the only one who was confused by this form! Now I can stop procrastinating on my tax return and actually get it filed.

Has anyone considered the "unmarried parents" rule here? If these are both biological parents with their own kids, and they're unmarried, there might be a way to structure this. If each parent could claim they provided more than half the support for their own child, and the home is the principal place of abode for those children, there might be a path forward. The real question is whether the IRS would consider them sharing living expenses as "keeping up a single home together" or "each contributing to their own child's support.

I've been through a very similar situation and want to share what I learned from my tax professional. Unfortunately, the IRS is pretty strict about the December 31st rule for Head of Household status. Even though you were legitimately separate households for most of 2024, your filing status is determined by your situation on the last day of the tax year. Since you're living together as a family unit and sharing expenses by December 31st, only one of you can claim Head of Household. The other would need to file as Single. The IRS views this as one household being maintained, regardless of how you split the expenses. However, there might be a silver lining - since you're paying 60% of the household expenses and presumably supporting your own children, you'd likely be the better candidate for Head of Household status. Your girlfriend would file as Single but could still claim her children as dependents. I know it feels unfair given that you maintained separate households for most of the year, but the tax code doesn't account for partial-year situations like this. The key is to make sure whoever claims HOH has proper documentation of paying more than half the household costs and that their qualifying dependents lived in the home for more than half the year.