I'm dealing with a very similar situation right now! My accountant also put an effective date that was before my incorporation date on Form 2553. Reading through all these responses has been incredibly helpful. Based on what everyone is saying, it sounds like I need to file a corrected Form 2553 immediately rather than waiting to see if the IRS rejects it. The comment from Paige about her election being delayed by several months really concerns me - I can't afford to have my S-Corp status pushed back that far. One question I have is whether I should reach out to my accountant first to have them fix this, or just handle the correction myself? They already made the mistake once, so I'm not sure I trust them to get it right the second time. Has anyone here successfully corrected their own Form 2553 without professional help? Also, for those who used the services mentioned (taxr.ai and Claimyr), did you end up needing both document review AND phone support with the IRS, or was one sufficient to resolve the issue?

This thread has been incredibly helpful! I'm dealing with a similar Form 2553 issue where my CPA put an effective date that doesn't align with my incorporation timeline. What I'm finding most valuable from everyone's experiences is the emphasis on being proactive rather than waiting for the IRS to catch and reject the error. It sounds like filing a corrected form immediately is definitely the way to go. One thing I'm curious about - for those who successfully corrected their Form 2553, did you need to include any specific documentation with the corrected form beyond the explanation letter? I want to make sure I submit everything the IRS needs the first time to avoid further delays. Also, Jessica (the original poster), have you had a chance to file your correction yet? Would love to hear how it goes since your situation seems very similar to what several of us are dealing with.

One thing nobody's mentioned - if you're paying for these braces over time (like many orthodontists offer payment plans), you can only deduct the amount you actually paid during the tax year, not the full amount you committed to. So if you paid $3,000 of the $9,500 in 2024, you can only count that $3,000 toward your medical expenses for the 2024 tax year (that you'll file in 2025). The rest would count in future tax years as you make those payments. Also, check if your dental insurance covers any portion of orthodontics. Some plans cover a percentage or have a lifetime maximum for orthodontic work. You can only deduct your actual out-of-pocket costs after insurance.

Something else to consider - many orthodontists offer a discount if you pay the full amount upfront rather than using a payment plan. When I got braces for my kid, the discount was almost 8%. You might want to run the numbers to see if it's worth paying more upfront (possibly using your credit card) to get the discount, especially if you think you'll qualify for the tax deduction this year. Just be careful about credit card interest rates - sometimes the discount isn't worth it if you'll be paying high interest on the card balance for months. I ended up doing a 0% intro APR card specifically for this expense.

Has your sister filed taxes in previous years? If she only made $8,700 last year, she might not even be required to file a return depending on her filing status. That could actually help your case for next year if she doesn't file as independent this year (though as others mentioned, you still wouldn't qualify for this year).

One thing to keep in mind for next year - even if your sister qualifies as a dependent, make sure she doesn't accidentally file as independent if she does end up getting a job. That's a common mistake that can mess up your dependent claim. You might want to coordinate with her on tax planning if she starts working again, especially around year-end. Also, if she's actively job searching, some of those expenses might be deductible for her (or you if she's your dependent), so keep track of things like resume services, interview travel costs, etc.

One thing nobody's mentioning - your state matters a LOT for withholding calculations. Different states have completely different tax structures that affect your overall tax picture. What state are you in?

Great question about state taxes! I'm in Colorado, so we do have state income tax here. I hadn't even thought about how that might affect my W4 calculations - I've been so focused on just getting the federal part right. Does the state tax situation change how I should fill out the federal W4, or is that something I handle separately? I assume Colorado has its own withholding form I'll need to complete as well? This is exactly the kind of detail that makes me nervous I'm missing something important!

I've been following this discussion and wanted to add something that might help clarify the confusion between your CPA and attorney. The issue often comes down to timing and documentation requirements. Your attorney is correct that construction defect settlements are generally not taxable income when they compensate for property damage or loss of property value. However, your CPA is also right to be concerned about the 1099-MISC creating a paper trail that the IRS will expect to see reported. Here's what I'd recommend: First, get a copy of your settlement agreement and carefully review what the $87,500 was intended to cover. If it's purely for property damage/repairs, then it's likely not taxable up to your basis in the property. Second, contact the builder with a polite but firm request for a corrected 1099-MISC, explaining that construction defect settlements for property damage aren't reportable income under IRS guidelines. If the builder refuses to correct the 1099, you'll need to report the income on your return but then subtract it out with proper documentation (Form 8275 disclosure statement explaining your position). This protects you from audit issues while still claiming the correct tax treatment. The key is having solid documentation - your settlement agreement, any correspondence with the builder, and receipts for actual damages. Don't let the 1099-MISC force you into paying taxes you don't legally owe, but make sure you handle it properly to avoid IRS complications down the road.

I'm dealing with a very similar situation and wanted to share what I've learned from researching this extensively. The confusion between your CPA and attorney is actually pretty common because construction defect settlements sit at the intersection of property law and tax law. From what I've found, the key factors are: 1) What specifically was the settlement for (property damage vs. other damages), 2) Whether it exceeds your basis in the property, and 3) How to handle the 1099-MISC mismatch with the IRS. Based on the responses here, it sounds like your best approach is to first try getting the builder to issue a corrected 1099 or at least a letter acknowledging it was issued in error. If that fails, the Form 8275 route with detailed documentation seems to be the safest way to avoid paying taxes you don't owe while staying compliant. One thing I'd add - make sure you have a clear breakdown of what your $87,500 settlement actually covered. If any portion was for non-property damages (like emotional distress, punitive damages, or lost use), those parts might have different tax treatment even if the property damage portion isn't taxable. Document everything and keep all your settlement paperwork organized. From what others have shared, the IRS may question it later, but having solid documentation upfront makes resolving it much easier.