Just an FYI - cash accounting for small sellers is great but watch out for the inventory exception limits. If your business has average annual gross receipts over $26 million for the prior 3 years, or if you're in certain industries like mining or manufacturing, you can't use this exception. Also, if you maintain inventory in your accounting system for non-tax purposes (like for business tracking), make sure your tax preparer knows you're using the small business exception on your actual tax filing so they don't mistakenly treat you as accrual basis.

This is such a helpful thread! I'm in a similar situation with my small eBay business and have been struggling with the same questions about cash accounting and donations. One thing I wanted to add - make sure you're keeping detailed records of the fair market value of donated items at the time of donation, not just your original cost. The IRS requires you to use FMV for the charitable deduction, which might be different from what you paid originally. For eBay items that have been sitting unsold, the FMV is often lower than your original cost. Also, I've found it helpful to set up separate tracking categories in my system: "Sold Items" (goes to COGS), "Donated Items" (personal charitable deduction), and "Personal Use Items" (no deduction). This way everything has a clear destination when I remove it from my purchase tracking. Thanks everyone for sharing your experiences - this community is so valuable during tax season!

To add to this convo - don't forget that if you do form an LLC and keep it as a disregarded entity (basically taxed as a sole prop), you can still deduct the annual LLC fee that most states charge as a business expense on Schedule C! That's separate from your state income taxes. I pay $800/year to California for my LLC and that amount IS deductible as a business expense.

I think we're all overcomplicating this. Just use an accountant people! I tried doing my own taxes as a sole prop for 2 years and missed so many deductions. Paid $650 for an accountant last year and she found over $3k in deductions I missed. She also explained that some business structures have higher audit risk than others so it's not just about the deductions.

Just want to add a crucial point that might save you some hassle - when you contact your IRA provider about the excess contribution removal, make sure you specifically ask them to process it as a "return of excess contribution" rather than just a withdrawal. The tax reporting is completely different between these two types of transactions. Also, double-check that your 2023 contribution was actually non-deductible. If your income was low enough in 2023 to qualify for a deductible traditional IRA contribution, you might want to consider just treating it as deductible instead of removing it. This could simplify things depending on your specific tax situation. One more thing - if you do proceed with the removal, keep detailed records including the date of the original contribution, the removal date, and all correspondence with your IRA provider. The IRS can be picky about the documentation for these transactions.

One important detail to double-check with your IRA provider - some custodians have internal deadlines for excess contribution removals that are earlier than the IRS deadline. For example, some require requests by March 31st to ensure processing by April 15th. I'd recommend calling them ASAP to confirm their specific timeline requirements. Also, if you do decide to keep the non-deductible contribution instead of removing it, remember that you'll need to file Form 8606 every year going forward, not just for 2023. This form tracks your basis in traditional IRAs and is required whenever you have non-deductible contributions or take distributions from IRAs with mixed pre-tax/after-tax money. Missing these forms can create headaches down the road when the IRS can't verify your basis. The good news is that once you establish a clear paper trail with proper documentation, managing the pro-rata calculations for future rollovers becomes much more straightforward. Just make sure whatever path you choose is well-documented from the start!

This thread has been incredibly helpful! I'm dealing with the exact same issue - 4 years running with late K-1s from our S-corp. What's really frustrating is that I'm a 15% shareholder, so this significantly impacts my tax situation each year. After reading through everyone's experiences, I think I'm going to try a multi-pronged approach: 1) Request estimated K-1 numbers by March 1st like Leila suggested, 2) Document all my communications with the S-corp about K-1 timing as recommended by the IRS agent, and 3) Push our management to either get the accounting firm to prioritize earlier completion or find a new firm that commits to March 15th delivery. It's reassuring to know this is so widespread, but also frustrating that it seems to be accepted as "normal." Thanks everyone for sharing your solutions and experiences!

I've been lurking on this thread because I'm dealing with the exact same situation, but from a slightly different angle. I'm actually an enrolled agent who has several clients with S-corp interests, and I can confirm that late K-1s are unfortunately the norm rather than the exception. From a practitioner's perspective, here's what I've observed: about 70% of the S-corps I work with miss the March 15th deadline for K-1 distribution. The main culprits are usually: 1) accounting firms that are swamped during tax season and prioritize individual returns, 2) S-corps that wait until the last minute to provide their accounting firms with year-end information, and 3) complex S-corp situations (multiple states, unusual transactions) that require extra time to sort out. What I tell my clients is to set expectations early - assume you'll file an extension and plan accordingly. Make sure you're making adequate estimated tax payments throughout the year, and if possible, try to get involved with your S-corp's management to push for earlier deadlines with their accounting team. Some of the larger accounting firms have dedicated S-corp teams that work specifically on getting these done by March 15th, but you usually pay a premium for that service. The silver lining is that the IRS is very aware this is a widespread issue, so properly filed extensions due to late K-1s are rarely scrutinized.

Based on the discussion here, it sounds like you'll need to include that $120 in the employee's taxable wages. Since your company covered what would normally be the employee's responsibility for Aflac premiums without expecting repayment, the IRS treats this as additional compensation. For S-Corps, this is pretty straightforward - add it to their wages in the pay period when you covered the costs, and make sure it's included on their W-2 at year-end. You'll also need to withhold the appropriate payroll taxes on this amount. One thing to double-check is whether your Aflac deductions are currently set up as pre-tax or after-tax, as someone mentioned above. You can see this by looking at how the deduction appears on your payroll - if it reduces taxable income, it's pre-tax; if it doesn't, it's after-tax. This affects exactly how you handle the tax reporting, but either way, covering the employee's portion makes it taxable income to them. Document everything well since it was related to medical leave - you want a clear paper trail showing this was a one-time accommodation during their ankle injury recovery, not an ongoing benefit that could create precedent issues with other employees.

I went through something very similar last year with our S-Corp when an employee had surgery and we covered their portion of various insurance premiums during their recovery. After consulting with our CPA and reviewing the relevant tax code, here's what we learned: The $120 you covered for the Aflac premiums is definitely taxable income to the employee. Since the company paid something the employee would normally be responsible for and isn't seeking reimbursement, the IRS considers this additional compensation regardless of the circumstances that led to it. You'll want to add this amount to their taxable wages on the next payroll run and ensure proper withholding for federal income tax, state tax (if applicable), Social Security, and Medicare. Make sure it also gets included in Box 1 of their W-2 at year-end. One tip from our experience - create a clear policy document about how you handle these situations going forward. Even though this was a compassionate response to a medical situation, having a written policy helps ensure consistent treatment if similar circumstances arise with other employees and can help demonstrate that this wasn't preferential treatment for any particular individual. Also keep detailed records showing this was specifically related to their medical leave and the dates/amounts involved. Good documentation always helps if there are ever any questions down the road.