Something else to consider - accrual basis can actually be beneficial during economic downturns or when your business is growing. In a downturn, you can recognize expenses earlier while potentially deferring income recognition. During growth, it gives a more accurate picture of profitability. I switched to accrual 5 years ago and it initially seemed like a headache, but now I appreciate the clearer picture it gives of my actual business performance. The key is having good systems in place to track everything properly.

One thing that really caught me off guard after switching to accrual was the timing of quarterly estimated tax payments. Since you're now recognizing income when earned (not received), you might owe taxes on money you haven't actually collected yet. This can create cash flow issues if you have slow-paying clients. I learned this the hard way when I had a big project complete in Q4 but didn't get paid until the following year. Still had to pay estimated taxes on that income in January, even though the cash wasn't in my account yet. Now I set aside tax money as soon as I invoice, not when I get paid. Also, make sure your bookkeeping software can handle accrual properly. Some basic programs aren't great at tracking the timing differences between when income is earned vs. received.

Yes, this applies to electronic filing too! When TurboTax (or any other tax software) asks for your occupation while filing back taxes, it's asking for the occupation you had during the tax year you're filing for, not your current job. So for your 2021 back taxes, you'd enter whatever job you had in 2021. Most tax software doesn't make this super clear, which is why it's confusing. The occupation field is tied to the specific tax year you're filing, so even though you're filing it now in 2025, the software wants to know what you were doing professionally in 2021 when you earned that income. If you had multiple jobs in 2021, go with whichever one provided the majority of your income for that year. The IRS uses this information to help verify that your reported income makes sense for your line of work during that period.

Just wanted to chime in as someone who went through this exact situation last year. I had to file back taxes for 2020 when I was working as a retail manager, but by the time I filed (in 2023) I had moved into accounting. The key thing is that the occupation field on your tax forms should reflect what you were actually doing during the tax year you're filing for - so in your case, definitely put "bartender" for your 2022 taxes. This helps the IRS verify that your W-2 income and any tips you reported make sense for someone working in the service industry during that time period. One thing that helped me was gathering all my old pay stubs and W-2s from 2022 before I started filling out the forms. Having that documentation made it much easier to remember exactly what my job title was and when I worked there. Also, if you received any 1099s for tip income or side work during 2022, make sure those occupations match up consistently across all your forms. The IRS is pretty understanding about back taxes as long as you're being honest and thorough. Just take your time with the forms and don't rush through the details!

Has anyone successfully completed this through the online application portal? I tried but got stuck at the "Who owns the LLC?" question. There's no option for "trust" or "partnership" - just individuals and existing corporations. Do I seriously have to use the paper form and wait weeks for processing?

I've been dealing with this exact scenario for my practice and wanted to add some clarification on the responsible party requirements. The IRS actually issued updated guidance in 2016 (Rev. Proc. 2016-21) that addresses this specific situation. For disregarded entities owned by non-individuals, the responsible party must be an individual who has "significant control" over the owning entity. This means: - For a trust-owned LLC: Use a trustee (not a beneficiary) - For a partnership-owned LLC: Use a general partner or managing member - For a corporation-owned LLC: Use an officer, director, or controlling shareholder The key is that this individual must have authority to make decisions for the owning entity. You're not claiming to be the owner - you're identifying yourself as the controlling person of the actual owner. Also, make sure to include a brief explanatory statement with your paper application describing the ownership structure. Something like: "Single-member LLC owned by [Name of Trust/Partnership], disregarded entity for federal tax purposes." This helps prevent processing delays. The paper route is definitely your best bet here. The online system hasn't caught up with these complex structures yet.

I think you're all missing a key detail - using FSA money for a child doesn't automatically mean you have to claim that child as your dependent. FSA funds can be used for any qualifying dependent, even if your ex claims them on their taxes. The real question is: did your divorce decree specify who claims which child? Many divorce agreements include language about alternating years or assigning specific children to each parent. That would override any tax tiebreaker rules.

Just wanted to add one more consideration that might affect your decision - make sure you're both tracking your household expenses carefully to meet the "keeping up a home" test for head of household status. Each of you needs to pay more than half the cost of maintaining the home where your respective child lives for more than half the year. This includes rent/mortgage, utilities, food, repairs, and other household expenses. With 50/50 custody, you'll want to document which expenses each of you is paying for each household. Also, since you mentioned you're on good terms with your ex, I'd suggest running the numbers for different scenarios before deciding who claims which child. Sometimes the parent with higher income benefits more from certain credits, while the lower-income parent might get a bigger boost from the Earned Income Credit. A tax professional could help you optimize the overall tax savings for both families combined. One last tip - make sure whatever arrangement you agree on is documented in writing (even just an email between you two) in case the IRS ever questions your filing status. Good luck!

Miguel, I completely understand your panic - getting an unexpected tax notice for $2,025 would stress anyone out! The good news is that this sounds like a classic IRS records mix-up that can definitely be resolved. Since your photography business only started this year and you have documentation proving when you actually got your EIN and began operations, you're in a strong position to dispute this. The CP134B notice for a 2020 tax period when your business didn't exist is clearly an error. Here's what I'd recommend doing immediately: 1. Verify the notice is legitimate by checking it has proper IRS formatting and official contact numbers 2. Gather all your business formation documents (EIN letter, business registration, etc.) that show when you actually started in 2025 3. Call the number on the notice ASAP - yes, the wait times are brutal, but speaking to someone directly can often resolve these faster than letters alone 4. Send a certified letter within the 30-day response window disputing the assessment and explaining your business didn't exist during that period Don't let this consume your peace of mind - these administrative errors happen more often than you'd think, especially with small business records. Once you provide documentation showing when your business actually started, this should get cleared up relatively quickly. Stay organized, respond promptly, and keep detailed records of every interaction. You've got this!

Miguel, I went through something very similar with my consulting business! Got a CP134B for a tax period two years before I even had an EIN. It's absolutely terrifying when you first see that amount, but this is definitely resolvable. The most important thing is to act quickly but don't panic. Here's my step-by-step approach that worked: 1. **Verify it's real** - Check that all the formatting, letterhead, and contact info matches official IRS standards 2. **Document everything** - Gather your EIN letter, business formation docs, anything showing your 2025 start date 3. **Respond in writing within 30 days** - Send a certified letter disputing the notice and explaining your business timeline 4. **Call the number on the notice** - The wait is brutal, but phone resolution is often faster than mail When I called, the agent immediately saw the date discrepancy and put a hold on collections while I submitted my documentation. Took about 6 weeks total to get it completely resolved and removed from my records. The key thing to remember is that you're not actually responsible for taxes from a period when your business didn't exist. This is just a clerical error that needs to be corrected with proper documentation. You've got all the proof you need to show when your photography business actually started. Stay calm, respond promptly, and keep detailed records of every interaction. This will be resolved in your favor!