Just a heads up - if you received a check over $600, the settlement administrator will likely send you a 1099-MISC form reporting the payment to the IRS. So even if you're unsure about taxability, the IRS will know about the money. If you disagree with how it's reported on the 1099, you'll need documentation to support your position that some/all is non-taxable. I learned this the hard way with another settlement!

I went through something similar with a different class action settlement last year. The key thing that helped me was calling the settlement administrator directly - they were actually really helpful in explaining exactly what each portion of the payment was for. In my case, they broke it down like this: part was reimbursement for the cost difference between the defective airbag and a proper replacement (not taxable), and part was compensation for the inconvenience and potential safety risk (taxable). The administrator also told me that if the settlement was over $600, they'd automatically send me a 1099 form, but they said I could still exclude the non-taxable portions when filing my return as long as I had proper documentation. I'd definitely recommend getting that breakdown in writing from them before tax season hits. It made my filing so much cleaner and I felt confident I was handling it correctly.

Another thing to consider is that some states automatically issue you a refund even if you don't file! In my state, if your W-2 withholding info is reported to them and it shows you overpaid, they sometimes just send you a check. Happened to me 2 years ago.

I went through this exact same dilemma last year! Here's what I found out after doing some research: if you don't file when the state owes you money, there's typically no penalty at all. The worst that happens is you forfeit your refund after the statute of limitations runs out (usually 3-4 years). However, I'd recommend double-checking a couple things first. Make sure you're not actually required to file in your state regardless of refund amount - some states have mandatory filing thresholds based on income. Also, if you have any estimated tax payments or credits you're not accounting for, you might owe more than you think. One trick I learned: some tax software lets you prepare your return completely for free, then only charges if you actually file. So you could double-check your calculations without paying anything. If it confirms you're only getting $11 back and filing costs $15, then yeah, skip it and pocket the difference!

Are you sure $7k is the only option for a professional website? I use Wix for my business sites and pay about $25/month for the business plan. Have built 3 different business sites that look great. Unless you need super custom functionality, paying thousands for a basic business site seems excessive in 2025.

Another angle to consider - have you looked into whether your other successful business could legitimately use this website too? If there's any crossover in services, customer base, or if the website could benefit both businesses, you might be able to have your other business pay for it as a legitimate business expense and then work out a usage agreement with the 50/50 partnership. This would let you deduct the full $7k against your other business income (which sounds substantial based on your $33k quarterly payments), avoid the partnership contribution complications, and still get the website built. Just make sure there's genuine business purpose for both entities and document the arrangement properly. You could structure it as your other business contracting for website development services, then licensing or subletting usage to the partnership. Much cleaner from a tax perspective than trying to personally fund partnership expenses.

Another option to consider - I found my S Corp accountant through the Enrolled Agent directory on the NAEA website. Many EAs specialize in small business and S Corps and are much more affordable than larger CPA firms. Plus they're licensed by the IRS and can represent you in case of audit. Most now work virtually so location doesn't matter. Mine is in a different state but handles everything perfectly through secure document sharing. Way better service than I ever got from retail tax chains.

As someone who went through this exact transition last year when my longtime CPA retired, I'd recommend being very cautious with H&R Block for S Corp work. Their retail locations often lack the specialized knowledge needed for proper S Corp tax preparation. I initially tried their Small Business Services (which is separate from their retail offices) and while the preparer was more knowledgeable than the seasonal staff, they still made some concerning errors with my reasonable compensation calculations that I caught during review. What worked for me was using the IRS's "Find a Tax Professional" tool on their website - you can filter specifically for Enrolled Agents and CPAs who work with S Corps. I found three candidates in my price range within a week, all willing to work remotely. The EA I ultimately chose has been fantastic and actually costs less than what H&R Block quoted me. My advice: get quotes from both H&R Block's business division AND a few independent professionals before deciding. Don't let the big name fool you into thinking they're automatically better - often the opposite is true for specialized work like S Corp returns.

This thread has been incredibly helpful! I'm dealing with a very similar situation as a software developer working from Brazil for a US startup. The information about foreign-sourced income not being subject to US withholding has been eye-opening. One thing I'd like to add for other Brazilian contractors: make sure you understand how this affects your tax situation with Receita Federal. Since you'll be receiving the full payment without US withholding, you'll need to declare this as foreign income on your DIRPF and pay Brazilian taxes on it. The good news is that you can often claim this as "rendimentos recebidos do exterior" which sometimes has more favorable tax treatment. Also, for those mentioning the W-8BEN form - in my experience, most US companies' accounting software automatically flags foreign contractors for 30% withholding until they have a properly completed W-8BEN on file. Even though you'll leave Part II blank (no treaty benefits), having that form completed and submitted promptly is crucial to avoid any withholding delays. Has anyone here dealt with the situation where a US client initially withholds taxes by mistake and then needs to refund them? I'm curious about the process for getting those funds back if it happens.

This has been such an informative discussion! As someone who's been working as a remote contractor from various countries over the past few years, I can confirm that the guidance here about foreign-sourced income is spot-on. One additional resource that might be helpful: if you're still getting pushback from your US client about withholding requirements, you can direct them to IRS Revenue Ruling 87-4, which specifically addresses the sourcing rules for personal services. It clearly states that compensation for personal services is sourced where the services are performed, not where the payor is located. I've also found that many US companies have automated payroll systems that default to withholding for any foreign contractor, regardless of the actual tax requirements. Sometimes you need to work directly with their tax department or external accountant rather than just HR or payroll to get the proper exemption set up. For those dealing with treaty vs non-treaty countries, remember that the lack of a tax treaty doesn't change the fundamental sourcing rules - it just means you can't claim reduced withholding rates that might be available under treaty provisions. But if your income is foreign-sourced to begin with, the treaty status is irrelevant for withholding purposes.