Has anyone looked into whether it's better to take distributions from your S-Corp and then fund a backdoor Roth vs setting up these more complex retirement plans? Especially if you expect to be in a higher tax bracket in retirement?

This thread has been incredibly helpful! I'm in a similar situation but with one additional wrinkle - I'm also contributing to a HSA through my W-2 job. Does that impact any of the S-Corp retirement plan contribution limits mentioned here? Also, for those who mentioned taxr.ai - did their analysis include HSA optimization as part of the overall retirement planning strategy? I'm trying to figure out if I should prioritize maxing my HSA first before setting up the Solo 401k, or if they work completely independently of each other. One more question - if I set up a Solo 401k through my S-Corp this year, can I still make catch-up contributions when I turn 50 next year, or do those limits get complicated when you have multiple 401k accounts?

Does anyone else think its ridiculous that we have to report such small amounts? Like I made maybe $800 last year doing digital drawings and now I gotta fill out all these extra tax forms and pay self-employment tax? The whole system feels designed to discourage people from having little side gigs.

Great question and thanks for sharing your update! I'm glad you got clarity from your state tax office. Just to add some perspective for others reading this - while your state may not require taxes on income under $12,950, federal requirements are different. Even though PayPal didn't send you a 1099 for your $740 in earnings, you'll still need to report this on your federal return since it's over the $400 self-employment threshold. The good news is that after deducting your business expenses (PayPal fees, art supplies, software, etc.), your actual taxable income will be much lower than $740. I'd recommend keeping detailed records of all your art-related expenses for next year - even small purchases add up and can significantly reduce what you owe. Tools like a simple spreadsheet or even a photo of receipts can save you money come tax time!

This thread has been really enlightening! I'm dealing with a similar situation where I bought a fixer-upper last year intending to flip it. I spent 10 months renovating before selling, and like many of you, I got conflicting advice from tax professionals. Based on what I'm reading here, it sounds like since I never intended to rent the property (it was always meant to be sold), all my carrying costs during renovation should be capitalized rather than expensed. This includes the mortgage interest, property taxes, utilities, and even things like security system monitoring that I paid during the renovation period. It's frustrating because it means no current-year deductions, but I guess the silver lining is that it increases my basis and reduces the capital gains tax when I sell. Has anyone here actually been through an audit on a flip property? I want to make sure I'm following the rules correctly since the amounts involved are significant.

I've been following this discussion and want to add some perspective as someone who's dealt with multiple investment properties over the years. The confusion between your two CPAs likely stems from the fact that the rules are different depending on your intent and how the property is classified. For properties held for sale (like yours), Section 263A uniform capitalization rules generally apply, which means all direct and indirect costs - including carrying costs like interest, utilities, and maintenance - must be capitalized during the production period. This is exactly what your first CPA is telling you. However, there can be some exceptions. If you're not considered a "dealer" and the property qualifies under certain de minimis rules, some interest might still be deductible. But given that you put $80k into renovations and held it for a full year specifically to prepare it for sale, you'd likely be subject to full capitalization. The key documentation you'll want to maintain is proof of your intent to sell from the beginning, detailed records of all expenses with dates, and clear separation between costs incurred during the construction/preparation period versus any costs after the property was ready for sale. This will be crucial if you ever face questions from the IRS about your treatment of these expenses.

Just wanted to add that if you take money from your HSA, make sure to keep ALL medical receipts, even small ones. The IRS allows you to reimburse yourself for qualified medical expenses from years ago (no time limit) as long as the expense occurred after you established the HSA.

Connor, I'm really sorry to hear you're in such a tight financial spot. Before you make any moves on your retirement accounts, I'd strongly suggest checking if you have any unreimbursed medical expenses from the past few years that you paid out of pocket. As Malik mentioned, the HSA has this amazing feature where you can reimburse yourself for qualified medical expenses with no time limit - as long as the expense occurred after you opened your HSA account. This could potentially let you withdraw from your HSA completely penalty-free if you have documentation for past medical bills, prescriptions, dental work, vision expenses, etc. Even something like over-the-counter medications (with a prescription), medical equipment, or travel expenses for medical care can qualify. Keep every receipt and make sure the total amount you withdraw doesn't exceed your documented qualified expenses. If you don't have enough past medical expenses to cover what you need, then yes, the 401k loan route would be much better than an early withdrawal. At 28, you've got decades for that money to grow - the real cost isn't just the penalties, it's the lost compound growth over time. Hang in there, and make sure to explore every option before touching those retirement funds! 💪

I switched from W2 to LLC last year and here's what surprised me - health insurance! Went from paying $220/month with my employer to over $850/month for worse coverage. The self-employed health insurance deduction helps a bit but not enough to offset the huge premium increase. Also, don't forget about state filing fees and annual reports for your LLC. Depending on your state, these can range from $50 to several hundred dollars annually.

I made this exact transition two years ago, going from a $78K W2 position to LLC status. Here's my honest take after living through it: **The Good:** - Home office deduction saved me about $2,400 annually - Business meal deductions (50% of legitimate business meals) - Equipment purchases are fully deductible - Solo 401k allowed me to contribute way more to retirement than my old employer plan **The Reality Check:** - Self-employment tax hit me harder than expected - that extra 7.65% really adds up - Quarterly estimated payments require discipline and cash flow planning - Lost paid sick days, vacation time, and employer 401k match - Health insurance premium jumped from $180/month to $720/month **Bottom Line:** I'm making about $6K more annually, but after factoring in lost benefits and higher healthcare costs, my actual take-home is roughly the same. The main advantage has been flexibility and control over my work schedule. One piece of advice: If you're planning to work exclusively for your current employer as a contractor, be very careful about IRS worker classification rules. The IRS looks at factors like who controls your work schedule, whether you use company equipment, and if you have other clients. Consider getting multiple clients before making the switch to strengthen your independent contractor status.