Have you considered the Medicare surtax implications? At your income level, you'll be subject to the additional 0.9% Medicare surtax on earned income above $250k (married). By taking $325k as salary and the rest as distributions, you're minimizing the income subject to this surtax. Also worth noting that all your income (both salary and distributions) will still be subject to the 3.8% Net Investment Income Tax for income above $250k married. So while you're saving on the FICA taxes for distributions, you're not escaping all the medicare-related surtaxes completely.

As someone who went through a similar decision process, I'd strongly recommend sticking with your S Corp setup. At your income level ($1.1M), the employment tax savings alone make it worthwhile. Here's a quick breakdown: With your proposed $325K salary, you'll pay Medicare/Social Security taxes on that amount. The remaining ~$613K in distributions (after your $32K expenses and $130K retirement contributions) will avoid the 15.3% self-employment tax that you'd pay if you were a sole proprietor, or the Medicare taxes you'd face on a W2. The employment tax savings on that $613K distribution should be around $9,400 (1.45% Medicare tax) plus the 0.9% additional Medicare surtax on amounts over $250K, which works out to roughly $12,700 in total Medicare tax savings. That's over $22K annually in tax savings, which easily covers your S Corp compliance costs and then some. Your $325K salary seems reasonable for a physician at your income level - not so low as to trigger IRS scrutiny, but not unnecessarily high either. Just make sure to document how you arrived at that figure using industry compensation data for your specialty and location. The key advantage isn't necessarily a lower overall effective tax rate, but rather avoiding employment taxes on a significant portion of your income while maintaining the same ordinary income tax treatment.

Before you go crazy trying to find old W-2s, check if you can access your Social Security account online at ssa.gov. They keep records of all reported wages that had Social Security taxes withheld. It won't have your withholding info, but it will at least show you where you worked and how much you made each year, which is a good starting point.

I went through this exact same situation about 3 years ago! First thing - breathe. You're not going to jail and this is way more common than you think. Here's my step-by-step approach that worked for me: 1. Start with the IRS online transcript request (yes, you'll need to verify through ID.me but it's worth it). This will show you exactly what employers reported for each year. 2. Focus on 2022-2024 first since those are the years you can still get refunds for. Don't stress about earlier years right now - get current first. 3. For missing W-2s, try contacting HR departments first. Even if a company closed, their payroll records often transfer to successor companies or payroll services. I was shocked how many "closed" businesses still had my records. 4. If you're feeling overwhelmed, definitely consider the free VITA program mentioned earlier. They helped me file 3 years of back taxes for free and were incredibly patient. The key thing to remember: if you were always having taxes withheld and making under $18K, you were almost certainly due refunds every year. The IRS doesn't penalize you for filing late when they owe YOU money. You've got this!

FYI - one thing to watch out for with refinancing is if you do a cash-out refi, that can impact your capital gains calculation (though not the 2-year rule). The money you take out increases your basis adjustment, which could mean higher capital gains when you sell. For example, if you bought for $300k, did a cash-out refi and took $50k out, then sold for $400k, your capital gain wouldn't just be $100k... you'd need to adjust for that $50k you already took out.

Just wanted to chime in as someone who went through this exact scenario last year. I refinanced my home after owning it for about 20 months and was similarly worried about the capital gains exclusion timing. Can confirm that refinancing absolutely does not reset your ownership period - the IRS counts from your original purchase date when you first took title to the property. I ended up selling my home about 8 months after refinancing (so right at the 2-year mark from original purchase) and had no issues claiming the capital gains exclusion. One thing that might be helpful to keep in mind is documenting your primary residence period if you're close to the 2-year mark. I kept utility bills, voter registration, and other records showing continuous residence just to be safe, though I never needed them. The refinance actually helped in a way because all those documents clearly showed the same address throughout the process. Good luck with your timing - sounds like you'll hit your 2-year mark in about 6 months if my math is right!

Just wanted to add another important consideration - if you become a resident alien after your F1 exempt period, you might also need to deal with state tax implications. Some states have their own rules for determining residency that might differ from federal tax residency. I learned this the hard way when I became a federal resident alien but my state (California) considered me a resident for state tax purposes much earlier due to different criteria. This meant I had to file amended state returns and pay additional state taxes on income I thought was exempt. Each state has different rules, so definitely research your specific state's requirements once you determine your federal status changes.

This is such valuable information - thank you everyone for sharing your experiences! I'm in a similar situation as an F1 student approaching my 5th year, and I had no idea about some of these complications like FBAR requirements and state tax differences. One thing I'm curious about: if you become a resident alien for tax purposes but are still on F1 status for immigration purposes, does this create any conflicts? I've heard some people worry that filing as a resident alien might somehow affect their visa status or future applications, since F1 is technically a "non-immigrant" visa. Has anyone dealt with this concern or gotten clarification from immigration attorneys about whether tax residency status affects immigration status? Also, for those who've gone through this transition, did you notice a significant difference in your tax liability when switching from 1040NR to 1040? I'm trying to budget for potential changes in what I'll owe.

Can we talk about how ridiculously complicated this whole process is? I mean, why on earth do they use cryptic codes like BP and 8B instead of just clearly stating what each distribution is? And why doesn't tax software correctly handle these common situations? I had a similar issue last year with an excess contribution to my Roth IRA (different from your 401k situation but similar principle) and ended up paying hundreds to a CPA just to fix what should be straightforward. The tax code is deliberately made confusing so that average people mess up and either overpay or have to hire expensive help.

I just went through this exact situation with my Roth 401k excess contributions! The confusion is totally understandable - these distribution codes are incredibly confusing even for tax professionals. Here's what I learned after dealing with this mess: You're absolutely right that you don't need to amend your 2020 return. The BP-coded distribution represents the return of your already-taxed Roth contributions, so it shouldn't be taxable in 2021 either. The 8B-coded distribution is the earnings on those excess contributions, which IS taxable in 2021. The tricky part is getting TurboTax to handle this correctly. What worked for me was: 1. Enter both 1099-Rs as normal 2. For the BP form, look for an "override" or "adjust" option when TurboTax tries to add it to taxable income 3. Force the taxable amount to remain $0 for the BP distribution 4. Let TurboTax handle the 8B form normally since it's correctly treating that as taxable One thing that helped me understand this better was realizing that when your plan fails ADP testing (which sounds like what happened to you), they have to return contributions even from non-highly compensated employees to bring the plan back into compliance. It's not your fault - it's a plan-wide issue. Don't skip reporting the BP form entirely - you need to report it but ensure it's not taxed twice. The IRS expects to see both 1099-Rs on your return even if one isn't taxable.