I went through almost the exact same situation two years ago when I became a 6% owner in my consulting firm. Like you, I was worried about losing our dependent care FSA benefits, but my concerns were unfounded. The key distinction is that ownership restrictions for FSAs apply to the company where you have ownership, not to benefits obtained through a spouse's separate employer. Since your husband's FSA is through his company (where you have zero ownership), your new LLC ownership status is completely irrelevant to that benefit. One practical tip: when you transition to receiving distributions instead of W-2 wages, your household's tax situation will change significantly. You'll likely owe more in taxes due to self-employment taxes on your share of LLC profits. Consider increasing your dependent care FSA contribution to the maximum if you're not already doing so - it's one of the few tax advantages that actually becomes more valuable when you're paying higher effective tax rates as a business owner. Also, make sure your operating agreement clearly spells out how distributions will be handled and when. You'll want predictable cash flow for those quarterly estimated tax payments!

As someone who works in tax compliance, I can confirm what others have said - your LLC ownership won't affect your husband's dependent care FSA eligibility at all. The 2% owner restriction is specific to S-corporations and only applies when the owner is participating in their OWN company's cafeteria plan. However, I want to emphasize something that hasn't been mentioned enough: make sure you fully understand the tax implications of switching from W-2 to LLC distributions. Beyond the self-employment tax issue others discussed, you'll also lose certain employee benefits like unemployment insurance coverage. Also, depending on how your LLC is structured, you might have "guaranteed payments" instead of distributions if you're still working there regularly. Guaranteed payments are treated differently for tax purposes - they're subject to self-employment tax but they're also deductible to the LLC. Make sure your accountant explains the difference and how your specific arrangement will be classified. The FSA question is straightforward, but the overall tax transition deserves careful planning. Consider doing a tax projection for the full year to avoid any surprises at filing time.

Cycle codes are just part of the puzzle. You really need to look at your entire transcript - processing codes, freeze codes, reference numbers etc. With all the delays this year, its getting harder to predict anything based just on cycle codes tbh

The 01 vs 05 cycle thing is real but don't stress too much about it! I'm also an 01 cycle and yeah, we typically see updates on Mondays. The wait times this year have been brutal for everyone regardless of cycle code. Since you filed in February, you're still within the normal processing timeframe (21+ days). Keep checking your transcript on Monday mornings and look for any 846 refund issued codes or 570/971 notice codes that might explain delays.

Something nobody has mentioned yet - you should run the numbers BOTH ways before deciding to file MFS for student loan purposes. I did this last year and while my wife's student loan payments were lower with MFS, we ended up paying about $3,800 more in taxes compared to filing jointly. The tax hit came from: 1. Lower tax brackets for MFS filers 2. Loss of certain credits and deductions 3. Both having to itemize when only one of us had enough deductions to make it worthwhile Make sure the student loan payment reduction actually outweighs the increased tax burden!

One thing to double-check - make sure you're both actually liable on the mortgage debt, not just on the deed. The IRS requires that you be legally obligated to pay the debt to claim the interest deduction. If only your husband signed the promissory note, you might not be able to claim your portion even if you're on the deed and contributing to payments. You can check this by looking at your original loan documents. If both of your names are on the promissory note (not just the deed), then you're both legally liable and can split the deduction as others have described. If only one name is on the note, the situation gets more complex and you might need to consult a tax professional. Also, keep in mind that the $375k limit applies to acquisition debt - debt used to buy, build, or substantially improve your home. If you've done any cash-out refinancing, the rules for that portion might be different under the Tax Cuts and Jobs Act changes.

Thank you everyone for the detailed explanations! As someone new to this community, I really appreciate how thorough and helpful these responses have been. I had the exact same concern when I saw a 960 code on my transcript after using TaxSlayer and choosing the refund transfer option. What struck me most was how this authorization process isn't clearly explained during the filing process - you really have to dig into the fine print to understand what's happening. For anyone else encountering this, I'd recommend keeping screenshots of your filing confirmation emails and checking your transcript periodically to see when the code gets removed. It's also worth noting that some tax prep companies are more transparent about this process than others - might be something to consider when choosing software for next year's filing season.

Great question about opting out! Unfortunately, once you've submitted your return with the refund transfer option selected, you're pretty much locked into that process. The IRS has already received your return with the third-party authorization (hence the 960 code), and they'll send the refund to the designated bank account that FreeTaxUSA set up. However, if you haven't received your refund yet and are really concerned, you could try calling FreeTaxUSA customer service to see if there are any options - though I doubt they can change the routing at this point. For next year, just remember to pay the prep fees upfront if you want to avoid the whole third-party authorization situation altogether. The direct deposit route is cleaner and often faster anyway, especially if you file early in the season. Lesson learned for both of us! 😅

If you're paying before filing, double check that your withholding info is correct for next year too! I made a big payment early last year but then realized I could have just adjusted my W-4 to take out more from each paycheck. Much easier than making separate payments!

Great advice here! I'm in a similar situation with my freelance income and was panicking about owing a huge amount at filing time. One thing I learned the hard way - if you're making payments throughout the year like this, it's also worth looking into whether you should be making quarterly estimated payments going forward. The IRS expects regular income earners to pay as they go, and if you owe more than $1,000 when you file, you might get hit with underpayment penalties even if you pay the full amount by the filing deadline. Making that $10k payment now is smart, but also consider setting up quarterly payments for next year to stay ahead of it!