This is such an important point that I wish more people understood! I made this exact mistake a few years ago - I owed about $300 from an amended return and thought "I'll wait for them to send me a bill." By the time I finally got a notice, it had grown to over $500 with all the penalties and compound interest. The worst part is that the interest rate the IRS charges is actually pretty high compared to what you'd get from a savings account, so there's really no financial benefit to waiting. Plus, as you mentioned, they calculate interest from the original due date, not from when you discover the debt. So even if you genuinely didn't know you owed money, you're still on the hook for all that accumulated interest. It's definitely a "pay now, ask questions later" situation when it comes to tax debts.

This is really helpful to hear from someone who went through the exact same thing! I'm definitely going to check my IRS online account today to see what the current balance is with all the accumulated interest. It sounds like even though it started at $180, it's probably grown quite a bit by now since it's been almost a year. I'm kicking myself for not knowing I was supposed to pay when I filed the amendment. My tax preparer really should have explained that better - I thought amended returns were just like regular returns where they bill you if you owe money. Now I know for next time, but this is an expensive lesson to learn! Did you have any trouble setting up the online account with the IRS? I've heard mixed things about their website being difficult to navigate.

Setting up the IRS online account wasn't too bad, but you do need to have some specific information ready. They'll ask for details from a recent tax return, your Social Security number, and they'll want to verify your identity through credit report questions or by mailing you a verification code (which takes 5-10 days). The website itself is pretty clunky and old-fashioned looking, but once you're logged in, you can see your account balance, payment history, and any notices they've sent. It's definitely worth doing because you'll be able to see exactly how much interest has accumulated on your $180. One tip: if you decide to pay online through their system, make sure to allow a few business days for the payment to process before the next interest calculation kicks in. I learned that the hard way when I thought I was cutting it close with my payment timing!

This is incredibly helpful! I had no idea about the Section 199A deduction potentially applying to rental activities. Could you explain a bit more about how that works with short-term rentals specifically? Also, you mentioned quarterly estimated tax adjustments - how quickly should someone in OP's situation start making those changes? I imagine with a $650k income, the quarterly payments are already pretty substantial, so getting this wrong could be costly. The point about finding someone with RCS designation is great advice. I've been burned before by general accountants who missed rental-specific deductions, so having that specialized credential seems like a smart filter when interviewing tax professionals.

Great question about Section 199A! For short-term rentals, the key is whether your rental activity rises to the level of a "trade or business" rather than just investment activity. If you're materially participating (which is easier to achieve with STRs due to the active management required), the rental income can potentially qualify for the 199A deduction. This is especially beneficial for high earners who are otherwise phased out of the deduction. Regarding quarterly payments - I'd suggest making adjustments starting with the next quarter after you implement the strategy. Don't wait until year-end! With OP's income level, underpayment penalties can be steep. Work with your tax pro to model the depreciation and loss projections, then adjust your quarterlies accordingly. You can always true-up later, but getting ahead of it helps with cash flow. The RCS credential really does make a difference. I've seen too many situations where general CPAs miss things like bonus depreciation elections, proper cost segregation opportunities, or fail to optimize the material participation documentation. When you're dealing with this level of income and complexity, the specialized knowledge pays for itself many times over.

Great question about showing losses while being cash-flow positive! This is actually one of the most powerful aspects of rental property taxation. Yes, you can absolutely claim those "paper losses" (created primarily by depreciation) against your W2 income, subject to the passive loss limitations we've discussed. Here's how it works: Let's say your Airbnb brings in $50k in rent but you have $30k in actual expenses plus $25k in depreciation deductions. You'd show a $5k loss on paper for tax purposes, even though you pocketed $20k in cash ($50k - $30k actual expenses). That $5k loss can offset your W2 income if you meet the active participation requirements. Regarding time investment - I spent probably 40-50 hours in my first year just researching and setting up systems (tracking spreadsheets, separate banking, learning the rules, finding the right tax professional). It's definitely front-loaded work, but once you have the systems in place, ongoing maintenance is much more manageable - maybe 2-3 hours per month for record keeping. The learning curve is real, but think of it as an investment that pays dividends for years. With your $400k income, even modest tax savings from this strategy could easily justify the time spent. Just don't try to become an expert overnight - focus on getting the basics right and let a qualified professional handle the complex stuff.

This is incredibly helpful information, thank you! The non-qualified use period calculation is something I hadn't fully understood before. Just to make sure I'm following correctly - if I lived in my house for 10 years, then rent it out for 2 years before selling, would I still get the full Section 121 exclusion since I meet the 2-out-of-5-years test? Or would part of my gain be allocated to the non-qualified use period and lose the exclusion benefit? Also, the point about "allowable" depreciation is eye-opening. I had no idea you could owe recapture tax on depreciation you didn't actually claim. That seems like it could really catch people off guard if they weren't properly depreciating their rental from day one.

@Grace Thomas In your scenario 10 (years primary residence, 2 years rental ,)you would still qualify for the Section 121 exclusion since you meet the 2-out-of-5-years test. However, under the non-qualified use rules, you d'need to allocate your total gain between the qualified period 10 (years and) non-qualified period 2 (years .)So if your total gain was $120,000, roughly $20,000 would be allocated to the non-qualified use period 2/12 (of the total and) wouldn t'be eligible for the Section 121 exclusion. The remaining $100,000 allocated to qualified use could be excluded up (to the $250K/$500K limits .)The depreciation recapture issue is definitely a gotcha that trips up a lot of people. The IRS reasoning is that you received a tax benefit by being allowed "to" depreciate, whether you actually took it or not. So even if you forgot to claim $10,000 in depreciation over two years, you d'still owe the 25% recapture tax on that $10,000 when you sell. It s'worth filing amended returns to claim any missed depreciation since you re'going to pay the recapture tax anyway!

Great questions! For multiple conversions like your example, the IRS looks at the aggregate periods of qualified vs non-qualified use. So in your scenario (5 years primary, 2 years rental, 1 year primary, 1 year rental), you'd have 6 years of qualified use and 3 years of non-qualified use out of 9 total years. The gain allocation would be based on those ratios. However, there's an important exception - any non-qualified use periods that occur BEFORE the last period of qualified use don't count against you. So if you moved back in for that 1 year, the initial 2-year rental period might not reduce your exclusion, but the final 1-year rental period would. Regarding proving primary residence, the IRS uses a "facts and circumstances" test. Key factors include where you sleep most nights, where your personal belongings are stored, voter registration, driver's license address, bank statements, utility bills, and where your immediate family lives. You don't need ALL of these, but having multiple indicators helps establish genuine intent rather than just tax planning. The timing strategy can work, but make sure it's legitimate - the IRS is suspicious of obvious temporary moves solely for tax purposes. Document everything and be prepared to show genuine residential use!

good to know! saving this just in case 📝

That's really helpful to know! 4 weeks sounds reasonable. I've been checking my transcript obsessively since getting the closure notice lol. Good to know about the 5-7 days after the 846 code shows up - gives me something concrete to look for. Thanks for sharing your experience! 🙏

Great point about state differences. California is particularly problematic with these structures. They impose an LLC fee on top of the taxes that flow through to the S-Corps. Also, California doesn't always follow federal tax treatment - they've been known to challenge arrangements that are valid federally.

This is exactly the kind of practical insight I was hoping to find! The administrative burden aspect is something my accountant mentioned but didn't really elaborate on. I'm already feeling overwhelmed just thinking about maintaining separate books for three entities. Quick question on the cash flow timing - how far in advance do you typically recommend planning the distributions to ensure the S-Corps have enough cash for payroll? And are there any specific documentation requirements for the resolutions you mentioned that go beyond standard corporate formalities? I think you're right about getting a second opinion. My current CPA seems uncertain about some of these multi-entity nuances, so I might need to find someone who specializes in this area.