A practical tip from someone who sells vintage clothing: Start using inventory management software NOW before you get deeper into selling. I use a simple spreadsheet with columns for: 1. Item description 2. Date acquired 3. Original cost 4. Estimated current value 5. Storage location 6. Condition notes This makes it much easier to track your COGS and will save you massive headaches at tax time. Also, take photos of everything for insurance purposes - 3000 pairs of collectible sneakers represents a significant asset!

Great advice in this thread! I went through something similar when I transitioned from collecting vintage watches to selling them as a business. One additional consideration that hasn't been mentioned yet: make sure you're prepared for the self-employment tax implications of Schedule C income. Unlike capital gains treatment, business income from Schedule C is subject to self-employment tax (15.3%) on top of regular income tax. This can be a significant additional cost, especially if you're planning to sell $2000+ worth annually. However, the benefit is that you can deduct business expenses like storage costs, packaging materials, listing fees, even a portion of your home if you use it for storage/processing. Keep detailed records of all these expenses - they can really add up and offset some of that self-employment tax burden. Also, consider making quarterly estimated tax payments if you expect to owe more than $1000 in taxes from your sales to avoid underpayment penalties.

I'm dealing with a similar situation right now - 2 years behind on both personal and business filings. One thing I learned from my research is that the IRS actually has a Voluntary Disclosure Practice that can help reduce penalties if you come forward before they contact you. The key is getting those returns filed ASAP. I've been gathering all my bank statements and receipts, and honestly it's not as overwhelming as I thought it would be once I started organizing everything by year. For what it's worth, I called a few local CPAs and got quotes ranging from $800-1500 per year for business returns, which is way less than those TV companies were quoting me. Most said if my records are reasonably organized, they could have everything filed within 2-3 weeks. The penalty structure someone mentioned earlier is accurate - it's based on what you actually owe, not what you think you might owe. So if you end up with refunds or small balances, the penalties aren't nearly as scary as they sound.

I went through something very similar about 18 months ago - 3 years of unfiled personal and LLC returns. Those Safeway tax commercials were everywhere and honestly made me consider it out of desperation, but I'm so glad I didn't go that route. What really helped me was breaking it down year by year instead of trying to tackle everything at once. I started with the oldest year first since that's where the penalties were adding up fastest. For my LLC, I was able to reconstruct most of my business expenses just from bank statements and credit card records - it wasn't as impossible as I thought. I ended up working with a local EA (Enrolled Agent) who charged me $400 per personal return and $600 per business return. Total cost was about $3,000 to get completely caught up, versus the $8,500 quote I got from one of those relief companies. The biggest surprise was that I actually got refunds for two of the three years once everything was properly filed with all my deductions. The IRS was also much more reasonable about payment plans than I expected - they let me spread the remaining balance over 36 months with pretty low interest. My advice: skip the TV companies, find a local tax professional, and just get started. It's never as bad as your worst-case scenario brain makes it out to be.

Another important consideration that often gets overlooked is maintaining separate bank accounts and financial records for each entity throughout the entire arrangement. Even though you're dealing with related LLCs, the IRS wants to see that each entity is truly operating independently. Make sure the Property LLC has its own business checking account where rent payments are deposited, and all property-related expenses (mortgage, insurance, maintenance, etc.) are paid from that account. Your marketing agency LLC should pay rent from its own business account with proper documentation like invoices or payment memos. I'd also recommend having the Property LLC issue proper invoices to your marketing agency each month, just like any other landlord would. This creates a clear paper trail and reinforces the business relationship between the entities. Keep copies of all rent payments, invoices, and any correspondence about the lease arrangement. One more tip - consider having an annual review where you reassess the rental rate against current market conditions. Document this review process to show you're actively maintaining arm's length pricing. This ongoing diligence can be valuable if the IRS ever questions the arrangement years down the road.

Something else to consider that I learned the hard way - make sure you're prepared for potential state-level implications too. While everyone's focused on federal IRS requirements (which are definitely important), some states have their own rules about related-party transactions that can affect your state tax filings. In my state, rental income between related entities gets scrutinized during state audits, and they want to see the same arm's length documentation that the IRS requires. I had to go back and recreate some of my market research documentation when the state questioned my rental arrangement during a routine audit. Also, if either of your LLCs ever decides to elect S-Corp tax treatment in the future, the rental arrangement could have different implications. It's worth discussing this possibility with a tax professional now, even if you're not considering it currently, just so your lease agreement doesn't create unnecessary complications down the road. The formal lease agreement that others mentioned is absolutely critical - I can't stress this enough. Make sure it includes standard commercial lease provisions like maintenance responsibilities, permitted uses, and termination clauses. The more it looks like a real commercial lease between unrelated parties, the better protected you'll be if questions arise later.

Another option nobody mentioned is setting up EFTPS (Electronic Federal Tax Payment System). It's clunky and takes like 2 weeks to get set up bc they mail you a PIN, but once it's active you can schedule all your quarterly payments in advance. The verification for that was easier for me as a first-timer than the regular IRS payment site.

I went through this exact same frustration when I started my consulting business! The verification loop is so annoying when you're trying to be responsible about quarterly payments. What worked for me was using my AGI and filing status from my most recent W-2 return (2023) for the verification step. The system doesn't actually care that it wasn't self-employment income - it just needs to verify you're really you using ANY previous tax filing. If you're still stuck, try the EFTPS system that Miguel mentioned. The verification process there was slightly different and I found it easier to navigate as a first-timer. Yes, you have to wait for the PIN in the mail which is annoying, but once it's set up you can schedule all your quarterly payments for the year in one sitting. Don't let this discourage you from staying on top of your quarterlies - you're already ahead of so many freelancers by thinking about this early!

Don't forget about quarterly estimated tax payments! Since you don't have taxes withheld as a self-employed person (whatever they call you), you likely need to make quarterly payments to avoid penalties. The safe harbor is generally paying either 90% of this year's tax or 100% of last year's tax (110% if your AGI was over $150k). Missing these payments can result in penalties even if you pay everything you owe by April 15.

This is such a helpful thread! I'm dealing with a similar situation where one client calls me a "vendor" and another calls me a "contractor," but it sounds like the tax treatment is the same regardless of their internal terminology. One thing I'd add - if you're worried about documentation, I've found it helpful to keep copies of all invoices I send to clients, along with their payment confirmations and any email correspondence about the work relationship. Even if they don't send 1099s, having a clear paper trail of the business relationship can be valuable. Also, don't forget to look into business insurance if you haven't already. As a self-employed person, you might want professional liability or general liability coverage depending on your field. Some clients even require it before they'll work with you. The quarterly estimated tax payments mentioned above are crucial - I learned this the hard way my first year and got hit with penalties. Setting aside money from each payment as it comes in is definitely the way to go!