Has anyone used a PEO (Professional Employer Organization) to help determine reasonable compensation? My business is hitting around $600k/yr and I've heard PEOs can provide market data to support your salary decisions plus handle all the payroll compliance stuff.

This is such a timely question! I'm in a very similar situation - just converted to S Corp this year with around $680k revenue from my marketing consulting practice. After reading through all these responses and doing my own research, I ended up settling on about 45% of profits as my salary ($290k on roughly $650k profit). What really helped me was creating a detailed job analysis document that my CPA recommended. I listed out every single responsibility I have - from client acquisition and strategy development to project management and delivery. Then I researched what companies would pay for a VP of Marketing or Marketing Director with my experience level in my metro area. The documentation piece everyone mentioned is crucial. I keep quarterly reviews of my compensation decision with updated market data. One thing I learned is that the IRS doesn't have a magic percentage they're looking for - they want to see that you made a good faith effort to pay yourself what you'd pay an outsider to do your job. For anyone still figuring this out, I'd recommend starting with industry salary surveys from places like PayScale, Glassdoor, and Robert Half. Document everything and review it annually as your business grows. Better to err on the side of slightly higher compensation than risk an audit fight later!

I'm confused about something - if the employer took the money pre-tax but then only reported half of it as Cafe 125, wouldn't that mean her W-2 wages are wrong? Like they reduced her pay by the full amount but only gave her tax benefit for half?

This is a frustrating situation that unfortunately happens more often than it should. Based on what you've described, there are really two separate issues here that need to be addressed: 1. **The W-2 reporting**: If your sister-in-law's paystubs show the full double amount was deducted pre-tax, but her W-2 only shows half in the Cafe 125 box, then her taxable wages are likely incorrect. She's essentially being taxed on money she never actually received. 2. **The refund**: The employer owes her a refund for the excess premiums they incorrectly withheld. Since it's already February and they've been unresponsive since October, I'd suggest a multi-pronged approach: - Document everything: Keep copies of all paystubs, communications with HR, and the current W-2 - File her taxes based on the W-2 she received (the IRS matches returns to W-2s) - Continue pursuing the employer for both the refund AND a corrected W-2 if needed - Consider escalating within the company (beyond HR to senior management) - If they remain unresponsive, file a wage complaint with your state's Department of Labor The key thing to remember is that this isn't really a tax deduction issue - it's an employer payroll error that needs correction at the source.

I'm confused about something - do I need to set up a separate user account on my laptop for business vs personal use to prove the percentage? Or is that overkill?

One thing I haven't seen mentioned yet is that you should also keep receipts and documentation for the actual purchase of your laptop and monitor. The IRS will want to see proof of the cost basis for your deduction calculations. Also, since you're transitioning from using a work laptop to purchasing your own, make sure you can clearly show when you started using your personal equipment for business purposes. This becomes important for the depreciation timeline if you go that route instead of Section 179. I'd recommend taking photos of your setup and keeping a simple log of when you first started using it for your 1099 work. Having that paper trail makes everything much smoother if you ever get audited.

I've been through the exact same F1 visa tax confusion and want to add some clarity to the great advice already given here. The key thing that helped me understand this was realizing there are actually TWO separate tests working together: 1. **The 5-year exemption rule**: Your first 5 calendar years in F1 status (2013-2017 for you) automatically make you a nonresident alien, regardless of days present. 2. **The Substantial Presence Test**: Starting in 2018, you calculate using the weighted formula. Based on your numbers, you'd likely be a **resident alien** for 2020 tax purposes (Form 1040), but here's what saved me: the **closer connection exception** via Form 8840. Since you were present less than 183 days in 2020 (only 159), and it sounds like you maintained strong ties to your home country, you can likely still elect to be treated as a nonresident. The bank account, family home, and voter registration you mentioned would be strong evidence. **Important warning**: You'll probably need to review 2018 and 2019 too. I made the mistake of filing as nonresident those years when I should have been resident, and had to file amended returns. It was a pain but ultimately got me a refund! My advice: Get help from a tax pro who specializes in international student taxes. The potential amended returns and Form 8840 elections can get tricky, and you want to make sure you're doing everything correctly to avoid future IRS issues.

As someone who went through this exact F1 visa tax maze a few years ago, I can tell you that you're asking all the right questions! The confusion is totally understandable because the rules are genuinely complex. Based on your timeline, here's what I learned when I was in your shoes: **Your 5-year exempt period**: 2013-2017 were your exempt years as an F1 student. During these years, you were automatically a nonresident alien regardless of how many days you were present. **For 2020**: Starting in 2018, you begin using the Substantial Presence Test. Your calculation would be: - 2020 days: 159 - 2019 weighted (÷3): 73.7 days - 2018 weighted (÷6): 36.3 days - **Total: 269 days** Since this exceeds 183 days AND you were present more than 31 days in 2020, you'd technically be a **resident alien** for 2020 tax purposes and should use **Form 1040**. **BUT** - and this is important - since you were present less than 183 days in 2020 (only 159) and it sounds like you maintained strong ties to your home country, you might qualify for the **closer connection exception** using Form 8840. This would let you elect to be treated as a nonresident. **Red flag**: You should also check 2018 and 2019. I made the mistake of filing as nonresident those years when I was actually a resident alien under the test. Had to file amended returns, but it worked out fine. My recommendation? Find a tax professional who specializes in F1 visa situations. The potential amended returns and Form 8840 can get tricky, and you want to get it right the first time!

Honestly, the backdoor Roth process is unnecessarily complicated. I've been doing them for years and here's my simplified approach: For each person: 1. Contribute to traditional IRA 2. Convert to Roth 3. File Form 8606 for each person who did a conversion The key thing that messes people up is when the value changes between contribution and conversion. If you convert quickly there's minimal growth (or loss). Make sure you track your "basis" (non-deductible contributions) correctly or you could end up paying tax twice on the same money!

This is exactly the kind of situation where getting professional help pays off, even if it costs a few hundred dollars. Form 8606 mistakes can be really expensive down the road. One thing I don't see mentioned yet - make sure you keep detailed records of all your IRA transactions with dates and amounts. The IRS can ask for documentation going back several years, especially with basis tracking on Form 8606. Also, for future years, consider timing your conversions closer to your contributions to minimize any growth between the two events. Even small amounts of growth can complicate the paperwork significantly. If you're doing regular backdoor Roths, it might be worth setting up a system or spreadsheet to track everything year over year. The basis calculations get more complex as time goes on, especially if you have multiple IRAs or miss filing a Form 8606 in any given year.