Has anyone used the online payment options for paying late taxes? I'm wondering if it's better to use IRS Direct Pay or pay with a credit card (even with the processing fee) to avoid further penalties?

One thing that might help you avoid this situation in the future - the IRS actually allows you to set up automatic payments when you file your return, even if you can't pay the full amount right away. You can schedule the payment for up to 180 days after the filing deadline, which gives you time to get the money together without incurring the failure-to-pay penalties. For your current situation, definitely make the payment ASAP since penalties and interest compound daily. The calculations others provided look accurate, but I'd also recommend calling the IRS (or using one of those callback services mentioned) to see if you qualify for any penalty relief programs. Sometimes they'll waive penalties for first-time offenders or if you have a reasonable cause for the late payment. Also worth noting - if you're going to be in a similar cash flow crunch next year, you can adjust your withholdings or make quarterly estimated payments to avoid owing a large amount at tax time.

Important heads up - if you're renting rooms in your house, check if you need a local permit or business license! I got hit with a $500 fine from my city because a neighbor complained and I didn't have the proper rental permit. Each city has different rules. Some places classify renting rooms differently than a full house rental. And some HOAs prohibit it entirely, so check your CC&Rs too.

Great thread everyone! As someone who's been doing the room rental thing for about 3 years now, I wanted to add a few practical tips that might help: 1. **Separate bank account**: Open a dedicated checking account just for rental income and expenses. Makes tracking SO much easier at tax time and shows clear separation between personal and rental finances if you ever get audited. 2. **Document everything**: Take photos of the rooms in their rented condition, keep copies of rental agreements (even informal ones with friends), and track when roommates move in/out. This helps establish your rental percentage if questioned. 3. **Quarterly estimated taxes**: Don't forget you might need to pay estimated taxes on your rental income throughout the year, especially if you're making decent money from the rooms. I learned this the hard way my first year and owed a penalty. 4. **Insurance considerations**: Check with your homeowner's insurance about renting rooms. Some policies require notification or additional coverage. Mine was fine but they wanted to know about it. The tax stuff gets easier once you establish a good system. Good luck with your rental venture!

Your accountant has been dropping the ball if they haven't been tracking your stock basis!!! That's literally S-Corp 101. Here's my understanding: Your basis starts with your initial investment. Each year, it increases by your share of income (K-1 line 1-10) and decreases by distributions (K-1 line 16). If distributions exceed basis, that excess is capital gains. The REAL issue is that S-Corp distributions must be proportionate to ownership. Taking disproportionate distributions can risk your S election or be reclassified as compensation (subject to employment taxes). Sometimes the easiest solution is just to adjust ownership percentages to match the economic reality of how profits are being distributed. If you consistently take 10% of profits, maybe you should own 10%, not 1%. Talk to a tax attorney (not just an accountant) about this. There are legitimate ways to handle this situation but they need proper documentation.

This is exactly the kind of S-Corp situation that trips up so many small business owners! You're definitely not alone in this confusion. The key thing to understand is that you can't just treat distributions as "expenses" to reduce profits before K-1 calculations. S-Corp profits flow through to shareholders based on ownership percentage regardless of actual cash distributions taken. Here's what I'd recommend as next steps: 1. **Reconstruct your stock basis ASAP** - Start with your original investment, add your cumulative share of S-Corp income from all K-1s since 2008, subtract all distributions you've taken. This determines whether excess distributions are taxable as capital gains. 2. **Consider increasing your salary** - This IS a legitimate business expense that reduces corporate profits. Just make sure it's "reasonable" for services performed or the IRS might reclassify future distributions as wages. 3. **Document any excess as shareholder loans** - If you're taking more than your proportionate share, properly document the excess as loans from the corporation to you, with reasonable repayment terms. This avoids the disproportionate distribution issues. 4. **Evaluate ownership restructuring** - If you consistently need more than 1% of cash flow, maybe your ownership percentage should reflect the economic reality. The management company structure another commenter mentioned is interesting but complex. I'd definitely run that by a tax attorney before implementing. Your accountant should have been tracking basis all along - this is basic S-Corp compliance. You might want to get a second opinion from someone who specializes in S-Corp taxation.

I just wanted to add my perspective as someone who went through this exact situation about 6 months ago. The Code 420 dependent verification really threw me off initially because nobody explains that "examination" and "audit" have different technical meanings in IRS-speak. What really helped me was creating a simple spreadsheet tracking all my dependent-related expenses for the year - things like medical copays, school fees, clothing purchases, etc. I didn't need to provide every single receipt, but having that organized overview made it much easier to demonstrate that I was providing more than 50% support. One tip I haven't seen mentioned yet: if you have any joint custody situations or complex family arrangements, include a brief written explanation along with your documents. The IRS reviewers appreciate context, especially when living situations aren't straightforward. My timeline was almost exactly 9 weeks from mailing to resolution, and my full refund was released once they completed the verification. The waiting is definitely the hardest part, but it sounds like you have all the right documentation ready to go. Just remember - they're not trying to deny legitimate claims, they're just verifying eligibility due to increased scrutiny on tax credits. You've got this!

I went through this exact same Code 420 verification process about 4 months ago and can definitely relate to the confusion about terminology! The IRS rep was absolutely right - it's technically an "examination" but it's really just dependent verification, not a full audit of your entire return. Here's what worked for me: I created a simple checklist based on the letter they sent and gathered documents for each requirement. For relationship proof, I used birth certificates. For residency proof, I included school enrollment records and medical records that showed my address. For support proof, I gathered receipts for major expenses like daycare, medical copays, school supplies, and even some grocery receipts to show I was covering daily needs. The process took exactly 7 weeks from when I mailed everything back (certified mail with return receipt) to when my refund was released. One thing that really helped was including a brief cover letter that said something like "Enclosed please find the requested documentation for my Code 420 dependent verification" and then listed each document and which child it pertained to. Don't stress too much about having perfect documentation for every single expense - they understand that families don't keep receipts for everything. Focus on showing clear proof of relationship, that the kids live with you, and that you're providing their primary financial support. You already have the key documents gathered, so you're well-prepared! The waiting is definitely the hardest part, but these verifications are routine and straightforward when you respond promptly with organized documentation.

Word of warning from someone who's been mining for 3 years - keep EXTREMELY detailed records of when you started using each piece of equipment. I got audited last year because my electricity deductions seemed high, and I had to prove when each GPU was put into service for proper depreciation. The IRS agent also wanted to see pictures of my setup to verify it was actually used for business. Not trying to scare anyone, just emphasizing good record keeping!

Great thread everyone! As someone who just started mining last month, this is incredibly helpful. I wanted to add that if you're using multiple mining pools (like I am with NiceHash and Ethermine), make sure to track which coins came from which pool since they may have different fee structures that affect your deductions. Also, for those asking about solar panels - I'm in the planning stages for a solar setup specifically for mining. From what I've researched, you can potentially stack the federal solar tax credit (30%) with business deductions for the mining portion, but definitely get professional advice on this since it's complex. The IRS has specific rules about how to allocate costs between personal and business use of solar installations. One more tip: if you're mining in a state with net metering, keep detailed records of how much power you're feeding back to the grid versus consuming for mining. This affects both your tax calculations and potential income reporting if you're getting credits from the utility company.