I went through this exact same situation two years ago! You definitely need to pay quarterly taxes on that income even without the LLC formed yet. The IRS doesn't care about your business structure - they care about the income you're earning. With $3,500 so far this year, you're likely looking at owing around $500-700 in self-employment tax alone (that's the Social Security/Medicare tax at 15.3%), plus regular income tax on top of that. If you expect to make more throughout the year, you could easily hit that $1,000 threshold that triggers the quarterly payment requirement. My advice: don't wait until you form the LLC. Calculate your estimated taxes now using Form 1040-ES and make the payment. You can always adjust future quarters once your LLC is formed. The penalties for underpayment can be way more expensive than just paying a bit extra now to be safe. Also, keep those spreadsheets organized! You'll need them for Schedule C when you file, whether you're still a sole proprietor or have formed the LLC by then.

Great question! As someone who's helped many clients through this transition, I want to clarify a few key points that might save you some headaches. First, regarding the $500-700 self-employment tax estimate - that would be roughly what you'd owe for the full year if you only made $3,500 total. But since you're asking about quarterly payments, you need to project your full-year income. If you think you'll make $10,000+ this year, you're looking at significantly higher tax obligations. For quarterly payments, you should estimate your total annual business income, then pay 25% of your expected annual tax liability each quarter. Don't just base it on what you've earned so far - the IRS wants you to pay as you earn throughout the year. Regarding the LLC transition mid-year: it's actually pretty seamless for tax purposes. You'll report all your business income for the entire year on Schedule C, whether it was earned as a sole proprietor or after LLC formation. The LLC formation date doesn't create a tax filing break - it's all one continuous business year on your personal return. One tip: if you're unsure about your projections, it's often safer to pay a bit more in estimated taxes rather than underpay. You'll get any overpayment back as a refund, but underpayment penalties can be costly and annoying to deal with.

I've been through this exact scenario with multiple S-Corp clients who received economic development grants. Since your grant agreement explicitly states the funds are non-taxable, you're absolutely correct to use the M-1 adjustment approach. Here's what I recommend: On Schedule M-1, line 5, include the total grant amount received in 2022 as "Non-taxable economic development grant income" - this removes it from taxable income. For the unspent portion sitting in restricted cash, make sure it's properly classified on your balance sheet as restricted cash with a corresponding liability or deferred revenue account until the funds are actually spent on qualifying expenses. The key is documentation. Attach a statement to your return that includes: 1) Grant source and purpose, 2) Total amount received, 3) Amount spent on qualifying expenses in 2022, 4) Remaining restricted balance, and 5) Reference to the specific grant agreement clause stating it's non-taxable. This creates a clear paper trail and shows the IRS you've thoughtfully considered the tax treatment. One important note: Make sure you're tracking which expenses were paid with grant funds versus your own funds, as this can affect deductibility and basis adjustments for any assets purchased.

I'm dealing with a similar grant situation and want to add one important consideration that hasn't been mentioned yet - make sure you understand the "clawback" provisions in your grant agreement. Many economic development grants require you to maintain certain employment levels or other conditions for a specified period after receiving the funds. If there's a possibility you might have to return some of the grant money due to not meeting future requirements, you may need to consider whether setting up a contingent liability on your balance sheet makes sense. This doesn't change the M-1 treatment for the current year, but it's good practice to document potential future obligations. Also, since you mentioned this is for job creation in an enterprise zone, double-check if your state offers any additional tax credits that coordinate with the grant. Sometimes these programs stack, and you don't want to miss out on legitimate tax benefits while you're sorting out the grant reporting.

Man, the IRS needs to get with the times. In this day and age, we should be able to access all this info online easily. SMH 🤦‍♂️

Pro tip from someone who's been through this nightmare - if you applied online, try logging back into the IRS website with the same credentials you used. Sometimes the EIN is still visible in your application history. Also, check your bank statements from around that time - if you paid any fees, it might help you narrow down the exact date you applied, which could help when you call the IRS. They can search by application date if you have it!

The comments about paper filing are correct, but one thing nobody's mentioned - if your 2021 return is simple enough, you can use the IRS Free File Fillable Forms even for 2021. You still have to print and mail, but it's easier than doing the forms by hand. Go to IRS.gov and search for "prior year forms" - you can download everything you need. And remember to use your 2021 address on the forms if you've moved since then! That trips up a lot of people.

I was in the exact same situation last year with my 2020 return! After trying every major tax software (TurboTax, H&R Block, FreeTaxUSA, etc.), I can confirm that none of them support e-filing for returns that old anymore. The cutoff seems to be around 2-3 years max. Here's what worked for me: I ended up using the IRS Free File Fillable Forms that someone mentioned, which let me complete everything electronically and then print clean copies. Way better than handwriting forms! The key things that made my paper filing go smoothly: - Used a large 9x12 envelope so nothing got folded - Sent everything certified mail with tracking - Included a cover letter explaining it was a prior year return - Made sure to sign with actual ink (apparently their scanners work better with real signatures) My refund took about 5 months to process, which was actually faster than I expected based on what I'd read online. And yes, I did get interest payments on top of my refund since it was for a prior year - that was a nice surprise! Don't let the paper filing discourage you from claiming your money. It's tedious but totally worth it if you're owed a refund.

I'd actually been handling this wrong on my returns for years until my return was audited in 2023. The IRS was very clear: each tier maintains its own character. My CPA had to prepare a detailed analysis for each entity where I claimed material participation. For partnerships where I was just a limited investor (even though they were held by my materially-participating HoldCo), the income remained passive. The IRS agent specifically referenced Reg 1.469-2(f) and said HoldCo's active management doesn't "cleanse" the passive character of the income from lower tiers.

This is exactly the type of complex flow-through situation that trips up many taxpayers. The consensus here is correct - your material participation in HoldCo doesn't convert the passive income from the underlying entities where you're a limited partner. I'd recommend keeping detailed records of your participation hours for each entity separately, since the IRS will look at material participation on an activity-by-activity basis. Also consider whether you might benefit from grouping elections under Reg 1.469-4 if you have multiple similar activities, but this requires careful planning and proper elections. One thing to watch out for: make sure your K-1s from HoldCo properly reflect the passive/nonpassive character of the income as it flows through. Sometimes holding entities don't correctly maintain the character codes, which can create issues if you're ever audited.