Slight tangent but still relevant - make sure you understand the difference between a patent filing and a patent being granted. They're different stages in the process. Some companies pay when patents are filed, others only when they're granted (which can take years), and some pay at both stages. Might be worth checking if you'll get another payment if/when the patent is actually granted!

Just to add another perspective on the QBI question - I went through something very similar with software patents from my previous job. The key thing I learned is that the IRS looks at the "origin" of the income, not just how it's currently being paid. Since you developed the patented technology as part of your regular job duties while employed, the royalty payments are considered to have their origin in your employment relationship. This disqualifies them from QBI treatment regardless of the 1099-MISC classification. I'd also suggest keeping good records of when you actually did the work that led to the patent (dates, whether it was during work hours, etc.). While it probably won't change the QBI outcome, it could be helpful if there are ever questions about the proper tax treatment. The bright side is that at least it's not subject to self-employment tax since it's not from an active business!

Just want to add something important that nobody's mentioned yet. If your business is primarily providing personal services (like consulting), the IRS scrutinizes S Corp arrangements MUCH more closely. Look up "personal service corporation" rules. In your case, because the business value comes largely from you and your partner's personal expertise rather than equipment/inventory/employees, the IRS expects a higher percentage of profits to be paid as salary. I've seen cases where the IRS has reclassified ALL distributions as wages for businesses like law firms, medical practices and IT consulting where owners tried to take minimal salaries with large distributions. Document everything about how you determined your salary is "reasonable" - industry surveys, comparable positions, etc. Much safer to err on the side of higher wages, especially in service businesses.

Something nobody's mentioned - the S Corp strategy works best when there's significant profit ABOVE what would be considered reasonable salary. If you're only making $120k total in the business and reasonable salary is $100k, the hassle of S Corp maintenance probably isn't worth the small tax savings. But at $375k with two owners, you're definitely in the sweet spot where this strategy makes sense, even with higher reasonable salaries than you initially planned. Just budget for proper accounting help - S Corps require more formal accounting, separate payroll processing, and have stricter compliance requirements than LLCs. The additional costs can eat into your savings if you're not prepared for them.

Remember that if you're shutting down the business entirely, you'll need to file a final return. Make sure to check the box indicating it's a final return and include a statement explaining the closure. Don't forget to cancel any business licenses, permits, and close business accounts properly too. I learned the hard way that loose ends with a business closure can come back to haunt you years later!

One thing to consider that hasn't been mentioned yet - if you're selling the equipment to your brother (the former partner), this could actually be viewed more favorably by the IRS than selling to other family members. Since he was an original co-owner of the equipment through the partnership, there's already an established business relationship and legitimate reason for the transaction. Just make sure you have documentation from when he left the partnership showing how the assets were divided. If the partnership agreement or dissolution documents don't clearly address the equipment, you might want to create a written agreement now that references the original purchase and his departure from the business. Also, regarding the gain recognition - yes, you'll need to report it on Form 4797 as others mentioned, but the good news is that since this was Section 179 property, the recapture will be taxed as ordinary income (not capital gains), which actually keeps the reporting simpler even though the rate might be higher.

I'm a little confused about something - did you cash out the policy or surrender it completely? There's a difference, and it matters for taxes. Did you terminate the policy entirely or just withdraw some of the cash value while keeping the policy active?

Your agent is definitely using a sales tactic. The "half will be taxed" claim is completely misleading. Here's the reality: You're only taxed on the amount that exceeds what you paid in premiums (your basis). Since you've been paying $75/month since 2019, that's about $4,500 in premiums over 5 years. If your cash value is $4,000, you actually have NO taxable gain - you might even have a small loss. The agent's claim about needing to "transfer" the money to avoid taxes is bogus. There's no special tax shelter for reinvesting life insurance proceeds with the same company or any other company. Tax liability is determined by your gain/loss calculation, not where you put the money afterward. I'd suggest getting your exact premium payment history from Allstate before making any decisions. You might be pleasantly surprised to find you owe little to no tax on this distribution. Don't let pushy sales tactics rush you into investment products you don't need.

don't overthink this! i've been a single-member llc for 6 yrs on my wife's insurance. the insurance company doesn't care about your business structure - they only care that you're legally married to the employee. my wife's HR said it's actually super common. the only time it gets tricky is if ur business grows and you want to offer your OWN health insurance plan. but for a one-person shop just starting out, ur totally fine!

I'm in a very similar situation and was worried about the same thing! I've been on my husband's insurance for years while running my freelance graphic design business as a sole proprietor. The key thing I learned is that your eligibility for spousal coverage is based on your marital status, not your employment status or business structure. When I first started my business, I called his HR department just to double-check, and they confirmed that as long as I'm his legal spouse, I can stay on the plan regardless of whether I'm unemployed, self-employed, or have my own business. The only thing that would potentially change this is if his employer has very specific policies about it (which is rare), or if you eventually grow your business large enough to offer your own group health plan. One tip: keep really good records of any business-related health expenses since you might be able to deduct some of them on your Schedule C. Good luck with your new venture - it's so nice to have that security of knowing your health coverage is stable while you're building something new!