Great discussion here! Just wanted to add another perspective as someone who's been running an S Corp for 5 years. The salary vs distribution strategy really does work, but documentation is key. I keep detailed records showing how I determined my "reasonable salary" - industry salary surveys, job postings for similar roles, and notes from my accountant. One thing I learned is to be conservative in your first couple years. The IRS seems to pay more attention to newer S Corps, especially those with large distribution-to-salary ratios. I started with a higher salary percentage and gradually optimized it as my business matured. Also, make sure your corporate formalities are solid - separate bank accounts, proper board resolutions, etc. The IRS is more likely to respect the S Corp structure if you actually treat it like a corporation. The tax savings are real though - I save about $8,000-10,000 annually in self-employment taxes compared to when I was a sole proprietor.

As a tax professional, I want to emphasize something that's been touched on but bears repeating: the "reasonable salary" requirement is absolutely critical and the IRS takes it seriously. I've seen too many S Corp owners get into trouble by trying to minimize their salary too aggressively. For web design services at your revenue level, $65K is likely in a good range, but you should document how you arrived at that number. Look at Bureau of Labor Statistics data, industry salary surveys, and local job postings for similar roles. The IRS uses a "facts and circumstances" test that considers your education, experience, time devoted to the business, duties performed, and what an independent third party would pay for the same services. One red flag the IRS watches for is a very low salary relative to distributions - if you're paying yourself $30K but taking $120K in distributions, that's going to raise eyebrows. Your current split seems reasonable. Also remember that reasonable compensation can change as your business grows - if you're generating significantly more revenue in future years, your salary should probably increase accordingly. The tax savings are real and legitimate when done properly, but always err on the side of caution with salary levels. The penalties for getting it wrong can be substantial.

I went through something very similar with an LTR 672C last year. The key thing to understand is that this letter means the IRS has determined you received more refund than you were entitled to, and they're now applying that "overpayment" to cover other tax obligations. Based on what you've described, it sounds like you might have unreported income from 2018 that the IRS recently matched up with their records. This is actually pretty common - they get 1099s and W-2s from employers/clients and use automated systems to cross-reference them with your filed return, sometimes years later. My advice: Don't panic, but don't ignore it either. Pull your 2018 wage and income transcript from the IRS website (irs.gov) to see exactly what income was reported under your SSN that year. Compare that to what you actually reported on your return. You'll likely find the missing piece of the puzzle there. If you do find unreported income, you'll need to file an amended return (Form 1040X) for 2018. The good news is that if your overpayment covers the additional tax owed, you might just owe some interest rather than penalties. Make sure to respond within the timeframe specified in the letter - usually 30-60 days.

Just wanted to add one more important point that I learned the hard way - when you file that amended return (1040X) for the unreported income, make sure you include Form 8857 if you're married filing jointly and your spouse wasn't involved in the unreported income. This can help protect your spouse from penalties and interest. Also, keep detailed records of everything - copies of the original LTR 672C, your wage and income transcripts, the amended return, and any correspondence with the IRS. If they send you additional notices (which sometimes happens even after you've resolved things), having this paper trail makes everything much easier to sort out. One last tip: if you're planning to use a tax professional for future returns, now might be a good time to establish that relationship. They can review your amended return before you file it and help prevent similar issues in the future. Many people don't realize that even small freelance jobs or side gigs need to be reported if you receive a 1099.

Question for anyone who's gone through this - did you use a CPA or just tax software for catching up on multiple years? I'm in a similar boat (5 unfiled years) and wondering if it's worth paying a professional or if software is good enough for straightforward W-2 income.

Miguel, I was in almost the exact same situation as you about 2 years ago - 7 unfiled years, also went through a divorce that triggered the whole mess. The good news is that since you've had taxes withheld and likely qualify for refunds, you're not going to face the scary penalties that people who owe money get hit with. Here's what worked for me: Start with the most recent 3 years FIRST since those are the only ones where you can still claim refunds. I used FreeTaxUSA for the older years since they have previous year software available for cheap (like $15 per state return). For the really old years where you've lost the refund window, you still need to file them but there's less urgency. Don't stress about hiring a tax attorney - that's overkill for your situation. A CPA could help but honestly if it's just W-2 income, you can handle this yourself. The IRS is actually pretty reasonable when you're catching up voluntarily and not hiding from them. The hardest part is just starting. Once you file that first return, the momentum builds and it gets easier. You've got this!

Sorry to butt in, but I had a similar issue and I think you're overthinking this. My FAFSA appeal just needed proof of income change, not specifically a "termination letter." I submitted my dad's old 1099s, recent bank statements showing no more deposits from that company, and a simple letter he wrote explaining when and why his contract ended. The financial aid office approved it no problem. They deal with independent contractors all the time - they know you guys don't get formal termination letters! Just call your financial aid office directly and ask what alternative documentation they'll accept instead of focusing on this one document.

I went through this exact situation last year with my mom who was also a 1099 contractor! Your dad is partially right - companies aren't legally required to provide termination letters to independent contractors like they do for employees. But that doesn't mean you're stuck. Here's what worked for us: Instead of asking for a "termination letter," we requested a simple "confirmation of contract period" email. Companies are often more willing to provide basic dates since it's just confirming facts, not making any statements about termination reasons. For your FAFSA appeal, gather these documents: - Your dad's most recent 1099 form showing his previous income - Bank statements from the last 6 months showing when payments from that company stopped - Any final invoice he sent that wasn't paid or was the last one - A simple written statement from your dad explaining when and why the contract ended Most financial aid offices understand that 1099 workers don't have the same documentation as W-2 employees. Call your school's financial aid office directly and explain the situation - they likely have standard procedures for exactly this scenario. Don't let the two-week deadline stress you out too much; they deal with contractor income changes all the time and know what alternative documentation works. Good luck with your appeal!

Has your partner actually received the refund yet with the child tax credit? If not, might be easier for her to just cancel the current return and refile correctly rather than doing an amendment. Much faster.

I went through this exact situation two years ago with my ex-wife. Here's what I learned from the experience: First, definitely file that paper return before April 15th - don't wait for her amendment to process. The IRS will sort out the duplicate claims during their review process. Make sure to include a cover letter explaining the situation and attach documentation showing you're entitled to claim your child (like records of financial support, school enrollment showing your address, medical records, etc.). One thing that helped speed up my case was keeping detailed records of everything - dates of when her amendment was filed, confirmation numbers, copies of all documents. When the IRS eventually contacted me (which they did about 8 weeks later), I had everything ready to go. Also, be prepared that even though she filed an amendment, the IRS might still send both of you letters asking for proof of who's entitled to claim the child. This is standard procedure when there are conflicting claims. Having your documentation ready will make this process much smoother. The whole thing took about 3 months to fully resolve in my case, but I did get my full refund including the child tax credit. Just stay patient and keep good records of everything.