One additional consideration that might be helpful - make sure to review your S-corp election timing and any potential Section 1202 Qualified Small Business Stock (QSBS) benefits. If your LLC made the S-corp election early enough and you've held your interest for at least 5 years, you might qualify for the QSBS exclusion which could eliminate federal taxes on up to $10 million of the gain (or 10x your basis, whichever is greater). This would be even better than just avoiding the 3.8% NIIT - it could potentially eliminate the entire federal capital gains tax on your $875K gain. The QSBS rules are complex and have specific requirements around when the election was made, the type of business, and how the stock was acquired, but it's definitely worth having your accountant review this when they return. Also, since you mentioned multiple owners, each owner can potentially claim their own $10M QSBS exclusion, so the total benefit for your group could be substantial. This is one of those situations where the entity structure (LLC electing S-corp treatment) might actually work in your favor for tax planning purposes.

Looking at your situation, you're in a really strong position to avoid the 3.8% NIIT on your $875K gain. Since you've been actively involved in running the business since 2018, you almost certainly meet the material participation requirements that exempt you from NIIT. A few key points based on the great discussion above: **Material Participation** - With 6+ years of active involvement, you likely qualify under multiple tests (500+ hours annually, substantially all participation, or the 5-of-10 years test). The LLC/S-corp structure doesn't change this fundamental exemption. **Documentation Priority** - Start gathering evidence of your participation NOW: emails showing business decisions, calendar entries, meeting minutes, travel records, contracts you signed, etc. Even without perfect hour logs, multiple types of evidence showing consistent involvement will be convincing. **QSBS Potential** - This could be huge! If your LLC made the S-corp election early and you've held your interest since 2018, you might qualify for Section 1202 QSBS exclusion. This could eliminate federal taxes on your entire $875K gain (not just the 3.8% NIIT). Given the potential $131K+ in tax savings, consider having your accountant prioritize this analysis even if they're on vacation. **Next Steps** - Gather all formation documents, S-corp election paperwork, and ownership records. Document your business activities timeline. If QSBS doesn't apply, the material participation exemption alone should save you about $33K in NIIT. With the sale in 6 weeks, time is critical but you have multiple strong paths to significant tax savings. This is definitely worth expediting professional review!

Ok so here's my actual timeline from last year when I had to verify ID for state (North Carolina): - Filed Feb 10 - Got letter requesting verification March 15 - Sent docs March 20 - Called April 25 (couldn't get through) - Finally got through May 2 (used claimyr.com after wasting days trying to call) - Was told docs were received and being processed - Refund deposited May 12 So about 7.5 weeks total from sending docs to getting money.

I'm going through the exact same thing right now! Filed in early February, federal came through fine but state is doing the whole ID verification dance. The uncertainty is killing me - I keep checking the status tracker obsessively even though it never changes. Reading through everyone's experiences here, it sounds like Michigan can be pretty slow with this stuff. I'm trying to stay patient but it's hard when you're counting on that money. At least we're not alone in this frustrating process! Hopefully both our refunds come through soon. Keep us posted on how it goes for you!

Has anyone filed a Form 709 electronically? When I go through TurboTax or H&R Block software, they seem to handle income tax returns but not gift tax returns. Am I missing something, or do these forms still need to be filed on paper?

Great question about Form 709! I went through this exact situation last year when I sold my townhouse to my nephew for $180k when it was worth $420k. One crucial detail that hasn't been mentioned yet - make sure you understand the timing requirements. Form 709 is due by April 15th of the year following the gift (so April 15, 2025 for your 2024 transaction). However, if you request an extension for your income tax return, it automatically extends your Form 709 deadline to October 15th. Also, since your gift amount ($405k) exceeds the 2024 annual exclusion of $18,000, you'll definitely need to file Form 709 even if you don't owe any gift tax due to the lifetime exemption. The IRS wants to track these large gifts against your lifetime exclusion amount. One more tip - if this is your first Form 709, make sure to include a clear cover letter explaining the transaction. The IRS appreciates transparency, and it can help avoid follow-up questions later.

I'm just starting to deal with manufactured spend and got my first Square 1099-K this year for about $2,800. Reading through all these responses has been incredibly reassuring - I was panicking thinking I'd have to pay taxes on money that was just cycling through my own accounts! The consistent advice about reporting on Schedule C with offsetting expenses makes perfect sense. I'm glad I found this thread before trying to figure it out on my own or potentially making the mistake of not reporting the 1099-K at all. One question for the group: for someone just getting started with this process, would you recommend getting everything organized first and then filing, or is it better to file and then organize documentation in case of questions later? I'm a bit of a perfectionist and want to make sure I handle this correctly from the start. Also, has anyone had experience with tax preparers who are familiar with MS activities? My usual CPA seemed confused when I mentioned manufactured spend, so I'm wondering if I should find someone more specialized or just handle it myself using the approach outlined here. Thanks to everyone who shared their experiences - this community is incredibly helpful for navigating these unique tax situations!

I've been lurking here for a while but finally decided to post since I'm in almost the exact same situation as the original poster. Got hit with a Square 1099-K for about $4,100 in MS activity and was completely freaking out until I found this thread. The consistency in everyone's advice is really reassuring - report it on Schedule C with offsetting expenses and keep detailed documentation. I've already started creating the transaction spreadsheet that several people mentioned, tracking each gift card purchase through to the Square processing and bank deposits. One thing that's giving me confidence is seeing actual examples from people who've been through audits (like Sean O'Brien's correspondence audit experience) and came out fine with proper documentation. It really drives home that transparency and good record-keeping are the keys to handling this correctly. For anyone else in a similar situation reading this - this thread has been incredibly valuable. The advice to treat it like legitimate business record-keeping even though it's just personal fund cycling makes perfect sense and seems to be the approach that consistently works. Thanks to everyone who shared their experiences and specific strategies. It's made what seemed like a scary tax situation much more manageable!

I just went through this process myself a few months ago after having my EIC disallowed in 2022. The advice here is spot on - Form 8862 definitely needs to be attached to your Form 1040 and mailed together to your state's processing center address (you can find this in the Form 1040 instructions). I was really anxious about the whole thing, but it worked out fine in the end. A few tips from my experience: make sure you answer every question on Form 8862 completely, even the ones that seem obvious, and double-check that all your supporting documents match what you're claiming on the form. I also recommend making copies of absolutely everything before you mail it. The processing time was longer than usual - took about 10 weeks total for me - but I did eventually get my full refund. One thing that helped ease my anxiety was tracking the certified mail delivery, so I knew for sure the IRS received my package. Good luck with your recertification!

I'm new to this whole EIC recertification process and feeling pretty overwhelmed, but reading through everyone's experiences here has been incredibly helpful! It sounds like the consensus is crystal clear: Form 8862 must be attached to Form 1040 and mailed together to your state's regular processing address. I'm definitely planning to send mine certified mail for tracking purposes. One thing I'm curious about - has anyone had issues with specific sections of Form 8862 that tend to trip people up? I want to make sure I don't make any mistakes that could delay processing even further. Also, for those who have been through this successfully, did you include a cover letter explaining the situation, or just let the forms speak for themselves? Thanks to everyone sharing their real-world experiences - it's so much more helpful than trying to decipher the IRS instructions alone!