Just be careful about taking distributions without paying yourself a reasonable salary first. The IRS really scrutinizes this with S Corps since it's a common area of abuse. If they determine your salary is unreasonably low, they can reclassify all those distributions as salary retroactively and hit you with back taxes and penalties.

I was in a very similar situation when I started my consulting practice! One thing that really helped me was understanding that the "reasonable salary" doesn't have to be perfect from day one - you can adjust it as you learn more about your business. Since you're already bringing in consistent $8k/month from consulting, I'd suggest starting with around $4,500-5,000 monthly salary (which aligns with what others have suggested) and then taking distributions for the remainder as needed for your living expenses. The key is being able to justify your salary if questioned. Document comparable salaries for consultants in your field and location - sites like Glassdoor, PayScale, or even job postings can help establish what someone with your skills would earn as an employee. Also, don't let the money just sit there stressing you out! You can absolutely start paying yourself through a payroll service like Gusto while you wait for your CPA to have more availability. Just keep good records and be prepared to adjust if they recommend something different later.

Don't forget to check if your state has also assessed late filing penalties! I went through this exact thing last year, got the federal penalty abated through reasonable cause, and then two months later got hit with state penalties for the same late filing. Had to go through the whole process again with the state tax agency.

Just wanted to share that I went through something very similar with my partnership return last year. We had delayed 1099s from a major client who completely messed up their year-end reporting, and I ended up with a $1,800 penalty for filing 6 weeks late. I wrote my own reasonable cause letter and it worked! The key things I included were: 1) A clear timeline showing when we should have received the 1099s vs when we actually got them, 2) Documentation (emails) showing we had requested the forms multiple times, 3) Proof that we filed immediately upon receiving the missing documents, and 4) Our clean compliance history for previous years. I addressed the letter to the correspondence address on the penalty notice, included all our partnership details, and sent it certified mail. It took about 8 weeks, but they fully abated the penalty. The IRS agent I eventually spoke with said that third-party document delays are actually one of the most common and accepted reasonable cause situations. Don't let the CPAs scare you into thinking this is too complicated to handle yourself - if you can clearly explain what happened and provide some basic documentation, you have a really good shot at getting this resolved without paying professional fees that exceed the penalty amount.

One thing nobody's mentioned - if you're exercising underwater ISOs, make sure to check if your company might offer a re-pricing or exchange program. Some companies will cancel underwater options and reissue at a lower strike price, which might be better than exercising underwater options. Worth asking your HR or stock admin before making any moves.

Great discussion everyone! I've been dealing with a similar underwater ISO situation and wanted to add one more consideration that helped me make my decision. Even though there's no immediate AMT impact for exercising underwater ISOs, you should also factor in your company's 10-year option expiration timeline. In my case, some of my underwater ISOs were granted 7+ years ago and were approaching expiration. Since there's no tax penalty for exercising underwater, I decided to exercise those older grants to at least convert them to actual shares before they expired worthless. This way, if the stock does recover in the next few years, I'll benefit from any appreciation above my strike price. The key insight for me was realizing that letting underwater options expire is a guaranteed loss, but exercising them (even at a loss) at least gives you a chance to recover if the company turns around. Obviously only do this with money you can afford to lose, but it's another angle to consider in your planning.

Don't forget to consider state tax implications too! My exchange was fine for federal purposes but my state (CA) had different rules about how much gain I could defer. Ended up having to pay state tax on part of the exchange that was tax-deferred federally.

Based on your numbers, here's how your basis calculation should work: Your adjusted basis in the relinquished property was $95,000 ($325,000 - $230,000 depreciation). For the new property basis calculation: - Start with old adjusted basis: $95,000 - Add additional cash invested: $0 (since your net proceeds after boot exactly equaled your purchase price) - Add recognized gain: $410,000 (the cash boot you received) - Subtract boot received: $410,000 This gives you a new basis of approximately $95,000 in your replacement property. The key point is that in a 1031 exchange, you're essentially carrying over your low basis from the old property to the new one. The $410,000 boot you took will be taxed as capital gains, but it doesn't increase your depreciable basis in the new property. So yes, your depreciable basis will be much lower than the $1,025,000 you paid - it will be close to your original adjusted basis of $95,000. This means you'll have less depreciation deductions going forward, but you've already benefited from $230,000 in depreciation on the original property. Make sure to file Form 8824 with your tax return to properly report this exchange!

I'm sorry to hear about your father's medical situation. This is definitely a complex scenario given the international aspect and his residency status. One important consideration that hasn't been fully addressed is whether your father would qualify as a "qualifying relative" for tax purposes. Since he was deported and hasn't been a US resident for about 20 years, this could impact both the medical expense deduction and the penalty exemption for the 401k withdrawal. For the qualifying relative test, the IRS requires that the person either be a US citizen, resident alien, or resident of Canada or Mexico. Since your father is in Mexico, he might still qualify under the Mexico provision, but you'd need to verify he meets all the other requirements (relationship test, gross income test, support test). Also, keep in mind that even if you qualify for the medical expense exception to avoid the 10% penalty, you'll still owe regular income tax on the entire withdrawal amount. And the medical expense deduction only helps if you itemize and your total medical expenses exceed 7.5% of your AGI. Given the complexity, I'd strongly recommend consulting with a tax professional who has experience with international medical expenses and retirement withdrawals. The potential tax savings from proper planning could easily offset the consultation cost. Document everything meticulously - hospital records, payment receipts, currency conversion rates, and any correspondence about your father's care. You'll want a clear paper trail if the IRS has questions later.

I'm so sorry you're going through this difficult situation with your father. Having dealt with something similar when my aunt was hospitalized in Canada, I understand how overwhelming the financial and tax implications can be on top of the medical stress. One thing that might help is understanding the timeline requirements for hardship withdrawals. The IRS typically requires that the withdrawal be made in the same year as the medical expenses, or within a reasonable time after they're incurred. Since your father is currently hospitalized, this timing should work in your favor. Also, make sure to check if your 401k plan even allows hardship withdrawals - not all plans do, and each plan has its own specific rules about what documentation they require. Some plans have stricter requirements than what the IRS mandates. A few practical tips from my experience: - Keep detailed records of all payments, including any money transfers to Mexico - Get itemized bills from the hospital showing specific services and dates - Document the relationship between you and your father (birth certificate, etc.) - Save records of any insurance claims that were denied or not covered The loan option mentioned by others is definitely worth exploring first, as it avoids the immediate tax consequences entirely. Even if you end up needing to do a withdrawal later, having that loan option gives you more flexibility. Hang in there - the tax stuff is complicated but manageable with proper documentation and possibly professional help.