This thread has been incredibly helpful! I'm dealing with a very similar situation with my consulting LLC where I've been paying myself W-2 wages for the past 6 months before realizing the mistake. One thing I haven't seen mentioned yet is how to handle the Social Security and Medicare credits that were earned from those incorrect W-2 wages. When we file the corrected W-2c showing zero wages, does that also eliminate the Social Security credits that were posted to my earnings record? I'm wondering if there's a way to preserve those credits since I would have been paying self-employment tax on that income anyway as a sole proprietor - just through a different mechanism. Has anyone dealt with this aspect of the correction process? Also, for those who mentioned getting professional help with the amendments - did your CPAs charge significantly more for this type of correction work compared to regular tax prep? I'm trying to budget for the cleanup costs. Thanks for all the detailed experiences shared here. It's making a stressful situation much more manageable knowing others have successfully navigated this!

I'm dealing with this exact same issue right now! My landscaping business has been operating as a sole proprietor LLC for about 8 months, and I've been putting myself on W-2 payroll the entire time. Just discovered this was wrong when preparing for tax season. Reading through everyone's experiences here has been so reassuring - I was panicking thinking I'd created some massive IRS problem that would be impossible to fix. It sounds like while it's definitely a mistake that needs correcting, it's not uncommon and the IRS generally treats it as an honest error. My biggest concern is timing since we're already into the new tax year. Should I stop my own payroll immediately and start taking owner's draws instead, or wait until I can get professional help to map out the correction strategy? I don't want to create more complications by making changes without a clear plan. Also, has anyone dealt with this situation where the business has employees who are correctly classified as W-2? I have two part-time workers who should definitely stay on payroll - I'm just worried about accidentally messing up their status while fixing my own classification. Thanks to everyone for sharing their experiences. This community has been incredibly helpful for understanding that this is fixable!

im still waiting on my 2021 return lololol welcome to the club

I feel your pain! Same thing happened to me last year - mailed my return and it sat at "Return Received" for literally 4 months before moving to "Approved." The worst part is there's basically nothing you can do except wait it out. Calling the IRS is pretty much useless unless it's been over a year, they'll just tell you to keep waiting. The good news is that once it finally moves to "Approved" the refund usually comes within a week or two after that. Hang in there!

I've noticed that sometimes the deductions go up when I work overtime - is that normal? Does overtime get taxed at a higher rate? I worked 12 extra hours last pay period and my deductions were almost double!

The $95 increase could also be related to hitting certain income thresholds during the year. For example, if you've reached the Social Security wage base limit ($160,200 for 2023), your SS deductions would stop, but if you haven't hit that yet and got a raise or bonus, your SS and Medicare withholdings would increase proportionally. Another thing to check - did you recently change your W-4 form? Even small changes like going from 2 allowances to 1 can significantly impact your federal withholding. Also, some companies do "catch-up" withholding if they discover they've been under-withholding earlier in the year. For budgeting purposes, you can use the IRS withholding calculator online to estimate what your deductions should be and adjust your W-4 if needed. Just remember that while higher withholdings mean less take-home pay now, they also mean a bigger refund (or smaller amount owed) when you file your taxes.

Great question! I went through this exact same situation last year. You're absolutely allowed to use two different EFINs in the same tax year - it's actually pretty common for tax professionals who work for firms but also do some independent preparation work. For the income reporting, yes, anything you earn using your personal EFIN should be reported as self-employment income on Schedule C. Make sure to track all your business expenses like software costs, office supplies, and if you're working from home, potentially home office deductions. One thing I'd add that others haven't mentioned - consider getting your own errors and omissions (E&O) insurance for your personal EFIN work. Your employer's insurance likely won't cover returns you file independently. Also, keep really good records separating your two practices - separate client files, separate banking if possible, and clear engagement letters so there's no confusion about which capacity you're working in. The IRS actually expects this kind of arrangement and has procedures in place for it. Just make sure you're not violating any employment agreements with your firm!

Adding to what others have said about the dual EFIN setup - you're definitely good to go from a compliance standpoint. I've been doing this for about 3 years now (working at H&R Block during the day, personal EFIN for evenings/weekends) and have never had any issues with the IRS. One practical tip that's helped me a lot: set up completely different workflows for your two practices. I use different intake forms, different client management systems, and even different physical spaces in my home office. This makes it crystal clear which "hat" I'm wearing for each client and helps avoid any potential conflicts or confusion. Also, don't underestimate the time commitment for your personal practice. Between client meetings, return preparation, and all the administrative stuff (invoicing, follow-ups, etc.), it adds up quickly. I started with just a few family members and friends, but word spreads fast once you do good work. Make sure you're prepared to scale up your systems if demand grows!

This is a great discussion that touches on something I dealt with recently. One thing worth considering is the interaction between QBI losses and the overall Section 199A deduction limitation based on your taxable income. Even if you do generate future QBI to offset those carryforward losses, remember that the Section 199A deduction is still limited to 20% of your taxable income minus net capital gains. So if you're earning W2 income and have other deductions that reduce your taxable income significantly, you might not be able to fully utilize the QBI benefit even when you do have positive qualified business income. I learned this the hard way when I started a small side business thinking I could immediately benefit from my old QBI losses. The math worked out differently than I expected because of the taxable income limitation. It's another factor to consider when deciding whether to keep a dormant business alive or just close it cleanly. Also, regarding the state-level complications others mentioned - some states don't follow federal QBI rules at all, so you could be maintaining a business entity for federal tax benefits that don't even apply at the state level where you might owe annual fees or taxes.

The discussion here highlights just how complex QBI carryforwards can be in practice. I've been following a similar path - had QBI losses from a small manufacturing business that I wound down in 2021, and I've been wrestling with whether to maintain the entity. One aspect that hasn't been fully explored is the record-keeping burden of maintaining those carryforward losses over multiple years. The IRS expects you to be able to substantiate the original loss calculations if you ever use them, even years later. I've had to maintain detailed records of inventory valuations, asset dispositions, and final-year operating expenses that generated those losses. Also, if you're considering Muhammad's suggestion about starting a different type of business to utilize the losses, be aware that the character of the income matters. Some activities that might seem like "business income" could actually be classified differently for QBI purposes. For instance, if you start doing consulting that's considered a "specified service trade or business" under Section 199A, there are income limitations that could affect your ability to claim the deduction even with the carryforward losses. The practical reality for most people in W2 employment is that these QBI losses become "stranded assets" - technically valuable but practically unusable. Sometimes the cleanest approach is to close the business properly and move on, rather than maintaining it in hopes of someday utilizing losses that may never provide real benefit.