Does anyone know if OP would have to pay the employer portion of payroll taxes too for 2023? That's an extra 7.65% the business would owe on top of the employee portion that would be withheld from their reasonable compensation, right?

I went through this exact situation last year and can share some practical insights. First, don't panic - late S corp elections are more common than you think and the IRS has established procedures for this. Here's what worked for me: I filed Form 2553 with a detailed reasonable cause statement explaining that as a first-time business owner, I misunderstood the filing deadline. The key is being honest and providing documentation of when you originally intended to make the election (emails to CPAs, research you did, etc.). For the payroll mess, yes you'll need to establish a reasonable salary and file quarterly 941s retroactively. I used a payroll service to help calculate everything properly - trying to do it manually was a nightmare. The penalties were significant but not business-ending, and I was able to get first-time penalty abatement on some of them. The math worked out in my favor - even with penalties, I saved about $4,000 in self-employment taxes compared to staying as an LLC. Just make sure you run the numbers before committing because every situation is different. One tip: when you submit your reasonable cause statement, be specific about your research efforts and include any documentation showing you were actively trying to comply. The IRS likes to see good faith effort, not just "I didn't know.

Just want to add that if you're a "small business taxpayer" under the tax law (meaning under $26 million in gross receipts), you have ADDITIONAL inventory simplifications available. You can treat inventory as "non-incidental materials and supplies" which means you deduct them when used or consumed, not through formal COGS calculations. Publication 538 doesn't explain this super clearly, but the guidance in Revenue Procedure 2018-40 does.

This is exactly the kind of situation where the simplified rules for small businesses really shine! Since you're clearly under the $26 million threshold, you have several advantages that larger businesses don't get. One thing I'd add to the great advice already given - when you switch back to cash method, you might also want to consider the "materials and supplies" election under Section 1.162-3. This lets you deduct the cost of your wood, hardware, and finishing materials when you actually use them in projects, rather than having to track them as formal inventory with COGS calculations. The combination of cash method + materials/supplies treatment could be perfect for a custom furniture business. You'd record income when customers actually pay you, and you'd deduct material costs as you use them in projects. Much simpler bookkeeping than accrual with full inventory tracking! Just make sure when you file Form 3115 that you're clear about both changes - the accounting method change AND any inventory method changes. The IRS likes transparency about exactly what you're switching from and to.

I went through this exact nightmare two years ago and it was absolutely maddening! The key thing that finally worked for me was getting everything in writing and being incredibly persistent with the right documentation. Here's what I learned: When your check gets processed as ACH (which happens automatically with most banks now), the IRS systems sometimes can't match it back to your account because the electronic processing strips away some of the identifying information from the original paper check. What finally resolved it for me was calling the IRS and specifically asking for a "Manual Research Request" in addition to the payment tracer. This is different from a regular payment tracer - it's when they have a human manually search their database using multiple criteria (your SSN, the exact amount, the date range, etc.). Also, make sure you ask them to check their "Unpostable Transaction" file. Sometimes payments end up there when the system can't figure out where to apply them. I wish someone had told me about this sooner - my payment was sitting in that file for three months! The whole process took about 8 weeks, but once they found it, they not only applied the payment but also removed all the penalties and interest that had accumulated. Keep fighting - you paid that money and they will find it eventually!

I work as a tax resolution specialist and see cases like this regularly - you're definitely not alone! The issue you're experiencing happens when paper checks get converted to ACH payments by the banking system, which can cause the payment to lose some identifying information that the IRS needs to properly credit your account. Here's my recommended action plan: 1. **Gather your documentation**: You'll need your bank statement showing the deduction, the ACH trace number, and the exact date/amount of the transaction. 2. **Call the IRS and use specific language**: Ask for a "payment tracer for an ACH transaction" - NOT just "missing payment." Also request they check their "Unpostable Transaction file" as payments sometimes get stuck there when the system can't determine where to apply them. 3. **Request account protection**: Ask them to place a "pending payment marker" on your account to stop additional interest from accumulating while they search. 4. **Get everything documented**: Ask for a confirmation number for the payment tracer and get the representative's name/ID number. If the first representative can't help with these specific requests, politely end the call and try again - different reps have varying levels of experience with payment traces. As a backup plan, consider visiting a local Taxpayer Assistance Center for in-person help, or contact the Taxpayer Advocate Service at 1-877-777-4778 if phone attempts continue to fail. The good news is that once found, they typically remove any incorrectly assessed penalties and interest. Stay persistent - your payment is in their system somewhere!

I went through this same situation two years ago when I switched jobs mid-year. One important detail that hasn't been mentioned yet - make sure you get the corrective distribution processed before December 31st of the year following your over-contribution if possible. While you technically have until April 15th to request the return of excess, getting it done in the same calendar year can simplify your tax situation. The earnings on the excess contribution will be taxable in the year the distribution actually occurs, not necessarily when you originally made the over-contribution. Also, keep detailed records of all your communications with your plan administrator. I had to follow up multiple times before mine actually processed my request. Don't let them brush you off - you have the right to correct this error and they're required to help you do it properly. The good news is this won't trigger an audit as long as you handle it correctly. The IRS sees these corrective distributions all the time, especially during job change seasons.

This is such a stressful situation but you're definitely not alone! I dealt with a similar over-contribution issue when I switched jobs in the middle of last year. The key thing is to act quickly since you still have time to fix it properly. From my experience, your best bet is to contact the 401k plan administrator directly (not just HR) at your current employer where the excess contribution is sitting. Most major providers like Fidelity, Vanguard, or Charles Schwab have dedicated lines for these situations. When you call, specifically ask for a "corrective distribution" or "return of excess contribution" for 2025. They'll need to calculate not just the $1,500 excess, but also any earnings (or losses) on that amount from when it was contributed until when it's distributed back to you. This whole amount becomes taxable income for 2025, but you avoid the much worse 6% annual excise tax that kicks in if you don't fix it. Don't let your HR department's unhelpful response discourage you - the plan administrator is legally required to process these corrections and they deal with them regularly. Get it done before April 15, 2026 and you'll be in good shape!

I'm going through the same nightmare right now! Filed in February and still nothing. What's really frustrating is that I need this refund to pay some bills, and the IRS just acts like our money doesn't matter. I've tried calling dozens of times but can never get through - it's either busy signals or I get disconnected after waiting for hours. Has anyone had any luck with contacting their local taxpayer assistance center in person? I'm wondering if showing up physically might be more effective than playing phone tag.

I'm dealing with something similar right now and it's incredibly stressful! One thing that helped me was creating a timeline of everything I've done so far - when I filed, when I checked the "Where's My Refund" tool, any calls I made, etc. It helps when you finally do get through to someone because you can give them all the details quickly. Also, I noticed that calling right when they open (7 AM) seems to have better success rates than later in the day. The wait times are still brutal, but at least you're more likely to actually get in the queue. Hang in there - from what I'm reading in these comments, most people do eventually get their refunds resolved, even though the process is absolutely ridiculous. Keep us posted on how it goes!