I've been dealing with a similar situation in my S Corp. One thing I'd add to the excellent advice here is to make sure you're consistent with how you handle these premiums throughout the year, not just at year-end. We set up our payroll system to add the health insurance premiums to our W-2 wages each pay period (subject to income tax but not FICA), rather than waiting until December to make one big adjustment. This gives a more accurate picture of our actual compensation throughout the year and avoids any potential issues with quarterly estimated tax payments. Also, regarding the equity concern with your partner - we addressed this by having our attorney draft language in our shareholder agreement that specifically states how health benefits are handled. It clarifies that the company provides health insurance coverage to all shareholders regardless of premium cost, which removes any ambiguity about one partner subsidizing the other's coverage. This protects both partners if ownership changes in the future.

One important consideration that hasn't been mentioned yet is the timing of when you establish your health insurance policy through the S Corp. The IRS requires that the health insurance plan be "established under" the business for shareholders to qualify for the self-employed health insurance deduction. This means if you currently have individual policies that you're personally paying for, you can't simply have the S Corp reimburse you and get the tax benefits. The corporation needs to either be the policyholder or have a formal arrangement where it pays the premiums directly to the insurance company. Also, make sure you're not mixing this benefit with any health savings account (HSA) contributions if you have high-deductible health plans. The tax treatment can get complicated when you combine S Corp health insurance benefits with HSA contributions, so you'll want to coordinate these carefully to maximize your tax advantages. The unequal premium amounts between you and your partner really isn't uncommon - family vs. individual coverage naturally creates different costs, and the IRS doesn't expect or require equal dollar benefits for equal ownership percentages.

Has anyone dealt with tax vs book basis issues for accrual to cash conversion? My accounting is on accrual basis (because it makes more sense for our operations) but we file taxes on cash basis. It's becoming a nightmare to convert everything at year end.

One thing I've learned from managing this for my own business is that prevention is better than cure when it comes to book vs tax basis differences. I set up a simple system where I code transactions with tax implications right from the start. For example, when I enter a meal expense, I use a specific account code that reminds me it's only 50% deductible. For equipment purchases, I immediately note whether I plan to use Section 179 or regular depreciation. This way I'm not scrambling at year-end trying to remember the details of every transaction. Also, regarding your sales tax question - think of sales tax collected as "holding money for the government." It never becomes your income, so it should go straight to a liability account. Sales tax you pay becomes part of your expense or inventory cost, which does affect your income taxes as a deduction. The key is keeping good records from day one rather than trying to sort everything out later!

When I started my online business last year, I tried using TurboSelf-Employed and it was actually pretty straightforward for a simple sole proprietorship. It walked me through all the Schedule C stuff and helped identify deductions. Do you have any business software you're planning to use for tracking expenses?

Hey Chloe! Congrats on starting your business - custom sneaker painting sounds awesome! Since you're 17, there are a few teen-specific things to keep in mind beyond what others have mentioned. First, you'll definitely want to keep meticulous records from day one. Even simple phone notes about every expense (paint, brushes, shipping materials, etc.) will save you headaches later. One thing I learned the hard way - if you're selling online across state lines, research sales tax nexus rules. Some states require you to collect sales tax even as a small business, and the thresholds vary wildly. Also, consider opening a separate business checking account even if you don't get an EIN right away. It makes tracking so much easier and shows the IRS you're treating this as a real business, not a hobby. Some banks have teen business accounts that your parents might need to co-sign for. The quarterly estimated tax thing can be tricky to predict in your first year since you don't know how much you'll make. Start setting aside about 25-30% of your profits in a separate savings account for taxes - better to have too much saved than scramble to pay later!

10 Since nobody else mentioned it - yes, the 7.65% employer portion is a business expense that's tax deductible! So while you're paying that extra amount, it does reduce your overall business income for tax purposes. Let's say you're an S-corp or LLC with profits around $150k. That employer portion of payroll taxes would reduce your taxable business income. Depending on your tax bracket, this could offset roughly 22-37% of the cost.

Just wanted to add some practical advice from someone who's been doing payroll for small businesses for over 8 years - make sure you're also budgeting for workers' compensation insurance, which varies dramatically by industry. For landscaping like yours, it can be quite expensive (sometimes 3-8% of payroll) since it's considered higher risk. Also, don't forget that some states have additional payroll taxes beyond what's been mentioned. For example, California has State Disability Insurance (SDI) that employers contribute to, and New Jersey has both disability and family leave programs. These can add another 0.5-1% to your employer costs. I'd recommend setting up a separate account where you automatically transfer about 12-15% of each payroll to cover all these taxes and fees. It prevents the shock when quarterly payments are due and helps with cash flow planning.

22 Has anyone used Form 5329 to report and pay the 6% excise tax on excess contributions? I'm wondering if it's better to just pay the penalty for a year rather than going through the hassle of removal if the amount is relatively small.

I went through almost this exact situation two years ago! For the 2022 contribution, you're unfortunately stuck with the return of excess contributions route since the recharacterization deadline has passed. The 6% excise tax will apply for each year it stayed in there, but getting it out now prevents future penalties. For 2023, if you're still within the deadline (including extensions), definitely go with the recharacterization to Traditional IRA followed by the backdoor Roth conversion. Just make sure you understand the pro-rata rule implications if you have other traditional IRA balances. One tip that helped me - when dealing with your custodian, be very specific about what you're requesting. Say "I need to remove excess contributions and earnings for tax year 2022" rather than just asking about "fixing" contributions. The customer service reps are usually better equipped to help when you use the exact terminology. Also, don't be afraid to ask for a supervisor if the first person you talk to seems unsure about the process.