I'm in Pennsylvania. I totally forgot about state taxes! Do different states have different thresholds for when you need to file?

Yes, Pennsylvania does tax unemployment benefits. Their filing threshold is lower than the federal one - you generally need to file a PA tax return if you have more than $33 in total taxable income. Pennsylvania has a flat income tax rate of 3.07%, so you'd potentially owe state tax on your unemployment benefits. There are some credits and deductions available that might reduce what you owe, but you'll definitely need to file a state return in addition to your federal return.

TurboTax isn't actually free a lot of times though. They make you upgrade to paid versions for certain forms. I'd recommend FreeTaxUSA instead - it's actually free for federal and only $15 for state.

What about accumulated earnings tax though? If the C-corp retains too much profit without a business purpose, couldn't they get hit with that penalty?

You're absolutely right to bring that up. C-corporations that accumulate earnings beyond the reasonable needs of the business ($250,000 is generally the threshold) can face the Accumulated Earnings Tax, which is a 20% penalty tax. However, if the company can demonstrate specific, definite, and feasible plans for the retained earnings - like future expansion, equipment purchases, paying down debt, or even building reserves for contingencies - these can justify keeping cash in the business. It's important to document these plans in your corporate minutes and have financial projections to support them.

I've thought about S-Corp, but we have some complications - we have foreign investors from the angel round, and I believe S-Corps can't have non-US shareholders? Also, if we did ever want to raise more money in the future or pursue an acquisition by a larger company, my understanding is that C-Corp is more attractive to those types of buyers.

Thanks for mentioning this. How did you determine what portion was earnings versus contributions? Did the financial institution provide that breakdown or did you have to calculate it somehow?

The financial institution should provide statements showing the breakdown between contributions and earnings. Ask specifically for a "basis and earnings statement" as of the date of death. Most major brokerages and banks can generate this report. If they can't provide it for some reason, you'll need to track down old contribution records. The original Roth contributions are your basis, and everything above that amount is considered earnings. The 1099-R you receive when the distribution happens should also code whether it's a qualified or non-qualified distribution, which helps determine taxability.

I tried the "Roth IRA rescue" approach last year and it worked! Had to file some additional paperwork with the financial institution showing I was the sole heir, but saved about $8,200 in taxes that would have been paid by the estate if it had gone through probate normally.

Can you explain more about this accountable plan thing? I've never heard of it and I'm currently paying my workers extra to cover their gas when they drive between job sites, which I know isn't ideal tax-wise.

An accountable plan is basically a formal arrangement where your business reimburses employees for business expenses without that reimbursement counting as taxable income to them. To qualify, you need three things: business connection (expenses must be job-related), adequate accounting (employees must provide documentation like receipts), and return of excess payments (employees must return any excess reimbursements). For your situation with gas between job sites, instead of paying extra taxable income, you could reimburse actual mileage at the IRS rate (currently 67 cents per mile for 2023). The employee doesn't pay tax on this reimbursement, and you still get the deduction. You'll need employees to track their mileage and submit documentation, but there are easy apps for this. Much better than grossing up wages to cover gas which creates additional payroll taxes for both you and the worker.

I use QuickBooks Payroll for my remodeling business with 7 employees. It's decent for basic payroll but struggles with complex construction-specific reporting. For certified payroll on government jobs, I ended up using an add-on called LCPtracker. The main benefit is how it ties directly to my accounting, but the reporting for construction specifically is mediocre.

Thanks for the insight on QuickBooks. Good to know about the limitations with construction reporting. Does it at least handle job costing well? I need to track labor costs per project really carefully.

Is there any way to get the penalties removed? The original tax amount is bad enough, but the penalties are what's making my balance completely unmanageable.

Yes, you can request penalty abatement through the IRS First-Time Penalty Abatement program if this is your first time having compliance issues. Even if you don't qualify for first-time abatement, you can request abatement for reasonable cause if your situation merits it (serious illness, natural disaster, or other circumstances beyond your control). The process involves writing a penalty abatement letter explaining your situation and why you believe the penalties should be removed. You'll need to specifically request abatement of the failure-to-pay penalty, which is likely a significant portion of what's been added to your original tax amount. The IRS looks at your prior compliance history and the efforts you've made to comply when considering these requests.

I used one last year and honestly regret it. Paid $4500 upfront and they basically just filled out the same forms I could have done myself. They promised they could settle my $40k debt for pennies on the dollar, but in the end, the IRS rejected their offer and I ended up on a standard payment plan anyway. Total waste of money in my experience.