I went through this exact same situation with my partner in our consulting firm last year. The insurance agent was pushing the same "deduct premiums AND get cash value" pitch, and it sounded way too good to be true. After consulting with a tax attorney who specializes in business structures, here's what I learned: You basically have to pick one benefit or the other. Either the business pays premiums and treats it as compensation to you (taxable to you personally), OR you structure it as a legitimate business expense with strict limitations on accessing cash value. We ended up going with term life for the buy-sell agreement (much cheaper) and separate whole life policies we pay for personally if we wanted cash value accumulation. The term policy serves the business purpose cleanly, and our personal policies avoid any IRS complications around mixing business deductions with personal benefits. The $1,200 monthly premium also seems really high for your ages and business size. We got comparable coverage for about $400/month total for both of us with term. I'd definitely get quotes from other agents before committing to anything.

As someone who's dealt with similar business insurance tax questions, I'd strongly recommend getting a written opinion from a tax attorney before moving forward. The agent's claims about deducting premiums while accessing cash value personally are exactly the type of arrangements the IRS scrutinizes heavily. Here's what I've learned: the key issue is "economic benefit" - if you can access the cash value for personal use while the business deducts the premiums, the IRS views this as you receiving taxable compensation. This means you'd owe taxes on the premium amounts as if they were salary, which defeats the supposed tax advantage. For a legitimate buy-sell agreement, consider these alternatives: 1) Term life insurance (much cheaper, clear business purpose) 2) Whole life where premiums are treated as taxable compensation to partners 3) Partners pay personally for any policies with cash value benefits The $1,200/month premium seems excessive for your situation. At your business income level, you could likely get adequate term coverage for 1/4 of that cost. Don't let the agent pressure you into a decision - legitimate insurance professionals will give you time to consult with your own tax advisor. Get everything in writing about the tax treatment claims before signing anything. If the agent can't provide IRS documentation supporting his assertions, that's your answer right there.

Has anyone here ever had these codes and then had their refund actually reduced? I'm seeing 570/971 on mine too but also code 420 which apparently means "examination of tax return" which sounds even more ominous!

I've dealt with these exact codes before and understand the anxiety! Code 570 with 971 is actually pretty common and usually resolves without major issues. The key thing to remember is that 570 doesn't mean something is wrong - it just means they're taking a closer look at something on your return. In my case last year, I had these codes appear about 10 days after my return was accepted. The 971 notice arrived about 2 weeks later asking me to verify my filing status and dependent information. I sent the requested documents and my refund was released about 3 weeks after that with code 571 showing the hold was lifted. The waiting is definitely nerve-wracking, but try not to panic. Most of these reviews are routine compliance checks rather than indicators of problems. Keep checking your transcript every few days - you'll likely see additional codes appear that will give you more information about what's happening.

Random question but has anyone used TurboTax Self-Employed for calculating the QBI deduction for an engineering LLC? I tried last year and it seemed to automatically disqualify me completely when I selected "engineering services" even though my income was under the threshold. Had to override it manually and now I'm worried about getting audited.

Great question about the QBI deduction! As an engineering consultant myself, I can confirm that you can absolutely qualify for the 20% deduction even though engineering is considered an SSTB. The key is your income level - since you're married filing jointly and under the $340,100 threshold, you should get the full deduction regardless of the SSTB designation. One thing I'd add to the excellent advice already given - when you do convert to S-corp (which sounds like a smart move for your income level), make sure you understand that the QBI deduction applies to the K-1 income from the S-corp, not your W-2 wages. So if you're paying yourself $120k in salary and taking $80k in distributions, only the $80k would be eligible for the QBI deduction. Also, definitely keep detailed records of your business activities. I've found that many engineering consultants actually do work that falls outside the strict SSTB definition - things like project management, training, or business process consulting. These activities might qualify for QBI even above the income thresholds if properly documented.

This is exactly the situation I was in two years ago with my consulting partnership. The debt basis rules definitely work as described here, but I want to emphasize something that caught me off guard: make sure your loan agreement includes a personal guarantee or similar provision showing you're truly at risk for the money. In my case, I had loaned $50K to the partnership but structured it poorly - the loan was secured only by partnership assets, which meant if the partnership failed, I might not be able to collect. During an audit, the IRS agent questioned whether I was truly "at risk" for the full amount, which could have limited my loss deductions even though I had sufficient basis. We ended up being okay because I could demonstrate that the partnership assets were worth more than the loan amount, but it was a stressful few months. The lesson is that having proper loan documentation is just the starting point - you also need to think about the economic substance of the arrangement. One more practical tip: if your partnership is going to be unprofitable for several years like you mentioned, consider whether it makes sense to structure some of your contributions as debt rather than equity from the beginning. This gives you more flexibility in claiming losses and potentially better tax treatment when you eventually get repaid.

Something that hasn't been mentioned yet is the importance of maintaining consistent treatment of your loans across all your tax filings. I learned this the hard way when I had a similar partnership situation. Make sure that if you're treating the loan as debt basis for claiming losses on your individual return, the partnership is also consistently treating it as a liability on their books and tax returns. Any inconsistency between how you and the partnership report the same transaction can trigger IRS scrutiny. Also, if your partnership agreement has special allocation provisions, be extra careful about how those interact with your debt basis calculations. I had a situation where our partnership agreement allocated certain types of losses disproportionately to partners who had made loans, and the IRS initially challenged whether this was economically reasonable. One more thing to consider: document your business reasons for making the loan rather than additional equity contributions. Having clear documentation of why the loan structure served legitimate business purposes (maintaining partnership flexibility, personal liability protection, etc.) can be crucial if you're ever audited. The IRS looks more favorably on arrangements that have substance beyond just tax benefits. Keep detailed contemporaneous records of all basis calculations, especially as the partnership moves through different phases of profitability. It becomes much harder to reconstruct these calculations years later if questions arise.

Has anyone tried using the IRS's "Get Transcript" tool to look up their AGI from last year? I'd like to know if that shows accurate information before I waste time with it.

I've been dealing with this exact error for the past week and finally got it resolved! The key thing I learned is that the IRS-031-04 error isn't always actually about your AGI - it can be caused by several different mismatches in your personal information. Here's what worked for me: I went through every single piece of personal info on my return and compared it letter-by-letter with what I used last year. Turned out my address had a small difference - I had written "Street" last year but "St." this year. The IRS system is extremely picky about these details. Also, double-check if you've had any life changes since last year: marriage, divorce, name changes, address moves, or even small formatting differences in how you entered your name. Sometimes what looks like an AGI problem is actually one of these other data mismatches. If you're confident everything matches exactly, then definitely go with the transcript route or try calling the IRS. But before you do that, I'd recommend going through your personal info with a fine-tooth comb first - it might save you a lot of time!