I've heard mixed things about Opportunity Zone investments. Aren't they pretty risky since they're in economically distressed areas? Also, don't you still eventually have to pay the original capital gains tax anyway?

Thanks for bringing this up! My broker (Fidelity) does let me choose specific shares, but I never really paid attention to it before. So if I bought shares at different prices over time, I should sell the ones I paid the most for first to reduce my taxable gain? Do I need to keep detailed records of this or does the broker track it all?

Exactly - by selling the shares with the highest purchase price first, you're reducing the taxable gain on this year's transactions. For example, if you bought 100 shares at $10 in 2020 and another 100 at $20 in 2021, and now they're worth $25, selling the $20 shares first means you only pay tax on $5 per share gain instead of $15. Most major brokers like Fidelity will track this for you and provide the information on your tax forms. However, it's always smart to keep your own records as a backup, especially if you've transferred assets between brokers. You should also be consistent with your method - if you start using specific identification, stick with it rather than switching between different methods.

Would keeping a log of hours worked (which would be basically zero) help document this? I have a similar situation but with a small rental property in my S-Corp that basically runs itself through a property management company. I literally spend maybe 2-3 hours per YEAR on it.

Yes, a log of hours would be extremely helpful documentation. For your situation with just 2-3 hours annually, that's exactly the type of minimal involvement that supports a no/low salary position. I'd recommend documenting not just the hours but specifically what you do during those hours. Show that you're only making high-level oversight decisions while the property management company handles all the actual work. Include copies of your property management agreement in your corporate records to further substantiate your minimal involvement.

The accumulated earnings tax doesn't apply to S-Corps, only C-Corps. S-Corps are pass-through entities where income is taxed to shareholders regardless of whether it's distributed. The penalty you're probably thinking of is for personal holding companies, which is different.

Thanks for mentioning the payment processor issue - I forgot about that! So if I pay an individual contractor through PayPal business, I shouldn't send them a 1099-NEC at all? What if it was a mix of PayPal and check payments?

Correct - if you paid through PayPal business, Venmo business, credit card, or similar electronic payment networks, you don't need to issue a 1099-NEC for those specific payments. The payment processor handles the reporting through 1099-K. If you paid the same contractor through a mix of methods, you only issue a 1099-NEC for the portion paid by check, cash, or direct bank transfer. You'd exclude any amounts paid through those electronic payment networks. Just make sure you keep good records of which payments were made through which methods so you can accurately report only the non-electronic payment amounts.

Do you just ignore the incorrect 1099s? Or do you have to do something specific when you get one as an S-corp?

I think I'll make around $18,000 this year if I keep working the same hours, so I guess I will have to file? And yes I'm pretty sure my grandparents claim me as a dependent since I live with them and they pay for most of my stuff. Does that change things?

Yes, at $18,000 you'll definitely need to file a tax return. Being claimed as a dependent does change things a bit. You won't be able to claim your own personal exemption, and there are some credits you might not qualify for. Make sure to check the box on your tax return that says someone else can claim you as a dependent. This is important because if you don't check it but your grandparents claim you, it will create problems for both returns. Also, as a dependent with income, you'll need to file your own return - your grandparents can't include your income on their return.

This!!! Also, set a calendar reminder for mid-February to check if you've received your W-2. If you haven't gotten it by February 15th, you should contact your employer. They're legally required to send it by January 31st.

Where would I find this exclusion ratio information? My 1099-R doesn't specifically mention it anywhere that I can see. Is it something I need to calculate myself?

The exclusion ratio isn't typically listed directly on the 1099-R, but you can determine it from the information provided. Look at Box 1 (gross distribution) and Box 2a (taxable amount) - if Box 2a is less than Box 1, that suggests part of your payment is considered return of principal. You can calculate your exclusion ratio by dividing your investment in the contract (what you paid in) by the total expected return (what you expect to receive over the lifetime of the annuity). Your annuity provider should have given you this information when you purchased the annuity or when payments started. If not, definitely call them and ask for your "exclusion ratio" or "exclusion percentage" specifically - they'll know what you're talking about.

This might explain my situation! Im 56 and started taking payments from an annuity i rolled my 401k into when i left my job. They're taking out more than 20% total and I couldn't figure out why!