Could you explain a bit more about how the Solo 401k works with an S-corp specifically? I've heard about these for sole proprietors but wasn't sure about the rules for S-corps and how much you can contribute.

With an S-corp Solo 401k, you can make contributions in two capacities. As an employee, you can contribute up to $22,500 for 2023 (plus $7,500 catch-up if over 50) from your W-2 salary. This is why you need to take some salary - to enable these contributions. As the employer, your S-corp can also make profit-sharing contributions of up to 25% of your compensation, up to a combined total of $66,000 for 2023 (plus catch-up). These employer contributions are business expenses that reduce your company's taxable income. It's one of the best ways to keep money "in the business" while satisfying reasonable compensation requirements and building your retirement.

I thought S-corp distributions were tax-free? That's what my buddy who has an LLC told me. Now I'm confused.

Your buddy is confusing two different concepts. S-corp distributions aren't tax-free - they're just not subject to self-employment/payroll taxes (saving ~15.3%). You still pay income tax on distributions up to your basis in the company. What your friend might be thinking of is that C-corporations have "double taxation" (corporate tax + dividend tax), while S-corps have "pass-through taxation" with income only taxed once. But that single taxation still happens - the profits pass through to your personal return whether distributed or not.

Thanks for mentioning this! I'm in Massachusetts and just realized I probably need to set something up at the state level too. Did you find the state registration process complicated compared to the federal one? And did you need to get a separate state EIN or can you use your federal one?

The state process was actually more straightforward than the federal one in some ways. In Massachusetts, you'll need to register with the Department of Revenue and Department of Unemployment Assistance. You'll get separate state account numbers, but you'll reference your federal EIN during registration. Massachusetts has a specific household employer registration that's simplified compared to regular business registration. You can do most of it online through MassTaxConnect. They'll set you up for withholding payments and unemployment insurance contributions, which are typically due quarterly. The DUA process is separate but equally important for unemployment taxes.

I tried payroll software but still had issues with knowing WHEN to make the actual payments to IRS and state. Does NannyPay send reminders for payment deadlines? The software I was using calculated everything but didn't alert me when payments were due.

I'm not too worried about estate taxes since my total assets are well under the exemption limit. Are there any other advantages to gifting some stock now versus keeping everything for the step-up basis approach?

If your estate is below the exemption threshold, then maximizing the step-up basis becomes your primary objective, making your original plan more advantageous. One alternative worth considering is gifting stocks that have minimal gains or even losses, since those wouldn't benefit much from step-up basis anyway. This allows you to maintain ownership of your highly appreciated assets for the step-up benefit while still giving your grandchildren some investment exposure during your lifetime. It can also be a good educational opportunity to teach them about investing if they're old enough.

The Roth conversion idea is solid but completely separate from the step-up basis question. Step-up applies to taxable accounts, not IRAs. Roth conversions are about income tax, not capital gains. Both strategies can work together in a comprehensive plan though.

Does this mean you still have to pay taxes during that waiting period? Our animal rescue just applied for 501(c)(3) status but we're not sure how to handle income and expenses while waiting.

Generally, if your 501(c)(3) application is ultimately approved, the tax-exempt status is retroactive to your date of incorporation, provided that was within 27 months of your application. So technically, you might not owe taxes even during the waiting period. However, you still need to file the appropriate information returns (usually Form 990 series) during this time. It's also smart to set aside funds just in case your application is denied and you do end up owing taxes on income received during this period. For your animal rescue, I'd recommend tracking all income and expenses very carefully, following non-profit accounting practices from the start, and being transparent with donors about your pending status.

This is actually an important distinction that others haven't mentioned! Are we talking about personal tax returns or the organization's filing? I've been assuming the organization's taxes, but now I'm confused.

Is there any way to check this information online instead of calling? I have hearing problems and phone calls are really difficult for me.

Unfortunately, there's no fully online method to check for all potential offsets. The IRS online account will show if you owe the IRS specifically, but won't show other agency debts that might cause offsets. You might try using the chat feature with the IRS if available, though it has limited functionality. Another option is to authorize a friend or family member to call on your behalf using Form 8821, or work with a tax professional who can make these calls for you.

For hardship consideration, they typically look at whether offsetting your refund would prevent you from meeting basic living expenses. This includes rent/mortgage, utilities, food, medicine, etc. You'd need to submit financial documentation showing your income and expenses to prove the hardship is real. The standards vary by agency - student loan hardships might be evaluated differently than child support offsets. Contact whichever agency holds your debt directly and specifically ask about their hardship procedures for tax refund offsets.

Thanks so much for the detailed info. I'm going to call that Treasury offset number tomorrow and see what I'm dealing with first. If there is an offset, I'll definitely look into the hardship options!