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Don't forget to check if your LLC's agreement has any specific language about debt guarantees and allocations. Ours had a special provision that said debt basis would be allocated according to capital contributions regardless of guarantees, which apparently overrides the default tax rules. Our tax attorney said this was enforceable as long as it had "substantial economic effect" under 704(b). Might be worth checking your docs for similar provisions.
Our operating agreement doesn't have anything specific about debt allocations, just the standard profit/loss percentages. Does that mean we default to allocating based on the guarantees? And what if a member who guaranteed the debt has a negative capital account - does that change anything?
Without specific debt allocation provisions, you'll default to the general tax rules which typically assign recourse debt basis to those bearing the economic risk of loss - meaning your guarantors. A negative capital account doesn't change the debt allocation rules, but it's actually a good sign that the member might need that debt basis. The debt allocation essentially helps prevent a partner from going too negative in their capital account. This is why guarantors often want that debt basis - it gives them more ability to take losses without triggering basis limitations.
Our LLC had this exact issue last year. We ended up allocating the debt 50/50 to the two guarantors for basis purposes, but then had a separate "guarantee fee" that the non-guaranteeing members paid to the guarantors as compensation for taking on the risk. This fee was negotiated as a percentage of the debt guaranteed. Might be a fair way to handle the economic reality that some members are taking more risk than others.
Going back to your original question about your CPA - I'd recommend interviewing a few other accountants before tax season starts. I've found that some CPAs get complacent with long-term clients or are just too overworked to give proper attention. When I switched to a new CPA two years ago, she found nearly $4k in tax savings my previous guy had missed over the years. One tip: ask potential CPAs specific questions about your situation (self-employment tax, home office, medical expenses) and see how detailed their answers are. The good ones will take time to explain rather than dismissing your questions.
Thank you for this advice. I've been hesitant to "break up" with my CPA because we have history, but you're right that I should at least talk to other professionals. Do you have any suggestions for the best time to interview new CPAs? I'm guessing they're all super busy during actual tax season.
November to early December is the ideal time to interview new CPAs. Most have wrapped up extension filings from the previous season but haven't yet been swamped with year-end planning and new tax season work. They'll have more time to thoroughly review your situation and answer questions. October can also work, but by January they're starting to get busy, and by February they're usually not taking new clients until after April 15th. If you wait until actual tax season, you'll likely end up with whoever has availability, not necessarily the best fit for your needs.
Has your CPA explained WHY they don't think you need to make quarterly payments? There are some exceptions. For instance, if your withholding from your W-2 job covers at least 90% of your total tax liability or 100% of your previous year's tax (110% if your AGI was over $150k), you might be exempt from making estimated payments despite the self-employment income.
This is really important! My wife and I had a similar situation, but our CPA had us increase our W-2 withholding instead of making quarterly payments. It accomplished the same thing (meeting our tax obligations) but with less paperwork. Worth asking if that's what your CPA was thinking.
Just a heads up from someone who went through this last year - back taxes have to be mailed in paper form! I tried to e-file my 2021 and 2022 returns through TurboTax in January and kept getting errors. Turns out once the e-file deadline has passed for a tax year, you can only submit paper returns. Also, send them via certified mail so you have proof the IRS received them! I learned this the hard way when one of my returns got "lost" and I had no way to prove I had sent it.
How long did it take to get your refund after mailing in the paper returns? And did you mail them all together or separately?
It took about 12 weeks to get my refund after mailing in the paper returns. That's much longer than the typical 21 days for e-filing, but expected for paper returns. The IRS is still working through backlogs. I mailed each tax year in separate envelopes to different processing centers. The IRS has different mailing addresses depending on your state and the tax year, so definitely check the IRS website for the correct address for each return. Don't bundle them together - each year needs to go to the specific processing center for that tax year.
Don't forget that if you're owed a refund, you only have 3 years to claim it! So for your 2021 taxes, you'd need to file by April 15, 2025 or you lose that refund forever. If you OWE money instead, there's no time limit for the IRS to collect, but penalties and interest keep accruing the longer you wait to file. I back filed 4 years of taxes in 2023 and the process wasn't as bad as I expected!
What software did you use for your back filing? I'm trying to figure out the most affordable option since I have to do multiple years.
I may be missing something here, but I think another option might be to look at the regular home office deduction rather than the Augusta Rule. If you're using a space exclusively and regularly for business storage, you can deduct that percentage of your home expenses (mortgage interest, utilities, etc.). For example, if the storage area is 10% of your home's square footage, you can deduct 10% of those expenses. This might actually be more beneficial than trying to charge your business a "rental fee" under Section 280A(g).
Thanks for this perspective! One question though - does the storage area need to be COMPLETELY exclusive to inventory? Like, I keep most of my supplies in plastic bins that are stacked against one wall of the spare bedroom. The room is maybe 200 sq ft total, but the storage probably only takes up about 40 sq ft. Can I deduct just that portion?
The general rule is that the space needs to be used exclusively for business, but there's a special exception for inventory storage. If you're selling products as your business (which you are), and your home is the only fixed location of that business, you can deduct the space used for inventory storage even if it's part of a room. In your specific case, you could potentially deduct the 40 sq ft used for storage, not the entire 200 sq ft room. You'd calculate what percentage that 40 sq ft is of your entire home's square footage. So if your home is 2,000 sq ft total, you'd be deducting 2% (40 รท 2,000) of your eligible home expenses.
The confusion here seems to be mixing up two different tax concepts. The Augusta Rule (280A(g)) lets you rent your WHOLE home to your business for up to 14 days tax-free. This is great for business meetings, photo shoots, training events, etc. For ONGOING storage, you want the home office deduction specifically for inventory storage (different part of tax code). You can claim the actual space used even if the room isn't exclusively for business. I made this mistake and got flagged for audit! Don't try to use the Augusta Rule for year-round storage - it won't fly with the IRS.
Can you do both in the same year though? Like use regular home office deduction for the storage space, but also use Augusta Rule to rent your living room to your business for a few days for meetings?
Romeo Quest
Just wanted to add that I had this EXACT problem 2 years ago. The key thing to remember is that the IRS and Social Security Administration are separate systems that talk to each other but not in real time. When you file taxes, they check your name/SSN combo against what the SSA has RIGHT NOW. So if your name change isn't fully processed in the SSA system yet (which it doesn't sound like it is), then you need to use your maiden name. Next year will be different - you'll use your married name once you have that new social security card. Don't worry though, the IRS understands people get married and change names all the time!
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Val Rossi
โขDo you know if this applies to divorce name changes too? I'm going back to my maiden name after divorce but haven't updated my SS card yet. Should I file with my married name still since that's what's on my current card?
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Romeo Quest
โขYes, the same principle applies to divorce situations too. You should always file with whatever name is currently in the Social Security system, which would be your married name until you complete the name change process with the SSA. Even if you've started the process to change back to your maiden name, until it's fully processed and you receive your new card, the SSA database still has your married name. Filing with anything else will cause a rejection.
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Eve Freeman
Quick tip from someone who processes tax returns for a living - if your return got rejected due to a name/SSN mismatch but you already e-filed, you have two options: 1. Correct the name on your return to match what's in the SSA system (your maiden name) and e-file again 2. Print and mail a paper return with your maiden name If you go with option 1, make sure EVERYTHING matches what's on your social security card - even middle initials and suffixes matter. If your SSN card says "Jane A. Smith" don't put "Jane Ann Smith" on your tax return. Option 2 takes longer to process (like 6-8 weeks longer) but sometimes it's necessary if e-filing keeps giving you problems. Just make sure to sign and date the paper return!
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Clarissa Flair
โขDoes mailing a paper return avoid the name verification completely? My situation is complicated because I have both names on different official documents and I'm not sure which one the SSA actually has on file anymore.
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