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Word of warning: DO NOT just start filing returns without a strategy. I did this and ended up making things worse. I'd do these three things in order: 1- Get your transcripts like others suggested 2- Figure out which years you actually NEED to file (sometimes it's not all of them) 3- Consider filing the most recent years first, especially if you might be due refunds for any of them If the IRS has been levying your accounts already, you should definitely consider getting professional help. The free consultation with most tax resolution firms is actually worth doing just to understand your options.
This is super important advice. Especially the part about refunds - the IRS has a 3-year limitation on claiming refunds, so if you were owed money for say 2019, you need to file that return ASAP before the refund expires. But there's no expiration on what you OWE the IRS, which is just...great š
Hey Caleb, I totally understand the anxiety you're feeling - I was in a similar spot about 3 years ago with 7 unfiled returns. The good news is that you're taking action now, which is the hardest part. One thing that really helped me was understanding that the IRS actually has programs specifically designed for people in your situation. Look into the Fresh Start Initiative - it's designed to help taxpayers get back into compliance with more flexible payment options and penalty relief. Since you mentioned severe anxiety, I'd suggest starting small to build momentum. Get your transcripts first (as others mentioned), then tackle just one or two recent years to start. Once you see it's manageable, you can work through the rest. Also, given that you've had some lean years financially, you might actually be owed refunds for some of those years. The IRS can't come after you for money they owe YOU, so identifying any refund years first could actually put you in a better position. The fact that you're being proactive about this instead of continuing to avoid it will work in your favor. The IRS is generally much more willing to work with people who come forward voluntarily. You've got this!
Check your wage and income transcript too. Sometimes employers report different numbers than what you put on your return
Code 570 with 971 typically means the IRS is doing a compliance review on your return, likely because of the Earned Income Credit claim. Since your AGI is $11,786 with self-employment income of $2,793, they're probably verifying your eligibility for the EIC amount. The good news is your math checks out - $427 SE tax minus $961 EIC minus $46.65 other credit = $580.65 refund. Just keep checking your transcript weekly for updates. The review usually takes 6-10 weeks from the processing date (March 20), so you should see movement by late May/early June if everything verifies correctly.
One creative approach I haven't seen mentioned: have you considered a Deferred Compensation Plan for the partnership? Instead of receiving equity upfront, you could structure it so the S-Corp promises to transfer shares over time based on performance metrics. This spreads out the taxable events and potentially reduces overall tax burden if your tax bracket varies year to year. For your loss from the business sale, look into Form 1244 stock treatment if applicable. If you originally qualified, you might be able to treat a portion of your losses as ordinary rather than capital, which would help offset your income.
The deferred compensation idea is interesting. Would that still give me voting rights and other partnership benefits from day one? Or would those phase in as the shares transfer? I'm concerned about having a say in business decisions if I'm taking on partnership responsibilities.
You can structure the agreement to give you voting rights and management authority separate from the economic interest. Many partnerships have provisions where newer partners get full voting rights immediately but the economic interest transfers over time. The operating agreement can be drafted to give you authority in business decisions from day one while still deferring the actual ownership transfer for tax purposes. This separates the control aspects from the economic aspects, which is relatively common in professional service firms.
Important question: Is the existing S-corp providing you these shares as compensation for services or are you buying in with your own money? The tax treatment is completely different. If they're compensating you with shares, that's ordinary income. If you're investing capital, you're creating basis in the shares without immediate tax consequences. From what you described, it sounds like they're gifting you equity as compensation, which creates the big tax hit. Consider restructuring as a capital contribution where you invest in the company (possibly with a loan to finance the purchase).
Not OP but quick follow-up - if you're buying in with your own money, what's the point? Aren't you just trading cash for equity of equivalent value? Seems like a wash.
@Eduardo Silva The point isn t'that you re'getting something for nothing - you re'right that it s'essentially a wash in terms of net worth. The benefit is avoiding the immediate tax hit on $2.6M of ordinary income. When you buy in with your own money, you re'creating basis in the shares without triggering a taxable event. The $2.6M becomes your cost basis, so you only pay taxes later when you sell or receive distributions above that basis. Compare that to receiving the shares as compensation, where you d'owe roughly $900K in taxes immediately as (OP mentioned but) have no cash to pay it. You d'be forced to take distributions from the company just to cover the tax bill, which creates a messy situation for everyone involved. @Freya Andersen is spot on - the structure matters way more than the economics here.
Just got mine today! Filed Jan 29, got regular refund Feb 12, CTC hit my acct this AM. Was getting worried tbh. Checked the IRS2Go app every day lol. No status updates until it suddenly appeared. Hang in there!
Same situation here! Filed Feb 8th, got my regular refund on Feb 28th, but still waiting on CTC. After reading through all these responses, I'm feeling a bit more reassured that it's normal to be in different batches. Going to check my account transcript tomorrow for any TC 766 codes like @Melissa Lin mentioned. It's frustrating not knowing which wave you're in, but sounds like most people are getting theirs within the expected timeframes. Thanks everyone for sharing your experiences - this thread has been super helpful!
Malik Jackson
Has anyone used the new "simplified home office deduction" for Schedule C? Is it better than the regular method?
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Isabella Costa
ā¢I've used both. The simplified method is $5 per square foot up to 300 sq ft (max $1500 deduction). Super easy - no calculations or record keeping for house expenses. But the regular method can give you a much bigger deduction especially if you have a larger office or high housing costs. My first year I used simplified because I was lazy. Last year I switched to regular and my deduction was almost $2,800 for a 200 sq ft office. Worth the extra paperwork!
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Ravi Kapoor
Great question! I went through the same confusion when I started my photography business. Here's what I learned: For your specific situation with $12,500 in revenue and $4,800 in tracked expenses, you're on the right track. Beyond materials/packaging/shipping, you can definitely deduct: **Internet & Phone**: Yes, deduct the business portion of your internet bill. If you use it 60% for business, deduct 60%. Same with your cell phone if you use it for customer communication. **Home Office**: If that spare bedroom is used EXCLUSIVELY for your business, you qualify for the home office deduction. Calculate the percentage of your home's square footage and deduct that percentage of rent/utilities/insurance. Or use the simplified method ($5 per sq ft up to 300 sq ft). **Other common Etsy deductions you might be missing**: - Etsy listing fees and transaction fees - PayPal/payment processing fees - Photography equipment (cameras, lighting, tripods) - business use percentage - Computer/software used for business - Mileage to buy supplies or ship items - Any business books, courses, or educational materials **Documentation**: Bank statements show you spent money, but receipts show what you bought. The IRS wants to see what the expense was for. Keep digital copies of all receipts - take photos immediately since thermal receipts fade. TurboTax's categories can be confusing, but when in doubt, "Other business expenses" works for legitimate costs that don't fit elsewhere. Just include a description of what it was for. You're doing great by tracking everything from the start!
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