Something important to remember about AMT and self-employment income: the self-employment tax deduction (the employer portion of FICA taxes) doesn't get added back for AMT purposes. This is one adjustment that actually works in your favor! Also, if you're using Section 179 expensing for business equipment, be aware that AMT might require you to depreciate those assets over a longer period, which affects your AMTI calculation.

Speaking from experience, don't forget to check if you qualify for the AMT exemption phaseout with your combined income. When I added my side hustle to my W2 job last year, it pushed me into the phaseout range which really screwed up my calculations. For 2025, the exemption begins phasing out at $1,079,800 for married filing jointly and $539,900 for single filers. The exemption reduces by 25 cents for each dollar of AMTI above these thresholds.

Welcome to the high-tax club! I'm also a recent grad in California and went through the exact same shock. A few things that helped me understand what was happening: First, that 31% includes both your portion AND what feels like every tax California can think of. You've got federal income tax (probably around 12% at your salary), California state income tax (6-9% depending on your exact income), Social Security (6.2%), Medicare (1.45%), and that SDI (State Disability Insurance) at about 1.1%. The good news is you'll likely get some of this back when you file taxes, especially if you have student loan interest, contributed to a 401k, or qualify for other deductions. I got back about $2,800 my first year. Also check if your employer offers pre-tax benefits like health insurance, HSA, or 401k contributions - these reduce your taxable income and can lower your withholding. Even contributing just 3% to a 401k would save you money on taxes while building retirement savings. It sucks seeing such small paychecks, but you're not alone! California is expensive but the career opportunities often make up for it in the long run.

I feel your pain! Just went through this exact same situation last year when I started my first job in San Francisco at $58k. That 31% withholding rate hit me like a truck too. Here's what I learned: California really does have some of the highest tax rates in the country, but there are legitimate ways to optimize your situation. First, double-check that you filled out your W-4 correctly - the new form can be confusing and small mistakes can cost you hundreds per month. Second, if your employer offers a 401k with matching, definitely take advantage of it even if money is tight. Contributing even 3-4% pre-tax will reduce your taxable income and lower your withholding immediately. For example, on a $55k salary, contributing 3% ($1,650/year) could save you roughly $400-500 in taxes, which comes back to you throughout the year in smaller withholdings. Also look into whether you qualify for the California Earned Income Credit or other state credits. And keep track of any work-related expenses, student loan interest, or other deductible items. The first year is always the hardest financially, but once you get your withholdings optimized and understand the system better, it gets much more manageable. Hang in there!

My sister and I both got these notices. She used taxr.ai to figure out what was up and got her refund 2 weeks later. Something about her W2 triggering a review. Im gonna try it too tbh

Got mine about 10 days ago too! Super frustrating because I was counting on that refund for some bills. From what I've read online it's happening to a lot of people this year - seems like they're being extra cautious with reviews. Hang in there, hopefully it doesn't take the full 120 days 🤞

Has anyone considered the F reorganization approach? IRC Section 368(a)(1)(F) provides for a "mere change in identity, form, or place of organization of one corporation, however effected." You could potentially form a new S corporation and have it acquire the C corporation in an F reorganization. This would effectively convert the C corporation to an S corporation while potentially providing more flexibility than a direct conversion.

One strategy worth exploring is a gradual distribution approach over several years rather than trying to access all the accumulated earnings at once. Since you're the sole shareholder, you have complete control over the timing. You could take reasonable salary payments (which are deductible to the corporation), combined with modest dividend distributions spread over multiple tax years to manage your overall tax bracket. This won't eliminate the double taxation on accumulated E&P, but it can significantly reduce the overall tax burden by keeping you in lower marginal tax brackets. Another consideration is whether the corporation has any business expenses or investments that could be made before distributions - things like equipment purchases, facility improvements, or even funding a corporate retirement plan. These legitimate business expenses reduce the accumulated E&P and give you more tax-efficient ways to benefit from the corporate assets. The key is that there's no magic bullet to completely avoid tax on C corp accumulated earnings - the tax code specifically prevents this. But with proper planning, you can minimize the total tax impact through timing and strategic use of corporate funds.

Another thing to consider - make sure that promissory note is VERY detailed. My sister loaned me money for my house and we had a simple note, but our tax guy said it wasn't enough. He said we needed: 1) Fixed repayment schedule 2) Consequences for late/missed payments 3) Security/collateral details 4) Actual interest rate (even if small) Without these, he said the IRS might consider it a gift rather than a loan regardless of our intentions. We had to create a much more formal document later which was a huge hassle.

Just wanted to share my experience as someone who went through this exact situation last year. I loaned my son $180K for his house purchase with what I thought was a proper promissory note, but I made the mistake of not including any interest rate. Come tax time, I got hit with the imputed interest rules everyone's mentioning here. The IRS calculated that I should have charged about 4.2% interest (the AFR rate at the time), which meant I had to report roughly $7,500 in phantom income I never actually received. My son couldn't even claim the interest deduction because he never actually paid any interest. The lesson learned: always include at least the minimum AFR interest rate in your family loan, even if it's just 2-3%. It saves both parties from tax complications and makes the loan look legitimate to the IRS. I wish I had known about these rules beforehand - would have saved me a lot of headaches and unexpected tax liability.