This is terrible advice. The IRS absolutely cares about unreported income of any amount! They have automated systems that match reported income against your return. If the employer files a 1099-NEC and you don't report it, you'll likely get a CP2000 notice. Don't risk penalties and interest to save a few bucks in taxes.

I was speaking from practical experience rather than the technical rules. Yes, you're correct that all income should legally be reported. The automated matching system does exist, but in reality, very small discrepancies often don't trigger further action due to the IRS's limited resources. However, I should have been clearer - it's always best practice to report all income regardless of amount because it's the law, and because even small unreported amounts can cause problems if there are other issues with your return that trigger a review.

You have a few options. If you know the employer will issue a 1099-NEC, you'd report it on Schedule C and pay self-employment tax. However, for a one-time payment where your status is unclear, you could report it as "Other Income" on Schedule 1, Line 8z. This reports the income without self-employment tax.

What's the best way to track basis? My accountant never mentioned this but I'm taking pretty large distributions relative to my salary ($60k salary, $120k distributions) this year.

I use a separate spreadsheet that tracks my basis year by year. Start with your initial capital contribution, add your income (or subtract losses) each year, subtract distributions, and that gives you your current basis. For your situation specifically, assuming this is your first year with those numbers, your basis would increase by the full $180k of business income and decrease by the $180k you're taking out ($60k salary + $120k distributions), so you'd be at break-even. But if you've taken losses in previous years or taken prior distributions, you'd need to factor those in. Many tax software programs like TaxACT or TurboTax Business can help track this, or you can ask your accountant to prepare a basis schedule for you annually.

Does this apply to HSA contributions too? I just set up an S-Corp and was planning to do a company-sponsored HSA.

Hey, I'm having this exact issue right now! TurboTax is asking me to choose between "Passive Category" and "General Category" for my foreign dividends, and I have no idea which is correct. Any advice?

Wait, you can carry over unused tax credits? I had no idea! I think I've been leaving money on the table for years. Does TurboTax automatically track this from year to year if you use the same account?

What about quarterly payments though? Do you make them even if you're barely profitable in a quarter? My first quarters in dropshipping were super slow.

You technically only need to make quarterly estimated payments if you expect to owe $1,000 or more in taxes for the year. During your slow quarters, if your profit is minimal, you might not need to make a payment. However, be careful with this approach. If you end up having a hugely profitable quarter later (like that $9,500 quarter you mentioned), you could face underpayment penalties if you haven't been making adequate quarterly payments throughout the year. It's often safer to make at least some payment each quarter, even during slower periods.

Is that something I should worry about now or wait until I see how profitable the business becomes?

Thanks for this explanation! Is there any downside to telling my employer to use that flat 22% rate for my quarterly bonuses? Since I'm probably in the 24% bracket overall, would that flat rate actually be better for me?

There's no real downside to having your employer use the 22% flat rate for your bonuses - in fact, in your situation it might be advantageous. Since your actual tax bracket is 24%, having bonuses withheld at only 22% would mean slightly more take-home pay now, though you might have a slightly smaller refund (or small amount due) at tax time. Many employees actually prefer this because it means more cash in hand throughout the year rather than giving the government an interest-free loan. Just make sure your regular paycheck withholding is sufficient to cover your overall tax liability. You can ask your payroll department if they're already using the flat rate for your quarterly bonuses or if they're using the aggregate method for everything.

The federal withholding rules for commissions are the same nationwide - they follow the IRS guidelines regardless of which state you're in. However, state withholding varies dramatically. Moving from NY to Texas mid-year would have a significant impact because New York has state income tax while Texas doesn't. After you move to Texas, you'd no longer have state withholding taken out, but you'd still need to file a part-year resident tax return for New York for the portion of the year you lived there. This kind of mid-year move gets complicated tax-wise, so it might be worth consulting with a tax professional who can help you with the part-year resident filing requirements.