Oh wow, I hadn't even thought about the state filings or the S-Corp election potentially being terminated. She's in California, which I know can be pretty aggressive with business compliance stuff. Would a business attorney be needed alongside an accountant at this point?

California is actually one of the more challenging states for compliance - they have annual franchise tax minimums even for S-Corps with no profit. For California specifically, she'll need to check if the Statement of Information (Form SI-200) has been filed, and whether the $800 minimum franchise tax has been paid each year. At this point, I'd start with a good CPA who specializes in California S-Corps and business tax resolution. They can assess the situation first - a business attorney might be needed later, but accounting issues should be addressed first to understand the full scope of the problem. Most experienced CPAs will have relationships with business attorneys they can bring in if legal issues arise beyond tax compliance.

This is a really important point. My friend had a similar situation with her graphic design S-Corp and the IRS determined her reasonable salary should have been about 70% of the business profit since she was the only person doing the actual design work. The back payroll taxes and penalties were brutal.

Wait, I need to pay taxes NOW on this? I was planning to just handle it when I file next year. How do I figure out how much to pay for these quarterly payments? And does it matter that I won the money halfway through the year?

For estimated tax payments, you have a couple of options. The simplest approach is to calculate roughly 30-35% of your winnings (depending on your tax bracket) and make a payment ASAP using the 1040-ES form. The fact that you won it midway through the year does matter - estimated payments are generally due quarterly, with the deadlines being April 15, June 15, September 15, and January 15 of the following year. If you've already missed some of these deadlines, don't panic. Making a payment now is better than waiting until you file. Alternatively, you could increase your withholding at your regular job for the remainder of the year by filing a new W-4 with your employer, which might be enough to cover the additional tax liability and help you avoid underpayment penalties.

This is super important - my buddy got absolutely wrecked because he didn't track his cost basis properly when converting gambling winnings from crypto to USD. The IRS assumed the entire amount was profit and taxed him accordingly. Took him months to sort out the documentation to prove otherwise.

Thanks for this detailed info! I didn't file an amended return, but I did have a scholarship in 2021 that had some withholding applied. Could that be related? Also, does accepting this money mean I might be considered a resident for 2021 now, which could affect my visa status?

Scholarship withholding adjustments are a very common reason for unexpected refunds to NRAs. Educational institutions sometimes withhold at the standard 30% rate, but depending on your country's tax treaty, you might be eligible for a lower rate or even exemption from tax on certain scholarship portions. Receiving this refund doesn't change your immigration status or tax residency classification for 2021. The IRS making adjustments to your tax withholding doesn't reclassify you from NRA to resident - they're simply applying the correct tax rules to your NRA status. Your visa status remains completely separate from these tax processing adjustments.

This happened to my roommate too! He didn't file the 8843 form properly and got a similar refund. When he called IRS they confirmed it was a correction based on his treaty status with Spain.

OMG thank you for mentioning this! I completely forgot about state requirements. I'm in Michigan - do you know if they have any special LLC fees I should know about? Also, do I need to collect sales tax on online sales to other states?

Michigan is much more reasonable than California! They have an annual LLC filing fee of just $25 (due February 15th each year). You'll need to file an annual statement to maintain your LLC status. For sales tax, Michigan requires you to collect sales tax on in-state sales. For out-of-state sales, it depends on your sales volume in each state and their specific economic nexus laws. If you're selling through platforms like Etsy or Amazon, they might handle this for you in many states. But if you're selling through your own website, you'll need to research each state's requirements. Generally, if you have less than $100,000 in sales or fewer than 200 transactions in a state, you might be exempt from collecting sales tax there.

Is there a good app you recommend for tracking mileage? I always forget to log my trips for my business.

That's a great idea I hadn't considered! Do you know if I need to request this in person at a state tax office or can I do it online? My state's government websites are notoriously difficult to navigate.

In my state (Washington), I was able to request it online through their Department of Revenue portal. Most states have some kind of taxpayer access portal now where you can view your tax documents. Try searching "[your state] view tax documents online" or "[your state] tax transcript." If the online option doesn't work out, most states have a taxpayer assistance phone line that's usually much less busy than the IRS line. They can direct you to the right department or form to request your wage information.

Would this help for last year's W2 though? Seems like the time for mail forwarding would have expired by now. Plus the OP already talked to the employer who seems to be avoiding helping them.