As someone who's been through multiple partnership audits over the years, I can confirm that the IRS has definitely ramped up scrutiny on these management fee arrangements. What really matters is substance over form - they're looking at whether the S-Corp partners are truly providing services in a non-partner capacity or if it's just a tax-driven structure. A few practical points that might help with your decision: 1. Document everything - if you stick with management fees, make sure you have formal management agreements, separate invoicing, and can demonstrate the services are distinct from normal partner duties. 2. Consider the "but for" test - would you hire an unrelated third party to perform these same services if the S-Corps weren't partners? If not, that suggests partner capacity. 3. The SE tax savings from management fees aren't as significant as they used to be, especially with the 0.9% additional Medicare tax on high earners. Given the increased enforcement focus and the relatively minimal tax differences, I'd lean toward following your new CPA's advice. The audit protection alone is probably worth more than any potential tax savings from the management fee structure. One last tip - whatever you decide, apply it consistently going forward. The IRS really doesn't like taxpayers who bounce between different treatments for the same economic arrangements.

This has been such an educational thread! I'm relatively new to partnership taxation and had no idea there were so many nuances to the management fee vs guaranteed payment distinction. What really stands out to me from all these comments is how the tax landscape seems to have shifted significantly in recent years. The increased IRS scrutiny, the compliance campaigns targeting partnerships, and the audit experiences people have shared all point to guaranteed payments being the safer approach for most situations. I'm particularly interested in the documentation requirements mentioned by several commenters. It sounds like if you're going to stick with management fees, you really need to have your ducks in a row with formal agreements and clear evidence that the services are being provided in a non-partner capacity. That level of documentation and the ongoing audit risk might not be worth the relatively small tax differences. For those who have made the transition from management fees to guaranteed payments - how long did the process typically take from decision to implementation? I'm trying to get a sense of the timeline involved, especially with all the partnership agreement amendments and coordination between different tax preparers that several people mentioned. Also, has anyone dealt with this issue in the context of family partnerships or situations where some partners are more active in management than others? I'm wondering if that adds any additional complexity to the classification analysis.

As someone who's also new to understanding IRS transcripts, this entire discussion has been absolutely enlightening! I encountered Code 290 on my transcript recently and, like many others here, was initially concerned by the "additional tax assessed" language. But after reading through all these detailed explanations and personal experiences, I now understand it's simply the IRS's standard documentation for tax liability assessment. What I found most helpful was learning to read the codes chronologically to understand the complete story of my return's processing. The practical tips about checking for $0.00 amounts (indicating routine processing), comparing posting dates to filing dates, and looking for accompanying codes like 971 or 846 have given me a solid framework for interpreting my transcript. I'm particularly grateful for the recommendation of IRS Publication 4803 - having an official reference guide makes everything feel much less intimidating. It's amazing how this community has transformed what seemed like mysterious government codes into an understandable, logical system. Thank you all for creating such a supportive environment where newcomers can learn from your experiences without feeling embarrassed about not knowing these things initially! For other newcomers who might be reading this, the key takeaway seems to be: don't panic over Code 290, especially if it shows $0.00 and appeared shortly after filing - it's most likely just routine processing confirmation.

As a newcomer to this community and someone who just started dealing with tax transcripts myself, I want to express my gratitude for this incredibly comprehensive discussion! I was in the exact same boat as the original poster - recently retired and completely confused when I saw Code 290 on my transcript for the first time. The "additional tax assessed" language immediately made me think I had done something wrong or owed additional money. Reading through everyone's experiences has been like taking a crash course in transcript interpretation. The key insights that really helped me understand my own situation were: • Code 290 with $0.00 shortly after filing = routine processing confirmation • The importance of reading codes chronologically to see the "story" of your return • Checking the posting date relative to your filing date for context • Looking for accompanying codes like 971 (notices) or 846 (refunds) to complete the picture I've bookmarked IRS Publication 4803 as recommended and feel so much more confident about interpreting these codes now. It's amazing how what initially seemed like cryptic government language is actually a logical documentation system once you understand the basics. For other newcomers who might stumble across this thread: don't panic when you see Code 290! If it shows $0.00 and appeared within a few weeks of filing, you're almost certainly looking at routine processing. This community has done an outstanding job of turning a confusing topic into understandable, actionable guidance. Thank you all for sharing your knowledge so generously!

Great discussion here! As someone who went through the S-Corp conversion process recently, I wanted to add a few practical points that helped me navigate this: For the "reasonable salary" question, the IRS doesn't give a specific percentage, but a common benchmark tax professionals use is that salary should represent what you'd pay someone else to do your job. For online businesses with high profit margins, this can be tricky since you might be doing work that would normally require multiple employees (marketing, product development, customer service, etc.). I ended up settling on roughly 35-40% of my business profit as salary after researching comparable wages for similar roles in my industry. The key is being able to justify it if questioned - keep documentation of your research into industry wages. Regarding quarterly payments, I handle them from the business account since that's where the cash is. The IRS doesn't care which account the payment comes from as long as it's properly documented. Just make sure you're making those payments! The penalty for underpayment can be substantial, especially if your income has grown significantly from the previous year. One last tip: consider opening a separate savings account just for tax reserves. I automatically transfer 30% of each month's profit there and never touch it except for tax payments. Takes the stress out of wondering if I have enough when quarterly payments are due.

This thread has been incredibly helpful! I'm in a similar situation with my S-Corp LLC and have been overthinking the tax implications of moving business funds to personal accounts. One thing I wanted to add from my recent experience: when documenting these transfers as "shareholder distributions," make sure you're also keeping track of the dates and amounts in a separate spreadsheet or log. My accountant told me this makes year-end tax prep much smoother and provides a clear audit trail if needed. Also, regarding the reasonable salary discussion - I found it helpful to look up salary data on sites like Glassdoor and PayScale for roles similar to what I do in my business. This gave me concrete numbers to justify my salary level and helped me feel more confident about the split between salary and distributions. The quarterly estimated tax payment advice here is spot on too. I learned the hard way that the IRS expects payments based on current year income, not just previous year amounts. If your business has grown significantly, make sure you're calculating estimated taxes on your projected current year profit, not just paying what you owed last year. Thanks everyone for sharing your experiences - this is exactly the kind of real-world guidance that's hard to find elsewhere!

I went through this exact same headache last year! The key issue is that TurboTax's interface can be confusing when the tax year of the excess contribution differs from the year you're filing. Since you made the excess contribution in 2022 but are filing in 2025, TurboTax might not be showing the right prompts. Here's what worked for me: Go to the "Income" section first, then look for "Health Savings Account (HSA)" rather than starting in the deductions/health section. When you get to the HSA income questions, there should be an option about distributions or withdrawals. Enter your total distribution amount ($1888.78) there. The system should then ask you to categorize the distribution. This is where you can specify that $1825 was an excess contribution removal (which won't be taxed) and $63.78 was earnings (which will be taxable income). Make sure your 1099-SA matches what you're entering - if the codes are wrong like others mentioned, definitely get a corrected form from your HSA provider first. Also double-check that you're in the right tax year section of TurboTax. Sometimes the software defaults to the wrong year if you have multiple years saved.

I've dealt with HSA excess contribution issues in multiple tax software programs, and the key is understanding that the reporting depends heavily on the timing and documentation. Since you made the excess contribution in 2022 but are filing your 2023 return (assuming that's what you mean by "2025 filing"), you need to be very careful about which tax year each piece gets reported in. The $1825 excess contribution that was timely removed shouldn't appear as income on any return if it was removed by the deadline. However, the $63.78 in earnings needs to be reported as income in the year you RECEIVED the distribution, not the year you made the original contribution. One thing I haven't seen mentioned yet: make sure you didn't already report this removal on a previous year's return. If you filed your 2022 return after removing the excess but before the deadline, you might have already handled this correctly. Check your 2022 return to see if the excess contribution was excluded from your HSA deduction. Also, TurboTax sometimes has different workflows depending on whether you're using the basic, deluxe, or premium version. The HSA sections can look different across versions, which might explain why you're not seeing the options others have described.

Don't forget about Section 179! In 2025, you can potentially deduct up to $1.2 million of qualified business assets in year 1 instead of depreciating over time. This could help offset some of the impact of those non-deductible principal payments.

Based on all the great advice here, I'd strongly recommend getting a CPA involved sooner rather than later. The loan treatment is just one piece of the puzzle - you'll also need proper asset allocation for the purchase, quarterly estimated tax planning since S Corp profits flow through to your personal return, and basis tracking from day one. Since you're closing in a couple weeks, make sure your purchase agreement clearly specifies the asset allocation. The IRS requires you and the seller to agree on how the $250k+ purchase price gets allocated across different assets (equipment, customer lists, goodwill, etc.) using Form 8594. This allocation directly impacts your future depreciation/amortization deductions. Also consider setting up a separate business savings account specifically for tax payments. With $60k annual loan payments reducing available cash and S Corp profits flowing through to your personal taxes, you'll want to systematically set aside money for quarterly estimates to avoid underpayment penalties.