Thanks for mentioning this! Does the wage reduction go on a specific line of the 1120-S or is it just a lower amount entered on the wages/salaries line? My software isn't giving me clear guidance on this either.

You don't enter it on a separate line - you simply reduce the amounts on Lines 7 and/or 8 accordingly. So if your total wages were $100,000 and you received $20,000 in ERC (both refundable and non-refundable portions), you'd only report $80,000 total between those wage lines. If your business is like most S-corps where you have officer compensation and regular employee wages, you need to allocate the reduction proportionally. For example, if 25% of the qualifying wages were for officers, then 25% of your ERC reduction would apply to Line 7 (officer compensation) and 75% to Line 8 (regular wages).

You'll need to file an amended 1120-S (Form 1120-S/X) to reduce the wage expense for the year the wages were paid, not when you received the credit. I just went through this exact situation with my company.

Thank you for mentioning the SECURE Act changes. Does this still apply if the IRA is first transferred to a trust, and then the trust distributes to these different types of beneficiaries? Or does moving it to a trust first eliminate these exceptions? One of the beneficiaries is my aunt's disabled sibling, so I'm wondering if there might be special provisions that could help in that case.

When an IRA is left to a trust, the ability to use these exceptions depends on how the trust is structured. If the trust qualifies as a "see-through" trust and the disabled sibling is an identifiable beneficiary, then yes, that portion of the IRA might qualify for the exception allowing for distributions over that beneficiary's life expectancy rather than the 10-year rule. This would require specific language in the trust that clearly identifies the disabled beneficiary's portion and likely a separate share for that beneficiary. The trust would also need to meet all the requirements to be considered a see-through trust under IRS regulations. This is definitely a situation where specialized estate planning advice is crucial, as properly structuring the trust could result in significantly better tax treatment for that portion of the IRA.

With Roth IRAs going to a trust, the key benefit that can be preserved is the tax-free nature of qualified distributions. Unlike traditional IRAs where distributions are taxable, qualified Roth distributions remain tax-free even when distributed to a trust or through a trust to beneficiaries. The main thing lost is the ability to stretch distributions over a long period - the SECURE Act's 10-year rule typically applies unless beneficiaries qualify for exceptions. But within that 10-year window, growth remains tax-free, which is still valuable. Generally, it's better to keep the Roth intact rather than distributing before death, as this maintains the tax-free growth for as long as possible within allowable limits.

Will the tax software automatically calculate if I owe an underpayment penalty? I'm using TurboTax and it hasn't mentioned anything about penalties yet. How much are these penalties usually?

Most tax software will automatically calculate underpayment penalties, including TurboTax. It should tell you if you owe one before you finish filing. If it hasn't mentioned anything yet, it might be that you qualify for one of the exceptions. The penalty itself isn't usually massive - it's basically an interest charge on the amount you should have paid throughout the year. The current rate is around 3-5% annually, so if you underpaid by $4,000, the penalty might be around $120-200 depending on how long and how much you underpaid. It's annoying but not catastrophic compared to the actual tax bill itself.

This! I had this exact problem after getting married. We both claimed "1" but when our incomes were combined, we jumped up tax brackets. The withholding tables don't account for your spouse's income unless you specifically tell your employer by filling out the "two jobs" section on the new W4.

Thanks for the advice! I'll definitely pay what I calculated I owe now. How long did your audit process take from start to finish? I'm worried this is going to drag on for months.

My audit took about 4 months total from first notice to final resolution. However, I made the mistake of sending my initial response by regular mail, and they claimed they never received it, which added about 6 weeks to the process. Once they actually reviewed my documentation, things moved relatively quickly - about 3 weeks for them to send a response accepting most of my explanation. There was one additional clarification they needed, which took another 3-4 weeks to resolve. The whole thing would have been much faster if I'd used certified mail from the beginning and if I'd paid the undisputed amount immediately.

That's bad advice. IRS charges both penalties AND interest, which can add up quickly. The failure-to-pay penalty is 0.5% of the unpaid taxes for each month, plus interest at the federal short-term rate plus 3%. You can always get a refund if you overpay, but you can't get penalties back as easily.

Wait really? I did make quarterly estimated state tax payments throughout 2023 for my side business. So I can count both those AND the balance I paid in April 2023 for my 2022 taxes? That might actually push me over the standard deduction threshold!

Yes, absolutely! Any state income taxes you actually paid during calendar year 2023 can be included on your 2023 federal Schedule A. This includes both the balance due from your 2022 return that you paid in 2023 AND any estimated payments you made during 2023 for your 2023 taxes. Just be aware there's a $10,000 cap on the total state and local tax deduction (SALT cap), which includes income taxes, property taxes, etc. But for most people, this helps push their total itemized deductions above the standard deduction threshold.

Totally agree! I've been using H&R Block for years and they never explain this clearly. I've probably left thousands of dollars on the table over the years by taking the standard deduction when I might have benefited from itemizing. The tax prep industry benefits from keeping things confusing.

Thanks for agreeing with me on this! I feel like there should be some kind of requirement for tax software to actively check if itemizing would benefit you rather than just presenting it as an option. I'm definitely going to be more careful this year and run the numbers both ways. Between mortgage interest, charitable donations, and now understanding I can include state taxes paid, I might actually be better off itemizing for the first time.