One thing I haven't seen mentioned yet - if you do get the retroactive S-Corp election approved, make sure your CPA prepares a reasonable compensation study to justify whatever salary you're setting for yourself. The IRS really scrutinizes S-Corps because they know owners try to minimize salary (which is subject to employment taxes) in favor of distributions. Have you actually calculated how much you might save by switching to S-Corp status for 2022? It's mainly the Medicare and Social Security tax savings on the distribution portion, but you need to weigh that against the additional complexity and compliance costs.

I went through a very similar situation about two years ago and successfully did the retroactive S-Corp election. A few things I learned that might help: First, yes, Rev. Proc. 2013-30 is absolutely legitimate, but timing is crucial. You have 3 years and 75 days from the original due date you wanted the election to be effective. So for 2022, you'd need to act soon. Second, the "reasonable cause" statement is critical. I used the fact that my previous tax preparer never mentioned S-Corp elections as an option despite my business income level. The IRS accepted this reasoning. Document everything - emails, conversations, even the lack of discussion about entity elections. Third, calculate the potential savings first before diving in. In my case, I saved about $18k in self-employment taxes, but I also had to establish a reasonable salary (I used about 60% of net income based on industry data) and file amended returns for multiple years. The process took about 6-8 months total to get fully resolved, but it was absolutely worth it. Make sure your new CPA has experience with late S-Corp elections - not all tax professionals are familiar with the process. Good luck!

Has anyone tried just filing without the K-1 info and then amending later? I'm in the same situation every freaking year and I'm tempted to just estimate based on last year and file on time, then deal with amendments if needed. The penalties for late filing seem worse than filing an amendment.

I feel your pain - I've been dealing with chronically late K-1s for years from a real estate partnership I'm in. One thing that worked for me last year was escalating beyond just the finance person. I sent a certified letter (not just email) directly to the managing partner referencing the September 15th deadline and IRS penalties for late filing. Within 48 hours of them receiving that letter, my K-1 was in my mailbox. Sometimes you need to make it clear this isn't just a "when you get around to it" situation - there are real legal deadlines and consequences. Also, for future reference, I now include a clause in any new partnership agreements requiring quarterly estimates and timely K-1 delivery. It's worth negotiating this upfront if you're considering any new partnership investments. The good partnerships don't have issues with this request - it's usually a red flag if they push back on basic tax reporting timelines.

Has anyone considered Section 179 deduction for some of the more expensive components? I found that for some of the higher-end networking equipment I keep on hand (like $500+ items), my accountant suggested using Section 179 instead of supplies or CoG since they have a longer useful life.

This has been such a helpful thread! I'm dealing with a similar situation with my small tech consulting business. Based on all the discussion here, it seems like the key is whether your business is primarily service-based (which it sounds like yours is) and whether the parts are incidental to your services rather than merchandise for sale. From what I've gathered, since you're an MSP providing services and the components are a small percentage of revenue (5%) and often not separately billed, treating them as supplies expense on line 22 of Schedule C seems appropriate. The fact that you're under the gross receipts threshold mentioned earlier also helps with simplified accounting methods. One thing I'd add is to make sure you document your reasoning - keep records showing the percentage of revenue from parts vs services, and note when parts are included in service fees vs separately billed. This will help if you're ever questioned about your classification choice.

Remember that different PARTS of your settlement might be taxed differently. This is something my accountant explained that I hadn't considered: 1. Compensation for physical injuries/sickness: NOT taxable 2. Emotional distress stemming from physical injuries: NOT taxable 3. Emotional distress without physical injury: TAXABLE 4. Punitive damages: Always TAXABLE 5. Lost wages/back pay: TAXABLE 6. Interest on any of the above: Always TAXABLE The paperwork should break this down. If it doesn't clearly state how much falls into each category, you should absolutely ask for clarification from whoever is administering the settlement.

One thing that hasn't been mentioned yet is the timing of when you receive your settlement versus when it's taxable. I learned this the hard way with my own harassment settlement - even if you receive the money in December, you might be able to defer some of the tax impact depending on how the settlement is structured. Some settlements are paid out over multiple years, which can help with the tax bracket issue that Yuki mentioned. Others allow you to choose between a lump sum or structured payments. If you have that option, it's worth running the numbers both ways since spreading the income over several years could significantly reduce your overall tax burden. Also, don't forget about state taxes! Some states don't tax settlement income the same way the federal government does. I was so focused on federal taxes that I completely forgot to research my state's rules until tax time. The key is getting all this figured out BEFORE you receive the money so you can plan accordingly. Once that check is deposited, your options become much more limited.

Have u tried TurboTax's W-4 calculator? It helped me way more than the IRS one tbh. Takes like 10 min and tells u exactly what to put on each line of ur W-4. Got my refund down from like $1400 to around $300 which was perfect 4 me. Their calculator seems more user friendly than the govt one lol

Another option that worked well for me is to calculate how much extra you're getting refunded and divide that by your remaining paychecks for the year. Then add that amount to Step 4(b) as additional deductions on your W-4. For example, if you're getting $900 back and have 20 paychecks left this year, that's about $45 per paycheck that's being over-withheld. You could add roughly $180 in additional deductions (since you're probably in the 25% bracket, $180 × 0.25 = $45 less withheld per check). The key is being conservative - start with a smaller adjustment and see how it affects your paychecks. You can always submit a new W-4 if you need to fine-tune it further. Better to get a small refund than owe a bunch at tax time!