Wait, really? I had no idea about this QBI deduction! Does it have income limits or phase-outs I should know about? And do I need to form an LLC or something to qualify for it?

Yes, there are income thresholds where phase-outs begin. For 2025, the phase-out begins at $191,950 for single filers and $383,900 for married filing jointly. Since your income is $105k, you should be well below these limits and eligible for the full 20% deduction. You don't need an LLC to claim this deduction - you can claim it as a sole proprietor reporting income on Schedule C. The QBI deduction is calculated on your net profit after business expenses, not on your gross 1099 income. This is another reason to make sure you're tracking all legitimate business expenses properly.

S-Corps can definitely be a tax-saving strategy for higher-income contractors, but they come with additional costs and complexity. With an S-Corp, you'd pay yourself a "reasonable salary" which is subject to FICA taxes (Social Security and Medicare), but you can take the rest of your business profits as distributions that aren't subject to self-employment tax. This can save you about 15.3% on the distribution portion. However, you'll have additional expenses: incorporation fees, annual state fees, separate tax return preparation, payroll processing, etc. Generally, the breakeven point where an S-Corp makes sense is around $80-100k of net profit, so at $105k you might benefit, but you should run the numbers carefully.

Thank you for the specific form recommendation! I didn't know about the 14157-A. Would you mind sharing how long the investigation into your preparer took? And did you end up having to pay back all the incorrect refunds you received in your situation?

The investigation took about 8 months before I received notification that action had been taken against the preparer. The IRS doesn't share specific details about penalties they impose, but I did receive a letter confirming my complaint was substantiated and that "appropriate action" had been taken. Regarding repayment, yes, I did have to pay back the incorrect refunds plus interest. However, the IRS did waive most of the accuracy-related penalties after reviewing my documentation showing I'd been misled. I was able to set up a payment plan with manageable monthly payments. The most important thing was separating myself from the fraudulent behavior by being completely transparent and proactive.

This is incorrect advice. They said they filed SEPARATELY, not jointly. Innocent spouse relief only applies to joint returns. Please be careful giving tax advice when you don't fully understand the situation.

I did file the proper W-4 form both times - once to claim exempt and then again to go back to my normal withholding status. I've asked HR to show me the forms on file and they said they would "look into it." I'm starting to think there might be an actual glitch in their system based on what everyone is saying here. No one I've talked to seems to think this kind of massive withholding catch-up is normal or legal. Going to push harder for that breakdown of withholding and maybe try contacting the IRS directly.

That's not how tax brackets work though. Even if OP temporarily jumped into a higher bracket, only the amount OVER the threshold gets taxed at the higher rate. The system shouldn't suddenly withhold 85% of their entire check.

You're right about how brackets work, but payroll systems sometimes make this exact mistake. They see one high paycheck and calculate withholding as if every check will be that high for the rest of the year, which can result in over-withholding. Combined with switching from exempt status, it could explain the issue.

Do you just manually calculate your portion each month, or have you found a way to automate this? My bill varies slightly each month so I'm always having to recalculate.

I manually calculate it each month since my bill does vary slightly. I keep a simple spreadsheet that shows the total bill, my portion, and the 50% business use calculation. This takes me about 2 minutes each month but provides a clear audit trail. I know some people set up a fixed monthly amount based on an average, but I prefer the exact calculation each month for accuracy.

I use Zoho Analytics and it's great for this. I created a custom dashboard that pulls my expense data and shows trends in my split costs. You can set up categories for "fully business" vs "partially business" expenses and track them separately.

That's exactly what I needed to know! I'll look into setting up that dashboard. Do you track the percentages separately or just the dollar amounts?

Is that why so many rich people set up random side businesses? My neighbor claims his boat as a business expense for his "fishing charter company" that mysteriously never has any customers lol