I'm in a very similar situation and this thread has been a lifesaver! My husband and I have been filing Schedule C for our LLC for the past two years, completely unaware that we needed to file Form 1065 as a partnership. After reading everyone's experiences, I have a couple of specific questions: 1. When filing the late Form 1065, do you need to pay the partnership filing fee for each year, or are there any waivers available for first-time filers who made honest mistakes? 2. Has anyone dealt with state-level implications? We're in California and I'm wondering if we need to file corrected state partnership returns as well, or if this is just a federal issue. 3. For the amended personal returns (1040-X), how long did it typically take to get your refunds processed? Since we'll be removing Schedule C income and adding K-1 income, I'm hoping there might be some refund due to different deduction treatments. I'm planning to be proactive about this like many of you recommended, but want to make sure I understand all the moving pieces before I start filing corrections. The penalty abatement options you've mentioned give me hope that this won't be as financially devastating as I initially feared!

I've been following this thread closely as I'm dealing with a similar situation. My husband and I have had an LLC for three years and just realized we've been filing everything wrong with Schedule C instead of Form 1065. One thing I wanted to add that might help others - when you're preparing your reasonable cause letter for the IRS, be very specific about WHY you made the mistake. Don't just say "I didn't know" - explain exactly what led to the confusion. For example: "As first-time LLC owners, we relied on [specific tax software] which automatically directed us to Schedule C filing without asking about the number of LLC members or explaining partnership filing requirements for multi-member LLCs." Also, I've noticed several people mention First-Time Penalty Abatement, which is great, but remember you can only use this once every three years and only if you've been compliant with filing and payment requirements for the prior three years. If you've had other tax issues recently, you might not qualify. For those worried about the complexity - I started trying to handle this myself but quickly realized I was in over my head with multiple years of corrections. Ended up hiring a CPA who specializes in small business taxes and it's been worth every penny for the peace of mind alone. The key takeaway from everyone's experiences here seems to be: act fast, be proactive, and don't try to hide from the IRS. They're surprisingly reasonable when you come to them first with a good explanation and a plan to fix things.

Hey Alexander! I completely understand your confusion - this is actually one of the most common questions we see during tax season, and you're definitely not alone in being puzzled by this! Yes, the Federal ID Number and EIN (Employer Identification Number) are exactly the same thing. The IRS unfortunately uses multiple terms for the same 9-digit identifier, which creates unnecessary confusion for taxpayers. You'll also see it called "Federal Tax Identification Number" or "Employer ID Number" on different forms, but they all refer to that same 9-digit number. When TurboTax asks for your school's "federal identification number," you should absolutely use the EIN that's printed on your 1098-T form. That's exactly what they're looking for. The number will be in the format XX-XXXXXXX (with or without the dash - TurboTax will format it correctly either way). Since this is your first year claiming education expenses, make sure you're also maximizing your education credits! Depending on your income and student status, you might qualify for either the American Opportunity Credit (up to $2,500, partially refundable) or the Lifetime Learning Credit (up to $2,000, non-refundable). TurboTax should help you determine which one gives you the better benefit. Don't feel bad about being nervous - it's much better to double-check these things than to rush through and potentially make mistakes. You're doing exactly the right thing by being thorough with your first education tax return!

Hey Alexander! I totally get your confusion - I went through this exact same thing when I first started filing taxes with education expenses. It's actually one of those things that seems way more complicated than it really is! Yes, the Federal ID Number and EIN are absolutely the same thing! The IRS just loves using different terminology for the same identifier, which drives everyone crazy. When TurboTax asks for the "federal identification number" for your school, you should definitely use that EIN from your 1098-T form - that's exactly what they want. The format should be 9 digits (usually shown as XX-XXXXXXX), and you can enter it with or without the dash. TurboTax will handle the formatting automatically, so don't stress about that part. Since you mentioned this is your first time claiming education expenses, make sure you understand which education credit you're eligible for! The American Opportunity Credit can be worth up to $2,500 (and part of it is refundable), while the Lifetime Learning Credit is worth up to $2,000. Your tax software should help you figure out which one gives you the bigger benefit based on your specific situation. Don't feel bad about being nervous - I was the same way my first year! It's way better to double-check everything and get it right than to rush through and potentially miss out on credits or make mistakes. You're being smart about this!

Just want to clarify something important - while your kids need to file their own tax returns, their income does NOT disqualify them from being your dependents! I got audited last year because of confusion about this. The test is whether YOU provide more than half their support, not how much money they make. So even if your 18-year-old made $12,500, as long as that money wasn't paying for more than half of their total living expenses (think about the value of housing, food, medical, etc. that you provide), you can still claim them. This is especially important for the 18-year-old because they might try to claim their own personal exemption if they file independently, which would prevent you from claiming them.

This is such a common confusion for parents! Just to add to the great advice already given - make sure you coordinate with your teens about who claims what on their returns. Since you'll be claiming them as dependents on your return, they need to check the box that says "Someone else can claim me as a dependent" on their own tax returns. If they accidentally claim themselves as dependents on their own returns while you also claim them on yours, it creates a mismatch that can delay both returns and potentially trigger correspondence from the IRS. I learned this the hard way with my oldest! Also, keep good records of what you spend on their support (housing, food, medical, school expenses, etc.) in case you ever need to prove the "more than half support" test. It's usually pretty clear-cut when they're living at home, but documentation never hurts.

I want to add another important consideration that hasn't been mentioned yet - the timing of when you recognize your trading gains and losses for tax purposes. Since you mentioned you've been "tracking everything meticulously," make sure you understand that for tax purposes, you generally recognize gains and losses when you close positions, not when you open them. This is crucial for your quarterly estimated tax planning because if you have large unrealized gains in open positions, you won't owe taxes on those until you actually close them. Conversely, if you have unrealized losses, you can't use them to offset your tax liability until you realize them. Given that you're 8 months into the year with $78K in profits, I'd also suggest setting aside a separate "tax account" going forward - maybe 35-40% of each month's realized profits - so you're not scrambling to find cash for tax payments. Many full-time traders get caught off guard by the cash flow impact of quarterly payments, especially if they've reinvested their profits back into trading. One more tip: keep detailed records of all your trading-related expenses (platform fees, data subscriptions, home office costs, etc.) as these can significantly reduce your taxable income, whether you qualify for trader tax status or not.

Jumping in as someone who went through this exact transition from corporate job to full-time trading last year! A few additional points that might help: 1. **Safe Harbor Rule**: Since you mentioned this is new territory, the "safe harbor" rule is your best friend. If you pay 100% of last year's total tax liability spread across four quarterly payments (110% if your prior year AGI was over $150K), you're protected from underpayment penalties regardless of how much you make this year. This gives you peace of mind while you figure out your trading tax situation. 2. **Self-Employment Tax Nuance**: Be careful about that 14.13% self-employment tax calculation mentioned earlier. If you qualify for trader tax status, your trading profits might NOT be subject to self-employment tax - they'd be treated as capital gains instead. This could save you thousands. But if you're just considered an "investor" (even an active one), then yes, you might owe SE tax. 3. **Quarterly Payment Timing**: Don't stress too much about perfect quarterly amounts. I made uneven payments my first year based on actual performance each quarter, and it worked fine. The key is making sure your total payments for the year meet the safe harbor threshold. Since you're already 8 months in with solid profits, I'd calculate 25% of last year's total tax liability and make that payment for Q3 (September 15), then reassess for Q4 based on how the rest of the year goes. This approach has saved me from both penalties and overpaying. Good luck with the transition - it's definitely manageable once you get the system down!

I went through a similar situation with my workers comp settlement last year after a back injury at my warehouse job. Got a 28% permanent disability rating and was completely confused about the tax implications. What really helped me was getting everything in writing from multiple sources. I called my state's workers compensation board directly, and they confirmed that legitimate workers comp disability payments are tax-exempt under federal law. I also got a letter from my attorney's office explaining the tax treatment of my specific settlement components. The key thing I learned is that Revenue Ruling 68-10 and IRC 104(a)(1) are pretty clear - if you're receiving compensation for a work-related injury or illness under a workers compensation statute, it's excluded from gross income. Period. No retirement requirement, no special forms needed, you just don't report it as income. One tip: I created a simple one-page summary document listing my settlement amount, the date received, and references to IRC 104(a)(1) and Revenue Ruling 68-10. I keep this with my tax records along with all the settlement paperwork. My tax preparer said this kind of documentation makes everything much smoother if there are ever any questions. Your buddy was right - these payments are tax-free. Don't let anyone convince you otherwise when you have legitimate workers comp benefits!

@Savanna Franklin - I understand your confusion completely! I went through this exact same situation two years ago after a workplace injury that left me with a 40% permanent disability rating. The good news is that your workers comp settlement is absolutely tax-free under IRC 104(a)(1) and Revenue Ruling 68-10. Your buddy is 100% correct - these payments are tax-exempt, and your cousin is completely wrong about needing to be retired. The tax exclusion applies regardless of your age, employment status, or whether you're collecting a pension. The only requirement is that the payment is compensation for a work-related injury under workers compensation law. You don't need any special forms, and you don't "deduct" anything. You simply don't report the workers comp settlement as income at all on your tax return. It's excluded from your gross income entirely. Just make sure to keep all your settlement paperwork, disability rating documentation, and any correspondence from your state's workers comp board. These documents prove that your payment qualifies for the IRC 104(a)(1) exclusion. Since you can still work light duty, any future wages from that work will be taxable as normal income, but your disability settlement remains completely tax-free. Don't stress about this - workers comp disability settlements have very straightforward tax treatment when they're legitimate compensation for workplace injuries like yours!