Can you explain more about the accountable plan option? I have an S-Corp for my online business and my CPA never mentioned this as a possibility. Currently not taking any home office deduction at all because I was told I couldn't.

An accountable plan is basically a formal arrangement where your S-Corp reimburses you for legitimate business expenses you incur personally - including home office expenses. The key benefit is that the reimbursements aren't considered taxable income to you, but the corporation can still deduct them. You'll need to document the business use of your home (square footage calculations, exclusive use, etc.), calculate the expenses properly, and have formal documentation showing the corporation approved this arrangement. The business would then reimburse you periodically based on actual expenses. This avoids the "rental payment" situation your tax preparer was concerned about. Many CPAs aren't familiar with this approach, so it might be worth finding one who specializes in small business/S-Corp taxation.

I got audited in 2021 specifically for my home office deduction! They wanted proof that the space was used exclusively for business. I had to provide photos, a floor plan with measurements, and receipts for business equipment in that room. They also asked for a written explanation of business activities conducted in the space.

Do you know if I need to bring my actual tax return paperwork to the appointment? I used TurboTax and don't have a printed copy of everything. Would just my W-2s and ID be enough?

For identity verification appointments, you don't need your complete tax return paperwork if you filed electronically. Your photo ID, Social Security card, and W-2s should be sufficient as they're mainly verifying you are who you claim to be. If you can access a summary of your return from TurboTax (even just on your phone), that would be helpful but not strictly necessary. They mainly need to match your ID with the person who should be receiving the refund, along with verifying your income information matches what was submitted.

Is there any way to check if your address is correct with the IRS without calling them? Their phone lines are always jammed and I'm worried I might be in the same situation.

That's interesting and might explain what's happening in my case too. Did your former employer provide any documentation explaining this approach? And which method did you end up using - the itemized deduction or claim of right?

They didn't provide specific documentation beyond a brief explanation in the email that accompanied my W-2c. It was frustrating because they basically put the burden on me to figure out the tax implications. I ended up using the claim of right provision (Section 1341) since my repayment was over $3,000. This gave me a better result than the itemized deduction would have because I was in a higher tax bracket when I received the money than when I repaid it. I had to fill out some additional worksheets that weren't part of the standard tax software process, but it was worth it - I got back about $1,200 more than if I had just taken the itemized deduction.

Does the Tax Cut and Jobs Act affect this? I thought miscellaneous itemized deductions were eliminated until 2025?

Thanks for mentioning SCORE! I hadn't heard of them before. Do they offer online options or is it all in-person? And would they be able to help with digital/creative business tax questions specifically?

They offer both online and in-person workshops depending on your location. During covid they moved most of their programs online and many stayed that way, which is great for accessibility. They definitely can help with digital/creative businesses! Many of their mentors have backgrounds in marketing, design, and digital services. When you sign up, you can specifically request someone familiar with your industry. The tax principles are largely the same across industries, but having someone who understands your specific business expenses and revenue models is super helpful.

This! I use a simple spreadsheet with categories for all my expenses and take photos of receipts with my phone. Makes tax time so much easier. Also, put 30% of every payment into a separate savings account for taxes - that saved me from panic when I got hit with my first self-employment tax bill.

Thanks for the insider perspective! Does your sister have any tips on what kinds of things the computer system typically flags? I'm wondering if having this side gig for the first time might have put me in a higher risk category.

The system mainly looks for statistical outliers compared to similar returns. So if you claimed deductions that are way higher than average for your income level, that's a red flag. Starting a Schedule C business can increase scrutiny, but it's not automatic - it's more about whether your reported expenses and income look reasonable for your type of business. Other big triggers include: not reporting income that was reported on W-2s or 1099s, claiming the Earned Income Tax Credit when the numbers don't quite add up, and home office deductions that seem disproportionate. But honestly, if you reported everything accurately and have documentation, even if you do get audited, it's usually just a matter of showing your records.

This is reassuring. Was it easy to respond to them? Did you have to mail physical documents or could you upload them somewhere?