Would a credit report really show income though? I thought it just showed credit accounts and payment history, not actual income reporting. Did you find specific income information there?

You're right that the credit report itself doesn't show income directly. What I meant was that reviewing your credit report can remind you of accounts you may have forgotten about (old bank accounts, investments, etc.) that might have generated income. For example, in my case, I saw an old investment account on my credit report that I had forgotten about, which led me to contact that company, and sure enough, they had issued a 1099 for a small amount of dividend income. The credit report was just a starting point to jog my memory about possible income sources I might have overlooked.

This! I used TurboTax last year and they had a "MAX" package that included audit support. When I got a similar notice, their tax pros helped identify the issue and even handled some of the communication with the IRS. Definitely worth checking if you already paid for this with your filing.

I've thought about bankruptcy, but I'm worried about how it would affect my new business. Since I'm just getting started, I need to be able to get business credit, possibly lease equipment, etc. From what I understand, bankruptcy would make that nearly impossible for several years, right? Also, there's some personal pride involved - I want to pay what I owe if possible.

Bankruptcy might actually be less harmful to your new business than you think. Chapter 13 allows you to reorganize your debts rather than liquidate, which could protect your ability to operate. Many entrepreneurs have successfully started businesses after bankruptcy - it's not the death sentence it used to be. As for business credit, you'd likely need to rely on business revenue rather than credit for a while, but there are specialized lenders who work with post-bankruptcy entrepreneurs. The pride aspect is understandable, but from a pure financial perspective, protecting your retirement might be the wiser long-term choice.

Those debt settlement companies can be REALLY sketchy. They typically tell you to stop paying your credit cards entirely while they "negotiate" with your creditors. Meanwhile, your credit score tanks, you rack up late fees, and often get sued by the credit card companies. They also charge hefty fees - usually 15-25% of your enrolled debt. I work in financial counseling and have seen more people get burned by those companies than helped. If you want legitimate help with debt, look into nonprofit credit counseling agencies instead - they offer Debt Management Plans that can lower interest rates without the risks of debt settlement.

But doesn't the business vs personal use percentage still apply even if you use standard mileage rate? Like if the car was 70% business and 30% personal, wouldn't that affect how the gain/loss is calculated when selling?

Yes, the business/personal percentage absolutely still applies. With standard mileage, you're only claiming deductions on the business portion anyway (your business miles). When you sell the car, you need to allocate any gain or loss based on that same business use percentage. So in your example with 70% business use, only 70% of any gain or loss would be business-related. But remember, the standard mileage deduction you've taken over time has already reduced your basis for the business portion of the car, which is why many people end up with a gain instead of a loss when they sell, even if they sell for less than they paid.

What form did you use to report this? Was it Schedule D or Form 4797? My accountant used Schedule D for my business vehicle sale which doesn't seem right.

The idea of renegotiating my equity stake is interesting. My partner and I have been operating this way for years without really thinking about the tax consequences. Do guaranteed payments still incur self-employment tax like salary would?

Yes, guaranteed payments do incur self-employment tax similar to salary. That's the downside compared to distributions. However, unlike regular salary which needs to meet "reasonable compensation" standards, guaranteed payments can be tied to specific services or capital you provide to the business. They're especially useful when partners contribute unequally in ways not reflected by ownership percentages. For the equity restructuring, you might consider a gradual approach where your percentage increases over time based on predefined performance metrics. This could help align your tax situation with the economic reality without creating a sudden shift in the business relationship.

I've done this. The key is proper documentation - you need a written loan agreement with reasonable interest and a realistic repayment schedule. Without that, the IRS might reclassify it as a distribution anyway.

That's an interesting approach. Did you have any issues with the IRS viewing it as a disguised purchase of goodwill? Did you need to structure it in a specific way to make sure it worked?

We were careful to structure it as true contingent payments based on future performance, not just an installment sale. The payments were directly tied to retained clients and their actual revenue each year, with no minimum guarantees. My tax attorney said the key is making sure it's genuinely contingent on future performance and not just spreading payments for a fixed asset. We documented everything thoroughly to show the payments were earned as the benefit was realized. It's been 4 years and we've had no issues with the IRS.

Smart approach but be careful - the IRS scrutinizes these arrangements if the consulting payments seem excessive relative to actual services provided. Make sure there's documentation of actual consulting activities and that the payment amount is reasonable for the services.