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Heads up from someone who did this wrong! My wife and I started an S-Corp for our graphic design biz in 2018 and only paid ourselves tiny salaries ($15k each) while taking hefty distributions the first two years. Got audited in 2021 and the IRS reclassified most of our distributions as salary. Had to pay back employment taxes plus penalties. Ouch! Now we use the 60/40 rule - roughly 60% salary to 40% distributions, and document everything like crazy. Our accountant says there's no magic formula but reasonable should mean reasonable for your industry and workload.
As a newer S-Corp owner myself, I've found that documentation is absolutely key. We started conservative with salaries too, but what helped us was creating a simple spreadsheet tracking our monthly revenue, expenses, and profit margins. Every time we adjust our salaries, we document the business justification. One thing that's been helpful is looking at job postings for similar roles in our area to establish benchmarks. For tattoo shops specifically, you might look at what experienced tattoo artists or shop managers earn locally. Since you're doing both artistic work AND business management, your reasonable compensation should reflect both roles. The 30-40% of profits rule mentioned earlier is solid, but don't stress too much about hitting exact ratios every month when you're still growing. The IRS understands that new businesses have variable income. Just make sure whatever you're paying yourselves is defensible based on what you'd pay someone else to do your jobs, and keep good records of how you determined those amounts.
I went through the exact same thing last month! Topic 152 disappeared after being there for weeks, then about 5 days later I got my refund date. It's actually a good sign - means they're actively processing your return. The waiting is brutal but you're probably close to getting an update. Keep checking but try not to stress too much about it disappearing! 🤞
This is so reassuring to hear! I'm in a similar boat - filed early and have been obsessively checking WMR. Did you notice any other changes on your transcript before the refund date appeared? Like any new codes or cycle dates? @Paolo Rizzo
Zoe, I suggest calling the and getting the status. $5 discount for first time callers using Claimyr https://join.claimyr.com/be256b
To all those having trouble reaching a human at IRS. I just ran across this video that gave me a shortcut to reach a human. Hope it helps! https://youtu.be/_kiP6q8DX5c
Wow 10 months is crazy but so happy you finally got yours! I'm currently stuck with the same 570/971 codes since August and this gives me so much hope. Quick question - did your transcript ever update with any other codes before the 846 showed up? Mine has been radio silent for weeks and I'm starting to panic 😅
Hey! I totally get the panic - I was checking my transcript like every other day lol. Mine was pretty much silent too after the initial 570/971 codes showed up. No updates for literally months and then boom - the 846 refund code just appeared one day! I think the key is that once you see those codes, the IRS is working on it behind the scenes even though it looks like nothing is happening. August to now is definitely a long time but based on what others are saying here, you might be getting close! Have you tried that taxr.ai thing people keep mentioning? Might give you some peace of mind about where you're at in the process 🤞
This is so encouraging! I've been dealing with 570/971 codes since September and was starting to lose hope. Seeing that yours took 10 months but still came through makes me feel better about the wait. That's a nice chunk of change too - $28,582! 🎉 I'm definitely going to check out that taxr.ai site everyone's mentioning to see if I can get some clarity on my timeline. Thanks for sharing your success story and keeping the rest of us motivated! 💪
Congrats to OP for finally getting through! As someone new here dealing with the same codes since October, this thread has been super helpful. Just used taxr.ai based on all the recommendations and it actually broke down exactly what's happening with my case - apparently I'm in wage verification too and should see movement in 2-3 weeks! Worth every penny for the peace of mind. Thanks everyone for sharing your experiences, makes this whole process feel less lonely 🙏
Ravi Sharma
Anyone know if you can e-file when claiming a Section 1341 credit? Last year I had a similar situation and TurboTax kept giving me an error when I tried to e-file with the claim of right credit.
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NebulaNomad
•You can e-file with a Section 1341 claim, but some software doesn't support it properly. I used H&R Block Premium last year for a claim of right situation and was able to e-file successfully. There's a specific place to enter it as "other credits" and you need to write "IRC 1341" in the description field.
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Amara Nnamani
I went through something very similar with duplicate EE bonds last year! One thing to watch out for - make sure you have all the documentation from Treasury showing the erroneous issuance before you file. The IRS may want to see proof that the second bond was issued in error and that you're required to repay the interest. Also, since you're dealing with $4,100, you'll definitely want to calculate both the deduction and credit methods when you file your 2025 return. In my case, the credit ended up saving me about $200 more than the deduction would have, but it depends on your tax brackets in both years. Keep all your correspondence with Treasury - you'll need it to support your Section 1341 claim. The IRS is pretty strict about having proper documentation for claim of right situations.
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Edwards Hugo
•This is really helpful advice about keeping documentation! I'm curious - when you calculated both methods, did you do it manually or did you find tax software that could handle it? I'm already dreading trying to figure out the credit calculation since it sounds pretty complex with having to calculate your tax twice. Also, did Treasury send you any specific forms or letters acknowledging the error, or was it just regular correspondence? I want to make sure I'm keeping the right paperwork for when I file next year.
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