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Has anyone contacted the executor of the owner's estate? When a business owner dies, there's usually someone legally responsible for handling their affairs. That person might be able to authorize Paycom to provide the W2s or at least provide the payroll records so you can determine your wages and withholdings for the year.
That's actually a really good idea I hadn't thought of. I believe the owner's sister is handling his affairs, but honestly we've all been keeping our distance out of respect while she's grieving. Maybe I could reach out carefully and just ask if she has any information about the business accounts or records. The restaurant was doing well financially, so there must be some kind of bookkeeping or records somewhere.
Approaching with sensitivity is definitely the right move. You might frame it as wanting to properly close out your employment relationship with the business rather than just tax documents. The executor likely has legal access to business records that could help everyone involved. If there was a business accountant or bookkeeper separate from Paycom, they might also have records that would be helpful. Many businesses keep separate financial records beyond what their payroll service maintains.
I just went through something similar. If you have your last pay stub from December, it should show year-to-date totals for your earnings and all withholdings. Those numbers are basically what would be on your W2!
This is 100% the way to go. I worked payroll for years and the YTD on your final December paystub should match your W2 exactly for most regular employees. Only difference might be if you had taxable benefits added after the last payroll was processed.
Some other AGI-lowering strategies to consider: - Unreimbursed partnership expenses if applicable - Capital loss harvesting (sell investments at a loss) for up to $3k AGI reduction - Contribute to traditional IRAs for both of you if eligible - Check if you qualify for the student loan interest deduction - Certain educator expenses if either of you are teachers - Health insurance premiums if self-employed Honestly though, with a $19k gap to close, it's going to be tough unless you have some business losses or other major deductions available.
Thanks for these suggestions! We don't have any partnership income or self-employment, but the capital loss harvesting is interesting. We do have some investments that haven't performed well. Would selling those at a loss help lower AGI this year?
Yes, capital loss harvesting would help lower your AGI. You can deduct up to $3,000 in net capital losses against ordinary income per year, which directly reduces your AGI. If you have investments that are currently at a loss, selling them would realize those losses that you can use on your tax return. Just be aware of wash sale rules - if you buy substantially identical investments within 30 days before or after selling at a loss, you can't claim the loss for tax purposes.
Any chance either of you have student loans? The student loan interest deduction can reduce AGI by up to $2,500, but it phases out at higher incomes. Still, every bit helps. Also, does your company offer any pre-tax benefits you're not taking advantage of? Some employers offer things like dependent care FSAs, commuter benefits, etc. that can lower your taxable income.
The student loan interest deduction phases out completely for married couples filing jointly when MAGI reaches $155,000, so that wouldn't help in their situation with $227k income unless they file separately. And if they file separately, neither spouse can claim the student loan interest deduction at all. It's one of those weird tax rules.
Here's a tip that many people don't know about: if this is your first time with an underpayment situation, you can often get the IRS to waive the penalty through what's called "First Time Penalty Abatement." You have to specifically ask for it though! I was in your exact situation 2 years ago with my side business. I called the IRS after I got the penalty notice (took forever to get through) and just politely explained that I didn't understand the quarterly payment requirements and asked if there was any relief available since I had always filed and paid on time before. They removed the entire penalty!
Do you have to wait until they assess the penalty before requesting abatement? Or can you be proactive and request it when you file?
You generally need to wait until they assess the penalty before requesting abatement. The IRS typically sends a separate notice about penalties after processing your return. When you get that notice, that's when you should call and request the First Time Penalty Abatement. You can't really request it proactively when filing because the IRS needs to calculate the penalty first. The good news is that if you qualify, they'll usually grant it without much hassle as long as you've had a clean compliance record for the previous 3 years.
Watch out for state taxes too! Everyone here is talking about federal, but depending on your state, you might owe there as well. I forgot about state taxes on my DoorDash income and got hit with penalties from both IRS and my state tax board.
This is such a good point. I'm in California and their underpayment penalties are actually worse than the federal ones. Had to pay almost 9% penalty on what I owed to the state.
My accountant told me something different about this situation. She said that if you over-contribute to a Roth IRA, you could also recharacterize the excess amount to a Traditional IRA instead of paying the penalty, as long as you're eligible to contribute to a Traditional IRA. Has anyone done this? Not sure if this would still be an option for contributions from 2019 though.
Your accountant is partly right, but timing is crucial. Recharacterization was an option before the tax filing deadline (including extensions) for the year of the contribution. For 2019 contributions, that deadline would have been around July-October 2020 (extended due to COVID). Since we're in 2025 now, recharacterization is no longer an option for 2019 contributions. The OP will need to go with the Form 5329 and penalty approach. But your suggestion is definitely good advice for anyone who catches their over-contribution more quickly!
When I had a similar Roth over-contribution problem, I was told by an IRS representative that I should also consider the earnings on the excess amount. The 6% penalty applies to the excess contribution itself, but what about the earnings that excess generated? If you eventually remove the excess, you'll need to calculate and withdraw those attributable earnings too (and pay income tax plus potentially a 10% early withdrawal penalty on those earnings). Have you figured out how much your $1,100 excess has earned since 2019? That might be relevant depending on how you ultimately resolve this.
That's a really good point I hadn't considered. I haven't calculated the exact earnings on the excess portion, but given market performance since 2019, it's probably significant. If I'm using the "absorption" method by under-contributing in 2021, do I still need to worry about the earnings issue? Or does that only apply if I'm physically removing the excess contribution?
If you're using the "absorption" method by under-contributing in a later year, you don't need to worry about withdrawing the earnings. The earnings stay in your Roth IRA and continue growing tax-free, which is actually a nice benefit! The earnings only become an issue if you physically withdraw the excess contribution. In that case, you'd need to calculate and withdraw the proportional earnings as well. Since you've already effectively "fixed" the excess through your 2021 under-contribution, you just need to file Form 5329 for 2019 and 2020 to pay the penalty for those years. The earnings can stay put in your account.
Roger Romero
One thing nobody's mentioned yet - you need to CHECK YOUR STATE TAX SITUATION too! If your federal Schedule-C was messed up, your state returns are almost certainly wrong as well. Most states have similar processes for amending returns and reporting preparer fraud. Also, check if your preparer has a PTIN (Preparer Tax Identification Number). Legitimate tax preparers are required to have one, and if yours didn't, that's another red flag you can report. You might want to look them up on the Better Business Bureau and file a complaint there as well.
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James Maki
β’Omg you're so right about the state taxes! I didn't even think about that. And no, I don't recall seeing a PTIN anywhere on our returns but I'll double check. When we confronted him about the federal audit, he didn't mention anything about potential state issues either. Should I be contacting the state tax agency proactively or wait until after dealing with the federal audit?
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Roger Romero
β’I'd recommend dealing with the federal issue first since that's the immediate concern with the audit notice. However, you should at least pull copies of your state returns to review them. Most states have processes for amending returns similar to the IRS. Once you have your federal situation under control with proper representation, your tax professional can help address the state issues too. They often go hand in hand, and many of the same corrections will apply to both. Just make sure to keep documentation of everything - communications with the preparer, the audit notice, and any amendments you file. This will help show your good faith efforts to correct the situation.
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Anna Kerber
Has anyone mentioned potential penalties? That's what scared me the most during my audit. The IRS can charge accuracy-related penalties (usually 20% of the underpayment) for substantial understatements or negligence. But if you can show "reasonable cause" - like you trusted a professional who you thought was legitimate - you might get those waived. Documentation is super important here. Keep every email, text, receipt from this preparer. If he advertised himself as legitimate or had credentials he claimed made him qualified, save all that too. All of this helps build your case that you acted in good faith.
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Niko Ramsey
β’This is key advice! When I went through my audit, I had all my communications with my sketchy preparer saved in a folder. The IRS agent specifically asked for evidence that I relied on professional advice, and those emails where my preparer assured me everything was "standard practice" made a huge difference in the outcome.
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