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One thing nobody's mentioned yet - don't forget that as an S-corp owner, you need to run actual payroll (either yourself or through a service) for your W-2 wages. Those payroll taxes need to be deposited regularly (usually monthly or semi-weekly depending on your size) and are separate from your quarterly estimated income tax payments. I use Gusto for payroll and it automatically calculates and submits all the payroll taxes including the employer portion. Then I just make quarterly 1040-ES payments for the additional tax on my distributions.
Do you need to make estimated tax payments if you have a decent amount withheld from your W-2 salary? Like could I just increase my W-2 withholding and skip the quarterlies?
Yes, you absolutely can increase your W-2 withholding instead of making separate quarterly payments! This is actually a great strategy many S-corp owners use. You can use the higher withholding from your S-corp salary to cover your tax liability on both your salary AND distributions. Just complete a new W-4 form requesting additional withholding to cover the tax on your distributions. The IRS doesn't care whether the tax comes through withholding or estimated payments, as long as you're paying enough throughout the year to avoid underpayment penalties.
What accounting software are ppl using for their S-corps? I'm trying to figure out how to track everything properly for taxes.
I think everyone's missing an important point here. If your relative paid $4,600 for your rental property expenses, that could potentially count toward the annual gift tax exclusion limit. For 2025, the gift tax exclusion is $18,000 per person, so your uncle would be fine, but it's something to consider if the amounts get larger or if he's making other gifts to you. Also, make sure you're not counting the expenses twice. The property management company probably already deducted their fees from the rental income before sending you the 1099. You'll want to carefully look at what expenses are already accounted for versus what additional expenses your uncle covered.
That's a really good point about the gift tax exclusion - I hadn't even thought about that angle. My uncle definitely hasn't given me anywhere near the $18,000 limit, so we should be fine there. And yes, you're absolutely right about the management company. Looking closer at my statements, they've already deducted their management fee, cleaning costs, and a couple minor repairs from the rental income reported on the 1099. The expenses my uncle covered were mainly the property taxes, insurance premium, and a major plumbing repair that happened outside the management company's scope. Thanks for pointing this out!
What tax software are you using? I had this EXACT scenario last year with my beach condo (family member paid expenses) and TurboTax handled it perfectly. There's a specific section where you can enter expenses you paid, and it clearly separates those from the income reported on the 1099. Just make sure to document the gift nature of the payments somewhere in your records.
One thing to consider with HSAs is that the contribution limit and eligibility requirements can be complex if your situation changes. I had a similar situation with a non-calendar year plan, and here's something that bit me: if your health coverage changes mid-year and you lose HSA eligibility, you generally have to prorate your contributions for that year. Make sure your HR department updates your payroll deductions correctly if your plan changes in July. Mine didn't, and I ended up with an excess contribution that I had to withdraw and report on my taxes. It was a mess to fix.
Did you have to pay penalties when you withdrew the excess contribution? I'm in a similar boat and wondering what the damage might be.
No penalties as long as I withdrew the excess contribution (plus any earnings on that amount) before I filed my taxes for that year. The earnings were treated as taxable income, but that was minimal in my case. If you've already filed or it's been longer than your tax deadline, there's a 6% excise tax on excess contributions for each year they remain in the account. Don't delay dealing with it - that penalty can add up!
Just a heads up that it's sometimes worth checking if your employer will adjust the plan deductible to maintain HSA eligibility. When the limits changed a few years ago, my company bumped our deductible up by $100 mid-year specifically so employees wouldn't lose HSA eligibility. Might be worth asking your benefits department if they're planning to make any adjustments in July when your plan renews.
This is great advice. Our company did the same thing when the limits changed in 2022. HR sent out a notice that they were adjusting the deductible to maintain HSA eligibility for everyone. They said it was easier than dealing with all the payroll adjustment requests that would happen otherwise.
Make sure you point out specifically in your response that the basis amount was already included as income on your W-2. The IRS computers just see missing 1099-B transactions and automatically assume the worst (zero basis). There's a specific form you should include - Form 8949 (Sales and Other Dispositions of Capital Assets). Make sure each transaction is listed with the correct basis amount and check box "B" to indicate that basis was reported to the IRS. This form should accompany your 1040X. And yes, you definitely made a mistake by not officially filing the 1040X. The IRS has separate departments for correspondence and amended returns. The person reviewing your letter likely doesn't have authority to process an amended return that just came in with correspondence.
So I need to separately file the 1040X through official channels while also responding to this notice? Does the 1040X need to be mailed to a different address than my response letter? And how do I make sure they connect the two?
Yes, you need to file the 1040X separately through official channels. The amended return should go to the IRS address specified in the 1040X instructions, which varies depending on where you live. For your response to the notice, send it to the exact address listed on the notice itself. In your response letter, specifically mention that you've also filed a 1040X and include the date you mailed it. Include a copy of the 1040X with your response letter as well (even though you're also mailing the original to the proper processing center). To help connect the two, include your notice number on both documents. Also, attach a clear explanation with both submissions that references the other submission. For example, on your 1040X write "This amended return is being filed in response to IRS Notice CP2000 dated [date]" and attach a copy of the notice.
I went through this exact nightmare last year! My company gives RSUs and the IRS completely messed up the basis calculation. The key is filing Schedule D and Form 8949 correctly - each stock sale needs to be listed with the proper basis. One thing to be super clear about - the "proceeds" from your stock sales (on the 1099-B) aren't new income if the basis equals those proceeds (since you already paid tax on the income through your W-2). The IRS computers often miss this connection. My first attempt at fixing this on my own failed miserably. I ended up hiring a CPA who specializes in tech compensation, and she wrote a detailed letter explaining exactly how each transaction tied to my W-2 income. Cost me $350 but saved thousands in incorrect tax assessments.
Yuki Yamamoto
Don't forget about state taxes too! The IRS garnishment might be federal, but if you haven't filed federal returns, chances are you haven't filed state returns either. States can be even more aggressive with collections sometimes. Make sure you address both when getting caught up, or you might fix the federal issue only to have the state start garnishing next. Some states have different lookback periods for refunds too, so you might be able to claim refunds from years that are too old for federal.
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Zara Malik
ā¢That's a really good point I hadn't considered. I'm in Texas so I don't have state income tax, but I did live in California for part of 2020 before moving. Does that mean I need to file a partial year California return for that period?
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Yuki Yamamoto
ā¢Yes, you would need to file a part-year resident California return for 2020. California is particularly aggressive with non-filers and has a longer statute of limitations than the IRS for certain things. Since you sold property during that period, California will be especially interested in whether any capital gains tax is due to them. When you file as a part-year resident, you'll only pay California tax on income earned while living there, plus any California-source income (like rental income from California property) earned after you moved. Given the housing market in 2020, there might be significant tax implications depending on how long you owned the California property.
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Carmen Ruiz
Has anyone used TurboTax to file back taxes? I'm in a similar situation (3 years unfiled) but don't know if I should use software or find a professional.
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Andre Lefebvre
ā¢You can use TurboTax for prior years, but you'll need to buy the desktop software for each specific tax year you need to file - the online version only works for current year. And if your situation includes property sales or complex investments, you'll definitely need the premium versions.
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