Can you explain more about how debt affects basis? My S corp just took out a $150k loan that I guaranteed personally. Does this automatically increase my basis by $150k?

No, a loan guarantee by itself doesn't automatically increase your basis. For debt to increase your basis, you generally need to be the direct lender to the corporation or have actually made payments on the guaranteed debt. Simply guaranteeing a third-party loan usually doesn't increase basis until/unless you're actually called upon to pay the debt. The rules are pretty specific - you need "economic outlay" where you've actually put your money at risk. If the bank loaned money to your S corp and you just guaranteed it, that doesn't increase your basis until you make payments on it.

It's still valid but risker than before. The IRS is definitely focusing on "reasonable compensation" in S corps. I recommend having your salary be at least 40-50% of your total income from the business. In my case, on $200k of business profit, I take $100k as salary and the rest as distributions. My tax advisor says this is defensible based on my industry and the services I personally provide vs. what my business provides.

Thanks, that's helpful. I've been taking about 30% as salary so maybe I should increase that a bit. I just hate paying all those extra payroll taxes! Do you do anything special to document why your salary is reasonable? Like keep data on industry standards or anything?

That's really helpful! Did you use a specific form for that detailed expense breakdown or did you just create your own document to attach? And did you have to get anything notarized or officially verified?

I created my own spreadsheet that listed each expense category (housing, utilities, food, transportation, etc.) with the monthly amount and annual total. I didn't get anything notarized, but I did include recent statements for everything - utility bills, bank statements showing rent payments, etc. I also wrote a cover letter explaining my financial hardship situation and specifically referenced IRM 5.8.5.22 (the Internal Revenue Manual section that covers the bank account exemption). The tax advocate told me that making it easy for the reviewer to verify your information greatly increases your chances of approval.

I had mine accepted about 3 months ago. The acceptance rate is lower, but that's largely because people submit incomplete or inaccurate applications. If you document everything thoroughly and calculate your offer correctly, you've still got a good chance.

What about the stimulus payments from 2021? Could filing for that year help claim those if someone missed them originally?

Yes, filing a 2021 return could help you claim the third Economic Impact Payment (stimulus) if you were eligible but never received it. The third stimulus payment was $1,400 per person, and it was technically an advance payment of the 2021 Recovery Rebate Credit. If you were eligible for the stimulus but didn't receive it, you can claim it as the Recovery Rebate Credit on your 2021 return. This is a really good point - even if you had zero income and weren't required to file, you might want to file specifically to claim this credit. However, you must file within three years of the original due date to claim this credit, so for 2021 taxes, you'd need to file by April 18, 2025.

I think you can still buy prior year versions on their websites. I just checked and TurboTax definitely still sells 2021 software but it's download only, no CD versions anymore. H&R Block should have it too. Just make sure you're getting the right tax year!

Is this approach actually legal? I thought if you offer a retirement plan it has to be available to all eligible employees. Wouldn't having separate plans violate some non-discrimination rules?

This is a common misconception. The key is in how you structure the business entities. If the owners operate through a separate entity (like a partnership) from the employee-hiring entity, then you can legally establish different plans. You'd need to consult with a tax professional to ensure your specific business structure qualifies, but many small businesses with similar structures to yours successfully implement this dual approach. The critical factor is having proper documentation of the separate business entities and ensuring you follow all IRS guidelines for each plan type.

That sounds perfect! $49/month is much more reasonable. Does Guideline handle all the compliance testing and Form 5500 filing? Also, could you explain a bit more about how the discretionary profit sharing worked in your case?

Thanks for the tip about entering them separately! Do you know if TurboTax will automatically ask me about the medical insurance exception, or do I need to look for that specifically somewhere?

TurboTax should ask you about exceptions after you enter each 1099-R form. When it asks about the distribution code (Box 7), it will then follow up with questions about your situation. If you indicate you were unemployed, it should specifically ask if you used any of the money for health insurance premiums. If it doesn't automatically prompt you, look for a section called "Exceptions to Tax Penalties" or something similar after entering your 1099-R information. Make sure you have documentation of your insurance premium payments during your unemployment period, as you'll need this if you're audited.

I used it last year for a similar retirement withdrawal situation. The expert was helpful in confirming I qualified for an exception to the penalty since I was using the money for health insurance during unemployment. For complex situations like multiple 1099-Rs with no W-2s, I'd say it's worth the extra cost for the peace of mind.