I'm a bookkeeper and I see this ALL THE TIME with new S-Corps. Here's a step-by-step approach: 1. Open separate accounts today 2. Print all bank/credit statements since S-Corp formation 3. Create a spreadsheet tracking every transaction 4. Mark each as business or personal 5. Calculate total personal expenses paid from business account 6. Calculate total business expenses paid from personal accounts 7. Do a reconciling transfer to make the accounts whole 8. Set up proper payroll immediately 9. Document EVERYTHING with a memo explaining the situation The worst thing you can do is ignore it. I've helped clients navigate IRS inquiries on this exact issue, and they're much more lenient when you've identified and fixed the problem yourself.

I went through almost the exact same situation with my S-Corp about 18 months ago. The panic when you realize what a mess you've created is real, but it's absolutely fixable! Here's what worked for me: I immediately opened separate business accounts and stopped all commingling that day. Then I hired a CPA who specializes in S-Corps (not just any accountant - make sure they know S-Corp rules inside and out). We did a full reconstruction of my books going back to the S-Corp election date. The salary issue is critical - you need to get on payroll ASAP. My CPA calculated what my reasonable salary should have been from day one and we did retroactive payroll for the entire period. Yes, I had to pay employment taxes on that amount, but it protected me from much worse penalties if the IRS had discovered it first. One thing that really helped was creating a detailed memo explaining the situation, the steps we took to fix it, and the controls we put in place to prevent it from happening again. Documentation is your friend here. The good news is that the IRS sees this mistake frequently with new S-Corps, and they're generally reasonable if you proactively fix it and can show you took it seriously. Don't let the fear paralyze you - take action now and you'll sleep much better in a few months.

This thread has been incredibly helpful for someone like me who's been putting off dealing with unfiled taxes. I'm 31 and have been avoiding this for years due to pure anxiety and not knowing where to start. One thing I'd add from my research is that the IRS has an online payment agreement tool if you do end up owing money. You can set up a payment plan directly on their website without having to call (which we all know can be a nightmare). The monthly payment amounts are usually very reasonable based on your income and expenses. Also, for anyone worried about the complexity - TurboTax and other software can handle prior year returns, not just current year. I was surprised to learn you can e-file returns going back several years, which makes the process much faster than mailing paper returns. The biggest takeaway for me from reading everyone's experiences is that the IRS really isn't the scary monster I built up in my head. They genuinely seem to work with people who come forward voluntarily and make an effort to get compliant. Reading about all the people who ended up with refunds instead of owing money has finally given me the courage to tackle this myself.

As someone who just went through this exact situation last year, I want to echo what everyone else has said - you're making the right choice by addressing this now, and it's likely not as bad as you think. I was 30 when I finally dealt with 6 years of unfiled returns. Like you, I was a W-2 employee with taxes withheld, and I ended up getting refunds for 4 out of those 6 years! The two years I owed money on had very manageable amounts, and the IRS accepted my first-time penalty abatement request without any pushback. One practical tip that really helped me: start by calling the IRS Practitioner Priority Line at 866-860-4259 if you're working with a tax professional, or use the regular taxpayer line. They can tell you upfront if they've already filed substitute returns for you, which changes your strategy completely. The whole process took me about 3 months from start to finish, and the relief I felt afterward was incredible. I wish I hadn't let fear keep me paralyzed for so long. You've got this - just take it one step at a time!

This has been such a helpful thread! I'm definitely convinced to try TurboTax Desktop this year after reading everyone's experiences. The cost savings alone make it worth switching, especially since it sounds like the functionality is essentially the same. One question I haven't seen asked yet - for those who switched from online to desktop, did you notice any difference in customer support? Like if you run into issues or have questions while preparing your return, is the help just as accessible with the desktop version? I've had to contact TurboTax support a couple times in previous years through the online version and want to make sure I won't be left hanging if I need help with the desktop software. Also, really appreciate the tips about backing up the tax files and being able to install on multiple computers. That flexibility is actually another point in favor of desktop that I hadn't considered!

I've been going back and forth on this exact decision! Really appreciate all the detailed comparisons here. One thing that's pushing me toward desktop is that I tend to overthink my taxes and like to go back and double-check things multiple times before filing. Having everything saved locally and being able to work offline sounds perfect for my workflow. Quick follow-up question - does anyone know if the desktop version still supports importing photos of tax documents like W-2s and 1099s? I know the online version has that feature where you can snap a picture with your phone, but I'm not sure if that carries over to desktop. That's one convenience feature I'd really miss if it's not available. Also, for what it's worth, I called TurboTax yesterday to ask about pricing and the rep confirmed that desktop versions often go on sale at major retailers, sometimes 20-30% off the regular price. Might be worth shopping around rather than buying directly from TurboTax if you decide to go the desktop route!

One thing nobody has mentioned - if you're excluding Medicaid waiver payments from your income, you might need to adjust your Earned Income Credit calculation if you were claiming that. Since the payments don't count as earned income when they're excluded, it could affect your EIC amount. Something to keep in mind if you're filing amended returns.

This is such a helpful thread! I'm in a similar situation but with a twist - I provide care for my elderly father who receives Medicaid waiver payments, but he doesn't live with me full-time. He stays at my house about 4-5 days per week and goes to my sister's the other days. Does anyone know if the "living in your home" requirement from Notice 2014-7 means they have to be there 100% of the time? Or would this split arrangement still qualify for the exemption since my home is his primary residence? I've been reporting these payments as taxable income but I'm wondering if I've been doing it wrong. Also want to echo what others have said about the big tax prep chains - went to two different locations and got completely different advice from each one. Definitely going to look for a CPA who specializes in this area like @PrinceJoe suggested.

As someone who went through this exact panic last year, I totally understand the stress! The confusion usually comes from people mixing up different scenarios. Here's what actually happens with your $63k 1099-NEC income: You'll pay approximately: - Self-employment tax: ~15.3% on about 92.35% of your income = roughly $8,900 - Federal income tax: After deductions (standard deduction, half of SE tax, possibly QBI deduction), you're looking at maybe 10-15% effective rate on what's left = roughly $4,000-6,000 - Don't forget state taxes if your state has them! So your total effective federal tax rate will likely be around 20-25%, not 30%. The people saying 30% are probably including state taxes or being overly conservative. My advice: Start making quarterly estimated payments ASAP for next year. I use the "safe harbor" rule - pay 100% of last year's total tax liability divided by 4, and you won't get penalties even if you end up owing more. It's better to slightly overpay than deal with underpayment penalties. Also, track EVERY business expense from now on. Home office, internet, phone, mileage, supplies - it all adds up and reduces your taxable income significantly.

This is such a helpful thread! I'm in a similar boat - first year with significant 1099-NEC income and totally overwhelmed by the tax implications. One thing I learned the hard way is to open a separate savings account just for taxes. I set up an automatic transfer of 25% of every payment I receive to go straight into that account. It's helped me avoid the panic of "oh no, where am I going to find $15k for taxes??" Also, if you're really behind on setting money aside, consider opening a Solo 401k or SEP-IRA before year end. You can contribute a significant amount and reduce your current year tax burden. For 2025, you might be able to contribute up to $23,000 to a Solo 401k (plus potential employer contributions as the business owner), which would lower your taxable income substantially. The quarterly payment thing is real though - don't wait until next April to deal with this. Even if you can't pay the full amount you'll owe, getting something in quarterly will help minimize penalties.