Is this really legit though? Don't you have to run actual payroll with proper tax withholdings at the time you take the money? I've been stressing about making sure everything is by-the-book with my new S-Corp.

This is absolutely legitimate as long as you properly document and account for everything. When you run payroll, you'll calculate the full gross salary amount, withhold all required taxes, and then reduce the net check by the amount you already advanced yourself. For example, if your reasonable salary is $5,000 monthly and you already took $3,000 as an advance, when you run payroll, you'll still calculate taxes on the full $5,000, but the net check would only be around $2,000 (minus the taxes on the full amount). This ensures all proper employment taxes are paid on your full reasonable compensation. Just make sure your payroll system can handle this "adjustment" or "reimbursement" properly.

Agreed! I did something similar my first year and my accountant just had me document everything carefully. The important thing is the year-end picture looks right. S-Corps get in trouble when they take massive distributions and tiny salaries over the course of entire years, not when they make minor timing errors while learning the ropes.

I'm not too worried about estate taxes since my total assets are well under the exemption limit. Are there any other advantages to gifting some stock now versus keeping everything for the step-up basis approach?

If your estate is below the exemption threshold, then maximizing the step-up basis becomes your primary objective, making your original plan more advantageous. One alternative worth considering is gifting stocks that have minimal gains or even losses, since those wouldn't benefit much from step-up basis anyway. This allows you to maintain ownership of your highly appreciated assets for the step-up benefit while still giving your grandchildren some investment exposure during your lifetime. It can also be a good educational opportunity to teach them about investing if they're old enough.

The Roth conversion idea is solid but completely separate from the step-up basis question. Step-up applies to taxable accounts, not IRAs. Roth conversions are about income tax, not capital gains. Both strategies can work together in a comprehensive plan though.

As a US citizen working for a foreign mission, your situation is actually a bit different. You DO owe both income tax and self-employment tax since US citizens are taxed on worldwide income. You wouldn't use Schedule C because you're an employee, not a business owner. Instead, you'd report your income on Line 1 of Form 1040 as wages, then complete Schedule SE to calculate your self-employment tax obligation. Make sure you're getting credit for those quarterly payments by reporting them on your return. And keep good records of everything because this situation often triggers questions from the IRS simply because it's less common.

Thanks for clearing that up! So basically treat it like regular wage income on the 1040, but also file Schedule SE for the self-employment portion? And I assume my quarterly payments go on the 1040-ES line? Do I need any special statement or form since my employer gave me their country's version of income documentation rather than a W-2?

Do you mind sharing which publications they recommended? I'm in a similar situation but working for an international organization rather than a foreign mission, and I'm trying to understand if the rules are the same.

They pointed me to Publication 519 (U.S. Tax Guide for Aliens) which has a section on employees of foreign governments and international organizations. Also Publication 54 (Tax Guide for U.S. Citizens and Resident Aliens Abroad) had some relevant information. For international organizations, the rules are very similar but depend on whether your organization has specific tax privileges under International Organizations Immunities Act. The key thing is that while you might be exempt from income tax, you typically still owe self-employment tax unless covered by a totalization agreement with your home country.

TurboTax does show the status of your federal refund in your account dashboard. For state refunds, it depends on which state you're in. Some states are integrated in the TurboTax tracking system, but for others, you'll still need to go to your state's tax department website to check. I'm in Texas so no state income tax to worry about, but when I lived in Illinois I had to check separately.

Thanks for the info! I'm in Michigan so I'll probably need to check separately. Was hoping they'd improved the tracking system since last year. I'll still use TurboTax since I'm familiar with it, but wish they'd make this part easier.

In my experience, TurboTax "Free Edition" usually tries to upsell you if you have anything beyond the most basic return. If you have any deductions, credits, self-employment income, etc., they'll tell you that you need to upgrade to Deluxe or higher. I switched to FreeTaxUSA a couple years ago and haven't looked back - much more straightforward pricing.

Do the adjustments also apply to income limits for Roth IRA contributions? I'm right at the cutoff and wondering if I can still contribute for 2024.

Yes, the income limits for Roth IRA contributions also increased for 2024. The phase-out range for single filers is now $146,000 to $161,000 (up from $138,000 to $153,000 in 2023). For married filing jointly, it's $230,000 to $240,000 (up from $218,000 to $228,000). So if you were right at the cutoff before, you might now be under the threshold thanks to these adjustments. This is exactly why these inflation adjustments are so important - they prevent "bracket creep" across all aspects of the tax code, not just the income tax brackets themselves.

Yes, the standard filing deadline for your 2024 taxes (which you'll file in 2025) is still April 15, 2025. The inflation adjustments only affect the tax brackets, deductions, and credits - not the filing deadlines.