Lenders often have some flexibility with the timing, especially if you're proactive in discussing it with them. While they have reporting requirements, they sometimes can work with you on structuring the forgiveness. For example, some lenders might be willing to split a large debt cancellation across two tax years (December/January) if you explain your tax situation. It really depends on the lender and your relationship with them, but it's definitely worth having that conversation well before the planned cancellation.

That's a really helpful suggestion about timing it with medical expenses. I do have some procedures I've been putting off that would probably hit the threshold for medical deductions. Do you know if lenders are usually open to negotiating the timing of debt cancellation? I wasn't sure if I had any control over when they issue the 1099-C.

Good point! Also, some states follow federal insolvency rules and some have their own. I live in California and they have slightly different rules for cancelled debt than the IRS does.

Honestly I hadn't considered doing it manually since I'm pretty intimidated by all the tax forms. Is Form 1065 something a regular person can figure out without an accounting background? And how would I calculate all the specific numbers for the K-1s?

Form 1065 is definitely doable without an accounting background, especially for a small, straightforward LLC with just two members. The IRS provides detailed instructions, and there are plenty of free guides online. For the K-1s, you basically take each income and expense item and allocate them according to your ownership percentages. So if your LLC had $10,000 in profits, your wife's K-1 would show $5,100 (51%) and yours would show $4,900 (49%). Same with deductions and credits. The actual form walks you through each line item. The trickiest part is usually just gathering all your business income and expense information, which you'd need to do for any tax preparation method anyway.

We're just a regular LLC with no special tax elections. When we formed it, we didn't do anything special with the IRS, so I think we're taxed as a partnership by default? Now I'm worried we messed that up too...

You're good then! You're right that a multi-member LLC is taxed as a partnership by default if you didn't make any special elections. You'll need to file Form 1065 and prepare K-1s for both of you showing the 51/49 split. One more thing to consider - if this is your first year filing, make sure you've obtained an EIN (Employer Identification Number) from the IRS. You'll need this for your partnership return. If you haven't done this yet, you can get one instantly online through the IRS website.

But that's still wrong - the total isn't 3.8%. The Additional Medicare Tax is 0.9%, which when added to the 2.9% regular Medicare tax equals 3.8%. Is that what you meant?

Yes, that's exactly what I meant. The base Medicare tax is 2.9% on all SE income. Then the Additional Medicare Tax of 0.9% kicks in at those higher income thresholds, bringing the total Medicare portion to 3.8% (2.9% + 0.9%). I should have been clearer in my wording. Thanks for pointing that out. This conversation perfectly illustrates how even small differences in how tax concepts are explained can lead to confusion!

The wage base is tied to the National Average Wage Index so it automatically increases with inflation. It's gone up dramatically in recent years because wages have been rising so quickly. You can always find the current wage base on SSA.gov rather than relying on articles that might be using outdated numbers.

Thanks for explaining that! I didn't realize it was tied to wage inflation. Makes sense why it's been jumping up so much these past few years. I'll bookmark the SSA site for future reference.

Free File Fillable Forms includes Form 7004? I thought those were only available for individual returns like 1040s. Can you really use it for S-corps?

Thanks for the reminder! My S-Corp doesn't have any tax liability (all profits pass through to my personal return), but this is definitely important for C-Corps or S-Corps with certain types of taxes due.

I'll definitely look for Form 3922! And good point about checking his paystubs - I hadn't thought to look there. Is there any specific section on the paystub where stock compensation typically appears? Also, if the matched shares are treated as RSUs, would that change how we calculate the basis?

Stock compensation usually appears as a separate line item on paystubs, often labeled something like "Stock Awards" or "Equity Compensation." Sometimes it's under a non-cash benefits section. Look at paystubs from periods immediately following grant dates, as that's when the income would typically be recognized. If the matched shares are treated as RSUs, the tax treatment is actually similar, but the timing might be different. With RSUs, the taxable event occurs at vesting, not at grant. The FMV at vesting becomes your basis, and any subsequent appreciation is capital gain. With matched ESPP shares, the taxable event is usually at grant. The documentation from your husband's company should clarify which approach they're using.

Section 83(b) elections are usually more relevant for restricted stock with vesting conditions, not immediate stock matches in an ESPP. From what OP described, it sounds like the matched shares are granted immediately without vesting requirements, so 83(b) probably wouldn't apply here.