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Your accountant is right to question this. As an S-Corp, the business and your personal finances need to be separate. The kitchen remodel should be paid from personal funds. What you've done is essentially taken a distribution without properly documenting it. The best approach now is to reclassify this as a shareholder distribution or loan to shareholder. If you classify it as a loan, you'll need to repay it with interest at market rates. Otherwise, it should be a distribution which will show up on your K-1. Don't try to claim the kitchen as a business expense unless you only serve clients there and never eat there personally (which is obviously not the case in a family home).
Thanks for the reality check. I'm guessing I'll need to reclassify it as a distribution then. Is there any downside to doing that versus a loan to shareholder? And will I get in trouble for having initially run it through the business account?
A distribution is simpler than a loan in most cases. With a loan, you need to create proper documentation, charge interest at market rates, and set up a legitimate repayment schedule - otherwise the IRS might still classify it as a distribution anyway. You won't get in trouble for the initial miscategorization as long as you correct it. This happens frequently with small business owners. Your accountant will simply reclassify the transaction properly in your books. What would cause trouble is if you tried to deduct the kitchen remodel as a business expense and got audited. By being proactive and fixing the categorization now, you're doing exactly what you should be doing in this situation.
I'd recommend talking to a tax pro about taking a home office deduction, but do NOT try to write off the kitchen as a business expense. Even with a legitimate home office, you can only deduct expenses for the specific area used EXCLUSIVELY for business. The kitchen is clearly a personal space (unless you're running a catering business, which you're not). Either repay the business from your personal account or have your accountant record it as a distribution to you as the owner.
Don't forget that you might need to file a Schedule SE for self-employment tax too, not just the Schedule C. That's the form that calculates the 15.3% tax for Social Security and Medicare that you owe on your DoorDash earnings. Also, keep in mind that you might need to make quarterly estimated tax payments going forward if you expect to owe more than $1,000 in taxes for the year. The deadlines for those are April 15, June 15, September 15, and January 15.
Wait - quarterly tax payments? Nobody told me about that! So I have to pay taxes four times a year now? How do I even know how much to pay when I don't know how much I'll make with DoorDash?
Yes, when you're self-employed the IRS wants you to pay taxes throughout the year, not just at tax time. It's because you don't have an employer withholding taxes from each paycheck. You estimate how much you'll make for the year and calculate your quarterly payments based on that. You can use last year's income as a basis, or if your income varies a lot, you can use the "annualized income installment method" which lets you pay based on what you've actually earned each quarter. If you use tax software, it will usually calculate your estimated payments for the next year and even generate payment vouchers.
One thing nobody's mentioned yet - make sure you're tracking ALL your expenses, not just miles! You can deduct part of your phone bill, hot bags, car chargers, even a portion of your car insurance. Keep ALL receipts. Just don't be stupid like my roommate who tried to deduct his entire car payment and got audited lol. Only actual business expenses count!
Is it better to take the standard mileage deduction or track all your car expenses separately (gas, maintenance, etc)? I've been doing Doordash for 6 months and just writing down my miles.
One thing nobody's mentioned yet is that different types of mutual fund distributions are taxed differently. Qualified dividends are taxed at the lower capital gains rate (0%, 15%, or 20% depending on your income), while non-qualified dividends are taxed as ordinary income. Also, short-term capital gains distributions (from assets held less than a year by the fund) are taxed as ordinary income, while long-term distributions get the lower capital gains rate. This is why some tax-efficient funds (like index funds) tend to generate lower tax bills than actively managed funds that do a lot of trading.
How can you tell which distributions are qualified vs non-qualified? My 1099-DIV has all these different boxes and I'm never sure what they mean.
On your 1099-DIV, qualified dividends will be in Box 1b, while Box 1a shows total ordinary dividends (which includes both qualified and non-qualified). The difference between Box 1a and 1b would be your non-qualified dividends. Capital gain distributions will be in Box 2a. These are the fund's long-term capital gains that get the preferential tax rate. If the fund had to distribute short-term capital gains, those would actually be included in Box 1a as ordinary dividends, not in the capital gains box, which is why it can get confusing!
Does anyone use TurboTax for handling mutual fund taxes? I've heard mixed things about how well it handles cost basis adjustments.
I've used TurboTax for years with my mutual funds. It works OK if your brokerage provides good 1099s with detailed cost basis info. You can import directly from most major brokerages which helps avoid mistakes. But for older funds where you've been reinvesting for 10+ years, sometimes you need to manually adjust things, which can get complicated in TurboTax.
Last year I got my refund exactly 9 days after my return was accepted (filed Feb 3, got money Feb 12). This year I'm at day 15 and still waiting... seems like everything is slower this year!
Mine took 32 days this year! Filed January 28th and didn't get my refund until March 1st. No special situations or anything complicated either, just a standard return with W-2 income only. I think they're just backed up.
That's crazy! Wonder if they're understaffed or something. Did you ever get an explanation for why it took so long? And did the status bar on the "Where's My Refund" tool update regularly or was it just stuck for weeks?
Anyone know if filing an amended return slows down your original refund? I realized I forgot to include a 1099 after I already submitted my main return :
Filing an amended return shouldn't affect the processing of your original return - they're handled separately. Your original refund should proceed normally, and then the amended return (Form 1040-X) will be processed afterward. However, be prepared for a long wait on the amended return. Those typically take 16 weeks or longer to process, especially during peak tax season. Also worth noting that amended returns have to be processed manually, so they tend to take much longer than regular returns.
Ethan Scott
Pro tip from someone who's dealt with multiple CP2000 notices: ALWAYS request a complete account transcript before responding. You can get this online through the IRS website, and it shows exactly what forms and information they have on file for you. Often the discrepancy is just that they're missing information rather than you reporting incorrectly. In my case, they had TWO 1099-Bs from the same brokerage (one corrected, one original) and were double-counting some transactions. I wouldn't have caught that without reviewing the transcript first.
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Lola Perez
ā¢Can you explain exactly how to get the transcript? I logged into my IRS account but got confused by all the different transcript options. Is it the "Record of Account" or the "Account Transcript" or something else?
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Ethan Scott
ā¢You want to request the "Wage and Income Transcript" which shows all information returns filed with your SSN (like W-2s, 1099s, etc.) for the tax year in question. This will show exactly what the IRS has on record. Also request the "Account Transcript" for the specific tax year, which shows actions taken on your account including assessments, payments, and adjustments. These two together will give you the complete picture of what the IRS is seeing versus what you reported.
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Nathaniel Stewart
I'm dealing with the exact same issue right now. Does anyone know if TurboTax's audit defense service helps with CP2000 notices? I paid for it but I'm not sure if that's even considered an "audit" technically.
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Riya Sharma
ā¢TurboTax Audit Defense does cover CP2000 notices! I used it last year when I got one. You just need to call them and they'll assign a tax professional to help prepare your response. They won't represent you before the IRS, but they'll help you figure out what documentation to send and review your response letter.
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