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Quick tip for anyone with address changes: I learned the hard way that you should file Form 8822 (Change of Address) with the IRS separately from your tax return. Even if you put your new address on your tax return, filing the separate form makes sure ALL IRS systems get updated. I had issues with notices going to my old address even after I updated it on my return.
Does that Form 8822 need to be filed before or after submitting your tax return? I already filed with TurboTax but now I'm worried about this address issue.
You can file Form 8822 anytime - before, after, or completely separate from your tax return. It's basically just a standalone address update for the IRS's records. If you've already filed your return with your new address, filing Form 8822 afterward is still a good idea because it ensures the address change is processed across all IRS systems. Sometimes the address update from a tax return doesn't propagate to every IRS department.
Has anyone had issues with TurboTax not saving the correct address? I swear I entered my new address but when I reviewed my return it had reverted to my old one from last year.
YES! This happened to me too! I had to go back through each section carefully. Turns out TurboTax pulls your address from last year automatically, but then there's a separate section where you need to update your "current address" if you've moved. Super confusing interface. Check the personal info section again and make sure you updated both places.
One thing nobody's mentioned yet - the complexity really depends on the nature of your business too, not just the form. My experience: S-Corp: Relatively straightforward but payroll requirements (reasonable compensation) can be a pain. 1065 Partnership: Moderate difficulty but gets exponentially harder with multiple partners, special allocations, or guaranteed payments. C-Corp: Most complex overall, but if it's a simple operation without international components or AMT issues, it might not be that bad. Honestly though, for most small businesses, the S-Corp or partnership usually makes more tax sense anyway unless you have specific reasons for a C-Corp.
What about if you're planning to seek outside investors? Does that change which one is better from a complexity standpoint?
For outside investors, a partnership (LLC filing 1065) usually provides the most flexibility while keeping things relatively manageable complexity-wise. You can create different classes of membership with varying rights, which appeals to investors. S-Corps have restrictions on ownership (limited to 100 shareholders, must be US citizens/residents, etc.) and only allow one class of stock, which significantly limits your funding options. C-Corps remove these restrictions and are the standard for major investments, but come with that higher complexity and potential double taxation.
don't forget about the schedule C option if your just starting out! way simpler than any of these business returns, just attaches to your 1040. might be all you need if your a one-person operation and don't need liability protection.
For those wondering about the tax implications, when allocated tips are incorrectly included in Box 1, you're essentially paying income tax on that money twice! Once as part of your regular wages and again as allocated tips. The IRS specifically designed Box 8 to handle these separately since allocated tips are a special category.
Wait so do we pay taxes on allocated tips at all? I thought they were just the restaurant's way of making sure we're reporting enough tips to match their sales ratios or something?
Yes, you do need to pay taxes on allocated tips (Box 8) - they're considered taxable income. The IRS assumes these are tips you received but didn't report to your employer. However, they shouldn't ALSO be included in Box 1. That's where the double-counting problem happens. Box 1 should only include your normal wages and any tips you actually reported to your employer during the year. Allocated tips go only in Box 8, and you'll pay tax on them when you file your return.
Has anyone used TurboTax to handle this situation? Will it automatically catch this error or do I need to manually adjust something?
Something no one's mentioned yet - if you have a "regular" job with a W-2 in addition to your business, you can also increase your withholding from your paycheck to cover the taxes from your business income. Just fill out a new W-4 with your employer requesting additional withholding. Some people find this easier than making separate quarterly payments. The downside is you're paying as you go from your job income while your business might have seasonal fluctuations. But it's another option if you hate keeping track of quarterly payments!
This is interesting! Do you know if there's any way to calculate exactly how much extra to withhold from my day job to cover my side business? I make about $65k at my regular job and maybe $15k from my online store.
You can use the IRS Tax Withholding Estimator on their website to calculate this pretty accurately. Enter both your W-2 income and your estimated business profit, and it will tell you how to adjust your W-4. For your specific situation with $65k from your job and $15k from your business, you'd probably need to withhold an extra $3,000-4,000 annually from your day job, which breaks down to about $250-350 extra per month depending on your other deductions and credits. This covers both the income tax and self-employment tax on that $15k. Just make sure to update your calculations if your business income changes significantly!
Don't forget about state taxes too! Depending on where you live, you might need to make estimated state tax payments in addition to federal. Some states follow the same quarterly schedule as federal, but others have their own weird deadlines. Also if you sell to customers in multiple states you might have sales tax obligations too which is a whole different headache.
Chloe Green
Don't forget you can also make estimated tax payments throughout the year if you want more control. I'm self-employed so I have to do this anyway, but even W-2 employees can make additional payments if they want. This way you can have less withheld from your paycheck but still avoid underpayment penalties by making quarterly payments on your schedule. The IRS has an electronic payment system called EFTPS that makes it pretty easy. Just another option if adjusting your W-4 doesn't give you the flexibility you want.
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Lucas Adams
ā¢Is there any benefit to doing estimated payments vs just adjusting the W-4? Seems like more work for the same result?
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Chloe Green
ā¢For most W-2 employees, adjusting the W-4 is definitely simpler. The main benefit of estimated payments comes in if you have significant income outside your regular job (like investments, side gigs, rental property) or if your income varies a lot throughout the year. Estimated payments give you more control over exactly when you pay, which can help with cash flow management. Some people also like to keep more cash on hand during the year and then make larger payments close to the quarterly deadlines. But if you just have regular employment income, adjusting your W-4 is usually the easier route.
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Harper Hill
Has anyone tried the "exempt" option on the W-4? My brother claims he did this and just pays everything at tax time. Is that actually legal?
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Caden Nguyen
ā¢Claiming exempt is only legal if you had no tax liability last year AND expect to have no tax liability this year. Based on your $72k income, you definitely don't qualify. Your brother is likely setting himself up for penalties and a massive tax bill. The IRS doesn't mess around with people who don't withhold properly.
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