That's a helpful breakdown. I didn't realize all those different taxes added up like that. My state tax is about 5% and I am contributing 3% to the company 401k (they match it). I think there's also a small city tax where I live. But even accounting for all that, when I calculate it out, it still seems like my federal withholding specifically is too high compared to what my actual tax rate should be. I'll definitely check my W-4 like others suggested.

You're on the right track! The 401k contribution is actually helpful tax-wise because it reduces your taxable income, but it does decrease your take-home pay temporarily. The good news is you're getting that company match, which is essentially free money for your future. The combination of your state tax, city tax, FICA taxes (Social Security and Medicare), and federal withholding can definitely add up quickly. Definitely check that W-4 form - it's the most common reason for overwithholding. Many people don't realize that the default withholding often assumes you'll be making that same amount for the entire year, which can lead to higher withholding if you haven't worked the full year yet.

That's exactly what happens! Payroll systems typically calculate your withholding as if each paycheck represents your normal pay for the entire year. So if you suddenly get a bigger paycheck, the system thinks "oh this person is now in a higher tax bracket" and withholds accordingly. The same thing happens with bonuses or overtime - they get withheld at a higher rate. The good thing is it usually balances out when you file your taxes, and you get the excess back as a refund.

Oh wow, I hadn't even thought about the state filings or the S-Corp election potentially being terminated. She's in California, which I know can be pretty aggressive with business compliance stuff. Would a business attorney be needed alongside an accountant at this point?

California is actually one of the more challenging states for compliance - they have annual franchise tax minimums even for S-Corps with no profit. For California specifically, she'll need to check if the Statement of Information (Form SI-200) has been filed, and whether the $800 minimum franchise tax has been paid each year. At this point, I'd start with a good CPA who specializes in California S-Corps and business tax resolution. They can assess the situation first - a business attorney might be needed later, but accounting issues should be addressed first to understand the full scope of the problem. Most experienced CPAs will have relationships with business attorneys they can bring in if legal issues arise beyond tax compliance.

This is a really important point. My friend had a similar situation with her graphic design S-Corp and the IRS determined her reasonable salary should have been about 70% of the business profit since she was the only person doing the actual design work. The back payroll taxes and penalties were brutal.

Wait, can you still deduct legal fees on Schedule A at all? I thought those miscellaneous deductions were completely eliminated with the 2017 tax law.

You're right about the changes. Prior to 2018, you could deduct certain legal fees as miscellaneous itemized deductions on Schedule A, subject to the 2% AGI limitation. After the Tax Cuts and Jobs Act, most miscellaneous itemized deductions were suspended through 2025. For legal fees now, the best approach is to tie them directly to business income whenever possible so they can be deducted on Schedule C. For a 1099 contractor like the original poster, this should be straightforward since they're suing to collect business income. The key is making sure you can substantiate that the legal expenses are ordinary and necessary business expenses directly related to your self-employment activities.

Is this still true even with contingency fees? My attorney takes 30% if we win. Do I really have to report the whole amount including what goes directly to the lawyer?

OMG thank you for mentioning this! I completely forgot about state requirements. I'm in Michigan - do you know if they have any special LLC fees I should know about? Also, do I need to collect sales tax on online sales to other states?

Michigan is much more reasonable than California! They have an annual LLC filing fee of just $25 (due February 15th each year). You'll need to file an annual statement to maintain your LLC status. For sales tax, Michigan requires you to collect sales tax on in-state sales. For out-of-state sales, it depends on your sales volume in each state and their specific economic nexus laws. If you're selling through platforms like Etsy or Amazon, they might handle this for you in many states. But if you're selling through your own website, you'll need to research each state's requirements. Generally, if you have less than $100,000 in sales or fewer than 200 transactions in a state, you might be exempt from collecting sales tax there.

Is there a good app you recommend for tracking mileage? I always forget to log my trips for my business.

That's a great idea I hadn't considered! Do you know if I need to request this in person at a state tax office or can I do it online? My state's government websites are notoriously difficult to navigate.

In my state (Washington), I was able to request it online through their Department of Revenue portal. Most states have some kind of taxpayer access portal now where you can view your tax documents. Try searching "[your state] view tax documents online" or "[your state] tax transcript." If the online option doesn't work out, most states have a taxpayer assistance phone line that's usually much less busy than the IRS line. They can direct you to the right department or form to request your wage information.

Would this help for last year's W2 though? Seems like the time for mail forwarding would have expired by now. Plus the OP already talked to the employer who seems to be avoiding helping them.