Oh no, I might have missed the deadline for 2020 then! Does the IRS ever make exceptions for people who didn't know about the 3-year rule? And just to clarify, even if I can't get a refund for the older years, I should still file those returns anyway, right?

Unfortunately, the IRS is very strict about the 3-year refund statute and doesn't make exceptions even if you didn't know about the rule. It's set by law, not IRS policy, so they can't bend it. Yes, you should still file all unfiled returns even if you can't get the refund anymore. This closes your file with the IRS and prevents future issues. While you won't get money back for those older years, filing completes your tax record and can help with things like loan applications, government benefits, or any situation where tax return information is needed. Better to have everything clean and complete than leave those old years hanging.

Free File Fillable Forms only work for the current tax year (so right now, only 2024). For prior years, you need to download the specific forms for those tax years from the IRS website and mail them in. I did this last year for my 2021 and 2022 returns. You can still use free tax software though! Most of the major companies (TurboTax, H&R Block, TaxSlayer) offer access to prior year returns on their websites. The catch is that you can prepare them for free, but they usually charge to file them. Since you have to mail prior year returns anyway, you can just print them out and mail them yourself without paying.

What's a good ratio of salary to distributions that won't trigger IRS concerns? I've heard different things from different sources.

There's no fixed percentage that's universally "safe" as the IRS looks at what's reasonable for your industry, experience, and business circumstances. A common approach is researching what comparable positions in your industry would pay and documenting that research. For many service businesses, I've seen recommendations ranging from 50-70% of profits as salary being reasonable, but it varies widely. Healthcare professionals often need higher salary percentages while capital-intensive businesses might justify lower percentages. The key is having solid documentation for whatever number you choose.

This! So many people don't understand marginal tax rates and make decisions based on completely wrong assumptions. OP needs to look at effective tax rate across all income, not just the highest bracket they hit.

Thanks for bringing this up - I honestly wasn't sure if I should have been getting a W-2 or 1099. My job involves framing houses and doing general construction work. I use their tools, work on their schedule, and they tell me exactly what to do and how to do it. Does that sound more like an employee situation?

Based on what you've described, you sound much more like an employee than an independent contractor. The key factors the IRS looks at include: who controls when and how you work, who provides tools and equipment, how you're paid (regular wages vs. project-based), and whether the work is a key part of the business. Using their tools, working on their schedule, and having them direct your work are all strong indicators of employee status. Construction workers doing the core work of a construction company are typically employees unless there's a specific arrangement that gives the worker significant independence.

Did you run into any issues with the IRS after filing this way? I'm in a similar situation and worried they'll come after me for something that wasn't my fault.

Doesn't setting up an S-Corp mean you have to run payroll and deal with a bunch of extra filings though? Is it really worth the hassle?

Yes, with an S-Corp you do need to run payroll (even if it's just for yourself) and there are additional tax forms and requirements. You'll need to file Form 1120-S for the corporation, issue yourself a W-2, and potentially make quarterly payroll tax deposits. The breakeven point varies by situation, but generally if you're making over $80-100K in profit, the self-employment tax savings usually outweigh the extra costs and hassle. I pay about $800/year for payroll services and additional accounting fees, but save around $7,500 in taxes. For me, it's definitely worth it, but everyone's situation is different. It's definitely something to consider once your business is stable, not necessarily right away.

Yessss! This saved me so much trouble. And get a separate credit card for business expenses too. Makes everything so much cleaner come tax time.

Thanks for the credit card tip! I actually have a dedicated business credit card now too, and it makes categorizing expenses so much easier. Most cards even give you year-end summaries by category which is super helpful for Schedule C. Plus you can often get better rewards on business cards for things like office supplies or internet services.

Thanks for explaining this! I'm confused about the "incremental cost" part though. How exactly is that calculated? Does the IRS provide specific comparisons somewhere of EV vs gas vehicle costs?

The incremental cost calculation is indeed one of the more confusing aspects. The IRS hasn't provided an official database of comparisons, which leaves it somewhat open to interpretation. Generally, you'd need to identify a comparable gas-powered vehicle with similar features and capacity, then calculate the price difference. For many passenger vehicles and light trucks, the 30% calculation usually results in an amount exceeding $7,500, so you'll often just get the maximum $7,500 credit. The incremental cost calculation becomes more relevant for specialty commercial vehicles where the EV premium might be less pronounced or for vehicles over 14,000 lbs where the higher credit limit applies.

Did you have to make any modifications to the truck to qualify it as a business vehicle? I've heard some people say you need commercial insurance or special registration for it to count.