I hadn't even thought about the basis implications for future sales. Does that mean it's actually better from a long-term perspective if it's treated as compensation up front, even if I have to pay taxes now?

Yes, that's exactly right. If it's compensation, you'll pay ordinary income tax now, but your basis becomes the full fair market value ($1.3 million in your example). Then when you sell later, you only pay capital gains tax on the appreciation above $1.3 million. If it's a gift, you'll avoid taxes now, but you inherit the original owners' basis. If they started the company and have a very low basis (maybe just thousands of dollars), when you sell, you'd pay capital gains tax on almost the entire sale amount. So while you avoid taxes now, you could end up with a much larger tax bill later when you sell.

This is such an important point! My friend got equity in an LLC and got hit with a $30k tax bill from her K-1 allocation even though the company didn't distribute any cash to cover it. Make sure you understand the tax structure BEFORE accepting.

We're an LLC, so that's really helpful to know. So even if the initial gift doesn't trigger taxes, I could still end up with tax bills from my portion of company profits regardless of whether distributions are made?

Do you need a minimum amount to open a DAF? I always thought those were just for rich people donating tens of thousands of dollars.

The minimums are actually pretty reasonable now! Fidelity and Schwab both allow you to open a donor-advised fund with just $5,000 initial contribution. Vanguard's minimum is higher at $25,000. Once established, you can make additional contributions of as little as $500. These definitely aren't just for wealthy people anymore. I'm solidly middle class and find it incredibly useful, especially for simplifying stock donations. It's also nice because you can contribute when it makes tax sense for you, but take your time deciding which charities to support. I make one stock transfer per year to my DAF (getting tax benefits immediately) but then make grants to 10-15 different organizations throughout the year.

I've used Benevity through my employer and it's super convenient. The big advantage is that my company matches the donation, which they won't do if I donate outside their system. The downside is they limit which stocks you can donate - they wouldn't let me donate some of my smaller cap stocks. Also, just be aware the processing time was longer than expected - about 2 weeks from when I initiated it to when the charity received it.

Thanks for sharing your experience! I hadn't considered the matching aspect - that's definitely a huge advantage if they'll match stock donations. I'll check if there are any stock restrictions in our version of the platform. The two-week processing time is good to know. I'll make sure to plan ahead, especially for year-end donations. Seems worth the extra wait to get the company match though!

Was the adjustment to your commission structure legal? I read somewhere that companies can't reduce your pay just because they have to pay their share of taxes now - that would be retaliation. Did they frame it as a complete restructuring rather than a direct response to the classification change?

They presented it as a complete restructuring of the sales compensation plan rather than a direct response to my classification. The timing was obviously related, but they rolled it out to the entire team. Technically, they can't reduce your pay JUST because of reclassification, but they can implement a new compensation structure as long as it's not obviously retaliatory. My advice is to negotiate hard when this happens. I actually pushed back and got them to increase the base salary component more than they initially offered to offset the commission reduction.

But with the standard deduction now at $12,950 for single filers in 2025, do the 1099 deductions really save you that much unless you have a TON of business expenses? I found I was barely itemizing enough to beat the standard deduction anyway.

Does the accounting software actually submit the 1099s to the IRS or just help you prepare them? I'm currently using Excel to track everything and it's becoming a mess.

Most accounting software can either e-file directly or export the data in a format ready for e-filing. I use QuickBooks and it gives me both options - I can e-file directly through them for a small fee per form, or I can export the data and use the IRS filing system. Excel works when you're small, but once you have more than a handful of contractors, it becomes really error-prone. The biggest advantage of dedicated accounting software is that it tracks everything automatically throughout the year, so January isn't a mad scramble to figure out who you paid what.

Ugh thanks for mentioning this. I'm in NY and totally forgot about state filing requirements. Do you know if the deadline is the same as the federal one?

Thanks for the info about the retirement contributions - I hadn't thought about that! Did you have any issues with the IRS accepting your return when you used transcript information instead of the actual W2 details?

No problems with the IRS accepting the return at all. The wage and income transcript information comes directly from them, so it matches what they already have in their system. Just make sure if you're using tax software that you select the option to enter the information manually rather than importing a W2, since you won't have the actual form to scan or upload.

This is only partially true. TurboTax saves the INFORMATION you entered, but not necessarily the actual documents themselves. So if you uploaded a W2 image last year, you might not be able to get that exact image back. But you can see all the numbers you entered, which is almost as good!