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Don't panic too much about the unfiled returns. I was in your exact situation last year (hadn't filed 2019-2021 with business income). What really helped me was starting with the most recent year first, then working backward. The older returns felt less overwhelming once I had the current one done. Also, if you have any business losses in those years, make sure to document them carefully! I was able to carry some losses forward which reduced what I owed significantly. And don't forget about the home office deduction if you were working from home.
Did you do all this yourself or hire someone? I'm in a similar situation but wondering if tax software can handle unfiled business returns from previous years or if I need a professional.
I started with tax software but quickly realized I was in over my head with the business portion, especially for multiple unfiled years. I ended up hiring a CPA who specializes in small businesses and self-employment taxes, and it was 100% worth the cost. The CPA found numerous deductions I would have missed, like partial deductions for my car when used for business purposes and some home expenses beyond just the home office. They also helped me structure my payment plan with the IRS when I couldn't pay the full amount right away. If your situation involves any complexity at all with business income, I'd recommend a professional. The peace of mind alone was worth it, and the money they saved me in deductions more than covered their fee.
Whatever you do, DON'T ignore this any longer. My brother didn't file for 3 years (had business income too) and the IRS eventually garnished his wages and put liens on his property. It was a nightmare to fix and cost way more than if he'd just filed late.
Don't forget about the Qualified Business Income deduction (Section 199A) if your LLC is a pass-through entity! You might qualify for up to a 20% deduction on your LLC income. It's one of the biggest tax advantages for small business owners right now.
Is there an income limit on this? I've heard conflicting things about whether high earners can take this deduction.
Yes, there are income thresholds where the deduction begins to phase out. For 2023, the limits start at $182,100 for single filers and $364,200 for joint filers. Above these amounts, it gets more complicated and depends on your business type. If you're in a "specified service business" (like health, law, accounting, consulting), the deduction phases out completely between $182,100-$232,100 (single) or $364,200-$464,200 (joint). For non-service businesses, there's no complete phase-out, but limitations based on W-2 wages paid and business property.
Biggest mistake I made with my LLC was not separating personal and business expenses clearly. Got audited last year and it was a nightmare trying to prove which expenses were actually for business. Now I have a separate credit card ONLY for business purchases and it makes tax time sooooo much easier. Also keep a mileage log if u drive for business!!! The IRS is super picky about vehicle expenses and a detailed log with dates, miles, and business purpose saved me when I got audited.
What app do you use for tracking mileage? I've been trying to remember to write it down but I forget half the time.
If you're worried about late fees, you should know there are actually two different penalties that can apply: the failure-to-pay penalty (0.5% per month) and interest charges (federal short-term rate plus 3%). If you can't pay in full right away, you might qualify for a payment plan which can reduce the monthly penalty rate. Also check if you qualify for first-time penalty abatement - if you've had a clean tax record for the past 3 years, the IRS might waive your penalties (though not the interest).
What's considered a "clean tax record"? I filed late one year but paid everything I owed. Would that disqualify me from the first-time penalty abatement?
A clean tax record generally means you've filed all required returns and haven't had any significant penalties in the previous 3 tax years. Being late to file one year could potentially disqualify you, but it depends on whether you were assessed a failure-to-file penalty at that time. If you filed late but used an extension or weren't required to file that year, it shouldn't affect your eligibility. When in doubt, it's still worth asking the IRS about abatement - the worst they can say is no, and many people get approved even with minor issues in their history.
I'm in a similar situation and called the IRS directly. The wait was about 45 minutes but the agent was actually super helpful and not scary at all! She set me up with a payment plan where I only have to pay $100 a month. The penalties are still there but at least it's manageable now.
You got lucky with that wait time! What number did you call? I've been trying the general line and it just disconnects me after saying they're too busy.
I had the same issue last month! What worked for me was selecting Form 1040, then choosing "social security" as the payment type, and using 12/2020 as the tax period. Make sure you're not selecting "estimated tax" or any other payment type, as that will direct your money to the wrong place. Also, print out your confirmation page after submitting the payment. I learned the hard way that the EFTPS email confirmations sometimes get delayed or lost, and having that paper confirmation saved me when I had to prove I made the payment on time.
Did you also have to file an amended return, or was the payment enough? I'm not sure if I need to do additional paperwork or if just making the EFTPS payment takes care of everything.
Just making the payment is enough - you don't need to file an amended return for this specific situation. The deferred social security tax was always a payment timing issue, not a tax calculation issue. When you make the payment correctly through EFTPS, the system will match it with your outstanding liability. Just make sure you keep your payment confirmation for at least 3 years in case there are any questions later.
Has anyone had their deferred social security payment incorrectly applied? I followed what I thought were the right steps on EFTPS, but when I checked my account a month later, the payment had been applied to my regular 2025 estimated taxes instead of the 2020 deferred amount. Now I'm stuck in a loop trying to get it corrected.
This happened to me too! Call the EFTPS customer service line at 800-555-4477 (not the regular IRS line). They can help reassign the payment to the correct tax period and type. Have your confirmation number ready. I was able to get mine fixed within a week. Don't bother with the general IRS line for this specific issue - the EFTPS folks can handle it directly.
Miguel Silva
Has anyone considered the Qualified Joint Venture election? My accountant suggested this for our situation. If both spouses materially participate in the business, you can elect to be treated as a qualified joint venture instead of a disregarded entity. This lets you split the income between spouses without setting up formal employment. You'd each file a separate Schedule C and split the income according to your ownership interests (could be 50/50 or whatever split makes sense). Each spouse gets credit for Social Security and Medicare. This avoids payroll taxes and quarterly filings but still gives both spouses credit for working.
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GalacticGuru
β’I actually hadn't heard about this Qualified Joint Venture option before. Would this mean we'd need to change our LLC registration with the state too? Or is this just a tax election? Also, would we still get the liability protection of an LLC this way?
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Miguel Silva
β’This is just a tax election, so you wouldn't need to change your state LLC registration. You'd still maintain the liability protection of the LLC. The Qualified Joint Venture election is made simply by filing your tax return as a QJV - you file a joint return, but each spouse files a separate Schedule C, Schedule SE, and any other required schedules. The main requirement is that both spouses must materially participate in the business, you must be the only owners, and you must file jointly.
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Zainab Ismail
Quick question - I'm using TurboTax for my taxes and have a similar situation with my single-member LLC and spouse helping out. Does anyone know which option is easier to handle in tax software? W-2 employee vs. Qualified Joint Venture?
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Connor O'Neill
β’In my experience, the W-2 route is more straightforward in TurboTax. The Qualified Joint Venture requires more manual manipulation in the software. TurboTax asks if you want to report a business, then you'd need to create two separate Schedule Cs manually and split everything correctly yourself. With W-2, the software handles everything through the normal employment sections.
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