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Can my pre-LLC freelance earnings be included when electing S Corp taxation for my business formed in May?
Title: Can my pre-LLC freelance earnings be included when electing S Corp taxation for my business formed in May? 1 I started doing some freelance contract work back in February and made around $3700 before I officially formed a single-member LLC in May. Looking at my projected income for the rest of 2025, getting S Corp tax status doesn't quite make financial sense if I'm just counting from May forward. But if I could somehow include ALL my earnings since February (pre-LLC + post-LLC), then the S Corp election would definitely be worthwhile tax-wise. I've been doing some research and know there are options to retroactively apply for S Corp status, but I'm confused about how far back this can go. Does the retroactive S Corp election only apply from when I formed my LLC in May? Or can it somehow cover all my freelance income from February onward (before the LLC existed)? My gut feeling says it probably only applies from the LLC formation date, but I haven't found anything definitive online. Anyone have experience with this particular situation or know the actual IRS rules on this?
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Do I file as a Resident Alien or Dual-Status Alien after moving from US to Canada mid-2024?
I'm filing single for 2024 and trying to figure out my alien status. I've been a resident alien since 2022 (qualified through Substantial Presence Test) but not a US citizen or green card holder. In July 2024, I relocated to Canada through my company's internal transfer program. My income for 2024 looks like: - January-July (US): W2 wages, some US bank interest, and gains from stock/crypto investments - July-December (Canada): T4 earnings from Canadian employer, Canadian bank interest, plus continuing income from US stock/crypto investments I've been reading Publication 519 (Chapter 1) about Dual-Status Aliens and these points caught my attention: - "Last Year of Residency" section: "If you were a U.S. resident in 2023 but are not a U.S. resident during any part of 2024, you cease to be a U.S. resident on your residency termination date." - "Residency during the next year" section: "If you are a U.S. resident during any part of 2024 and you are a resident during any part of 2023, you will be treated as a resident through the end of 2023." Here's what I'm confused about: 1. If I decide to move back to the US in October 2025 (won't know until May 2025), do I file as a Resident Alien for 2024? 2. If I stay in Canada all of 2025, can I choose between filing as Dual-Status Alien vs Resident Alien for 2024? And what if I visit the US for vacation in 2025 - does that count as being a "U.S. resident during any part of 2024"? Thanks for any help making sense of this!
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Just wanted to add a practical tip based on my experience: keep detailed records of your days in the US vs Canada. The substantial presence test is based on a formula: days in current year + 1/3 of days in previous year + 1/6 of days in year before that. When I moved to Canada, I thought brief trips back wouldn't count, but they do! Every day matters. I use an app to track my border crossings now because it got confusing fast. Also, the first year after moving is usually the most complicated tax year you'll have.
What app do you use to track your travel days? I've been using a spreadsheet but it's getting messy, especially with some quick weekend trips back to the US to visit family.
I use an app called "Travel Days Tracker" - it lets you log entries/exits by country and calculates your total days for tax purposes. Some people also use the Stride Tax app which has a location tracking feature that can automatically log when you cross borders. The spreadsheet works too, but I found having the app on my phone made it easier to log immediately when crossing borders. Whatever system you use, just be consistent. The IRS can request proof of your physical presence, and border crossing records can sometimes be incomplete.
Don't forget about state residency rules! They're totally separate from federal rules and can be even more complicated. Some states like California are super aggressive about claiming you're still a resident. When I moved to Canada, I had to file a partial year California return even though I was considered a US resident alien for the full year on my federal return. Had to provide proof I'd actually established domicile in Canada (driver's license, housing lease, utility bills).
This is a really good point. New York is just as bad as California. I moved to Toronto but kept an apartment in NYC that I use occasionally. NY claimed I was still a full-year resident even though I was physically in NY less than 90 days that year.
Should I file MARRIED FILING SEPARATELY OR TOGETHER with a new business owner spouse?
Hey everyone, I'm looking for some tax advice regarding what filing status would be most beneficial for my situation. My wife and I have been married for about 4 years now and have always filed jointly. But our situation has changed a bit, and I'm wondering if we should reconsider our filing status. I work a regular job where I get W2s (I'm paid hourly), while my wife recently started her own business that's just under her social security number, not an LLC or anything formal yet. We also just welcomed our daughter in late December 2024, so this will be our first time filing with a dependent. For context, our household income last year was around $152K, with my job accounting for most of that. We live in Washington state, so no state income tax to worry about at least. I've heard mixed things about whether married filing jointly or separately would be better when one spouse has a business. With the new baby and everything, I want to make sure we're making the smartest choice for our first tax filing as parents. Any input would be super appreciated! Let me know if you need more details about our situation.
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One thing nobody's mentioned yet - if your wife's business is still fairly new, it might be operating at a loss. If that's the case, filing jointly is almost definitely better because those business losses can offset your W2 income, potentially putting you in a lower tax bracket. Also, with a December baby, make sure you claim the Child Tax Credit - that's up to $2,000 for 2024 taxes. You qualify for the full amount with your income level.
Thanks so much for mentioning this! My wife's business is actually still in the investment phase and will probably show a small loss for 2024. I didn't even think about how that might offset my W2 income if we file jointly. Do you know if there are any limits to how much business loss can offset regular income? And yes, we'll definitely claim the Child Tax Credit!
There are some limits, but they probably won't affect you. The business loss can generally offset your other income, but if the loss is very large (over $270,000 for married filing jointly in 2024), it might be subject to the excess business loss limitation. For most small businesses with moderate losses, you can use the full amount of the loss to offset your W2 income. This is a huge advantage of filing jointly - if you filed separately, your wife's business loss could only offset her income, not yours.
Don't forget about self-employment taxes too! Your wife will need to pay those on her business profits (15.3% for Social Security and Medicare). That's on top of regular income tax. If her business isn't making much profit yet, the tax hit won't be bad. But once she starts making good money, you might want to look into forming an S-Corp instead of sole proprietorship to save on some of those SE taxes.
Yeah but S-Corps come with their own headaches. You have to run payroll, file more complicated returns, etc. I wouldn't recommend it until the business is making at least $40k in profit.
Why hasn't the IRS responded to my comment on their proposed rule change?
So I submitted a formal comment to the IRS about three months ago regarding their proposed changes to tax reporting requirements for small businesses. I followed all the correct procedures through the Federal Register system, got my confirmation number and everything. It was a pretty detailed response with references to specific sections and how the changes would impact my consulting business. The website said we should expect some kind of acknowledgment within 4-6 weeks, but it's been nearly 12 weeks now and absolutely nothing. I've tried calling the published contact number for the regulatory division twice and just get transferred around until someone eventually tells me they "don't handle that" or I end up in voicemail limbo. Has anyone successfully gotten the IRS to actually respond to a formal comment submission? Is there a secret backdoor contact method I don't know about? This is really frustrating because the comment period is now closed, and I'm concerned that my input (and possibly others) isn't being properly considered before they finalize these rules.
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Have you tried reaching out to your congressional representative's office? Their constituent services department can sometimes get responses from federal agencies when individuals can't. I had a similar situation with comments I submitted about 1099-K thresholds, and my congressman's office was able to at least confirm my comments were received and included in the review process.
That's a great suggestion! I hadn't thought about involving my representative. Did you just call their local office? And how long did it take them to get back to you with information?
I called their district office, and they had me fill out a privacy release form so they could inquire on my behalf. The whole process took about 2 weeks before they got back to me with confirmation. Most congressional offices have staff dedicated to helping constituents navigate federal agencies. They won't necessarily get the IRS to change their mind on anything, but they can often get status updates and confirmations that regular citizens struggle to obtain directly.
I work in regulatory compliance (not for the IRS), and I can confirm what others have said - individual responses aren't provided for public comments. However, there is a "hack" to get more visibility: submit your comments through a relevant industry association if possible. Comments from recognized industry groups tend to get more directly addressed in the final rule publications. If you're a member of any professional organizations related to your business, check if they're submitting comments on the same proposed rules. Sometimes you can get your specific concerns included in their submission, which typically gets more detailed attention.
That's really helpful insider info! Do you know if most industry associations allow individual members to contribute to their formal comments? I'm part of the National Association of Tax Professionals but never thought to check if they were commenting on the same rules.
What are the most important tax concepts everyone working in the field should know?
I've been doing tax work for about 4 years now (33F) with a BBA and Masters in Tax, mainly focused on individual returns, trusts, and partnerships. I thought I'd have my feet firmly planted by now, but honestly my imposter syndrome is getting worse, not better. I keep getting lost in the details and feeling overwhelmed, especially with trust and partnership returns. My last performance review literally called out these areas as needing improvement. I need to take a step back and refocus on fundamentals, but I'm not even sure where to start anymore. For those of you with experience in tax, what do you consider the most essential concepts you work with regularly? No matter what your background or specialty, I'd love to hear what concepts you find yourself returning to over and over. I'm open to anything - advice, recommendations for regulations to review, YouTube channels, articles, books... whatever resources have helped you the most. This feeling of constantly drowning in details is really getting to me. Thanks in advance for any guidance!
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For trusts, understanding the throwback rules saved me multiple times. Also, the 65-day rule for distributions (§663(b)) is an extremely useful planning tool that many preparers miss. Remember that trusts have very compressed tax brackets compared to individuals, so distribution planning is critical. A distribution timing mistake can cost thousands in unnecessary taxes.
The 65-day rule is huge. So many preparers don't realize you can make distributions up to 65 days after year-end and elect to treat them as made in the prior tax year. Great planning opportunity if the trust has high income.
The most important thing I've learned in 10+ years of tax work is to step back and look at transactions in context. Tax doesn't happen in isolation - it's connected to business decisions, family situations, and long-term goals. When I get overwhelmed, I find it helps to sketch out the entity structures and money flows on paper. Literally drawing boxes for entities and arrows for transactions can make complex situations much clearer than trying to hold it all in your head. For partnerships specifically, I recommend reading through the IRS audit techniques guide for partnerships. It shows you exactly what the IRS looks for when examining returns, which helps you understand what's most important to get right.
This is such practical advice - thank you! I've never thought about using the IRS audit guides as learning tools. Do you think starting with those might help me identify my knowledge gaps more effectively than just trying to read the code?
Absolutely! The audit guides are written in much more accessible language than the code and regulations. They focus on practical application rather than technical language. Plus, they highlight the areas where mistakes commonly occur, which helps you prioritize what to learn. The partnership ATG specifically has great examples of what proper allocations, basis calculations, and distributions should look like. It also explains the economic substance doctrine in a way that's much clearer than most textbooks. Just remember that they're written from an enforcement perspective, so they emphasize areas of non-compliance rather than planning opportunities.
Zara Ahmed
5 Something else to consider - are you planning to do the S Corp election yourself or work with a tax professional? I tried doing it myself last year and messed up the form because I didn't realize my operating agreement needed specific language for S Corp compatibility. Ended up having to redo everything and missed the deadline. Also, remember you'll need to run payroll and pay yourself a "reasonable salary" once you elect S Corp status. That means additional payroll tax filings and compliance requirements starting from whatever date you make the election effective.
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Zara Ahmed
Author8 What's considered a "reasonable salary" exactly? I've heard different things - some say 50% of profits, others say market rate for your position. I'm also wondering about the payroll part, do you use a service for that or DIY?
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Zara Ahmed
Author5 The "reasonable salary" requirement is probably the trickiest part of S Corp compliance. There's no fixed percentage or formula - the IRS evaluates it case by case. The most defensible approach is researching what similar positions earn in your industry and location. BLS.gov has salary data that can help document your reasoning. I absolutely recommend using a payroll service rather than DIY. I tried handling it myself initially and it was a nightmare keeping up with all the filing requirements and deadlines. I now use Gusto which costs about $45/month but handles all the calculations, filings, and direct deposits automatically. The peace of mind is worth every penny, especially since penalties for incorrect payroll tax filings can be steep.
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Zara Ahmed
19 Sorry to jump in - but wanted to mention that making yourself an S Corp in the middle of the year creates a short tax year, which means filing two tax returns for one calendar year. You'll need to file: 1) Schedule C for your self-employment from Feb-May 2) Form 1120-S for your S Corp from May-Dec That can significantly increase your tax preparation costs. Plus, many accountants charge more for S Corp returns (typically $800-1200) compared to Schedule C preparation. If your projected tax savings are modest, it might make more sense to wait until Jan 1 for simplicity.
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Zara Ahmed
Author16 Interesting point about the short tax year filing. Would that mean two separate state filings as well? And what about quarterly estimated tax payments - would those need to be recalculated mid-year?
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