Can you explain what you mean about S-Corps and "reasonable compensation issues"? My construction business is an LLC but I elected S-Corp status for tax purposes and now I'm confused about how this would work.

With an S-Corp, you need to pay yourself a reasonable salary before taking distributions. If the LLC pays for your education, it could be considered either a business expense or potentially a fringe benefit to you as an employee-owner. If it's clearly related to your current business functions and helps you perform your job better, it can be treated as a normal business expense. However, if the education would qualify you for a new trade or significantly different position, the IRS might view it as a taxable fringe benefit to you personally, which complicates things from a tax perspective.

Is this still true? I thought they changed some of these rules with the Tax Cuts and Jobs Act in 2017? My accountant told me the rules got more flexible.

When I was in that situation, I entered the income and withholding from my previous job in the "already withheld" section. There should be fields for income already earned and tax already withheld this year. Then for your current job, you enter the expected income for the remainder of the year.

Thanks, that makes a lot of sense! I didn't notice that section on the calculator. I'll enter my previous job's details there and then just focus on projecting the new job's income for the rest of the year. Hopefully that gives me more accurate withholding recommendations.

Have you tried using tax software to do a mid-year projection instead? I use TurboTax and just input our estimated full-year numbers around June to see if we're on track. It seems more accurate than the IRS calculator for complex situations.

Thank you so much for sharing your experience! That's really helpful to know Fidelity might not accept the repayment. Did Vanguard have any special requirements for opening the IRA specifically for a CARES Act repayment? And did you have to provide any special documentation with your amended returns?

Vanguard didn't have any special requirements for opening the IRA itself - it was a standard traditional IRA application. But when we made the actual deposit, we had to specifically tell them it was a CARES Act repayment and complete their "Rollover/Direct Rollover Certification Form" where we indicated it was a COVID-related distribution repayment. For the amended returns, we included a brief explanation letter stating we were repaying a CARES Act distribution and attached documentation showing both the original distribution and the repayment. We specifically referenced IRS Notice 2020-50 which covers the repayment provisions. We also included copies of our original returns with the amendments so the IRS could easily see the changes.

This is spot on advice. I work at a financial institution (not Fidelity) and we see this issue all the time. The proper coding is critical. Make sure they use code "G" for a coronavirus-related distribution repayment on any paperwork. Without the right code, the IRS computers won't recognize it as a CARES Act repayment.

20 Good point about the house allocation. How would you recommend splitting this up on tax forms? Should the house be completely separate from the business assets?

2 I'd recommend separating the house value from the business assets when determining what portion of expenses (like mortgage interest and property taxes) are deductible business expenses. One approach is to determine the house's value as a percentage of the total property value, then allocate that percentage as personal use. The house doesn't need to be completely separate - the LLC can still own the entire property. You just need to properly allocate expenses between business and personal use. If you're not paying market-rate rent to the LLC for your personal use, there could be imputed income or other tax consequences to consider, so that's something to discuss with a tax professional familiar with your specific situation.

19 Yes, cattle operations typically qualify as farming activities under IRS rules. This means you might be eligible for things like farm income averaging, which can help reduce your tax burden in profitable years. Even in loss years, farm activities have some specific rules that can be advantageous.

Does this calculator work well for people with both W-2 and 1099 income? I do some contract work where taxes aren't withheld at all.

Yes, the IRS Withholding Calculator handles both W-2 and 1099 income. For your 1099 contract work, it will help determine if you need to make estimated quarterly tax payments or if you can increase withholding from your W-2 jobs to cover the taxes on your contract income. It asks for detailed information about all income sources, which makes its recommendations much more accurate for complex situations like yours with mixed income types. Just be sure to update your information whenever your income situation changes throughout the year.

This is so helpful! So even if I change jobs mid-year, I should still check the multiple jobs box on the new employer's W-4, right? Does this mean I'll have less takehome pay each paycheck?

Yes, even if you change jobs mid-year, you should still check the multiple jobs box on your new employer's W-4 if you've had or expect to have other jobs during the same calendar year. And you're right - checking that box will result in more tax being withheld from each paycheck, which means your take-home pay will be lower. But this is actually a good thing because it means you're less likely to owe money when you file your taxes. Think of it as paying the correct amount gradually throughout the year instead of getting hit with a big bill at tax time.