


Ask the community...
One thing nobody's mentioned yet - don't forget that as an S-corp owner, you need to run actual payroll (either yourself or through a service) for your W-2 wages. Those payroll taxes need to be deposited regularly (usually monthly or semi-weekly depending on your size) and are separate from your quarterly estimated income tax payments. I use Gusto for payroll and it automatically calculates and submits all the payroll taxes including the employer portion. Then I just make quarterly 1040-ES payments for the additional tax on my distributions.
Do you need to make estimated tax payments if you have a decent amount withheld from your W-2 salary? Like could I just increase my W-2 withholding and skip the quarterlies?
Yes, you absolutely can increase your W-2 withholding instead of making separate quarterly payments! This is actually a great strategy many S-corp owners use. You can use the higher withholding from your S-corp salary to cover your tax liability on both your salary AND distributions. Just complete a new W-4 form requesting additional withholding to cover the tax on your distributions. The IRS doesn't care whether the tax comes through withholding or estimated payments, as long as you're paying enough throughout the year to avoid underpayment penalties.
What accounting software are ppl using for their S-corps? I'm trying to figure out how to track everything properly for taxes.
Make sure you point out specifically in your response that the basis amount was already included as income on your W-2. The IRS computers just see missing 1099-B transactions and automatically assume the worst (zero basis). There's a specific form you should include - Form 8949 (Sales and Other Dispositions of Capital Assets). Make sure each transaction is listed with the correct basis amount and check box "B" to indicate that basis was reported to the IRS. This form should accompany your 1040X. And yes, you definitely made a mistake by not officially filing the 1040X. The IRS has separate departments for correspondence and amended returns. The person reviewing your letter likely doesn't have authority to process an amended return that just came in with correspondence.
So I need to separately file the 1040X through official channels while also responding to this notice? Does the 1040X need to be mailed to a different address than my response letter? And how do I make sure they connect the two?
Yes, you need to file the 1040X separately through official channels. The amended return should go to the IRS address specified in the 1040X instructions, which varies depending on where you live. For your response to the notice, send it to the exact address listed on the notice itself. In your response letter, specifically mention that you've also filed a 1040X and include the date you mailed it. Include a copy of the 1040X with your response letter as well (even though you're also mailing the original to the proper processing center). To help connect the two, include your notice number on both documents. Also, attach a clear explanation with both submissions that references the other submission. For example, on your 1040X write "This amended return is being filed in response to IRS Notice CP2000 dated [date]" and attach a copy of the notice.
I went through this exact nightmare last year! My company gives RSUs and the IRS completely messed up the basis calculation. The key is filing Schedule D and Form 8949 correctly - each stock sale needs to be listed with the proper basis. One thing to be super clear about - the "proceeds" from your stock sales (on the 1099-B) aren't new income if the basis equals those proceeds (since you already paid tax on the income through your W-2). The IRS computers often miss this connection. My first attempt at fixing this on my own failed miserably. I ended up hiring a CPA who specializes in tech compensation, and she wrote a detailed letter explaining exactly how each transaction tied to my W-2 income. Cost me $350 but saved thousands in incorrect tax assessments.
One thing to consider with HSAs is that the contribution limit and eligibility requirements can be complex if your situation changes. I had a similar situation with a non-calendar year plan, and here's something that bit me: if your health coverage changes mid-year and you lose HSA eligibility, you generally have to prorate your contributions for that year. Make sure your HR department updates your payroll deductions correctly if your plan changes in July. Mine didn't, and I ended up with an excess contribution that I had to withdraw and report on my taxes. It was a mess to fix.
Did you have to pay penalties when you withdrew the excess contribution? I'm in a similar boat and wondering what the damage might be.
No penalties as long as I withdrew the excess contribution (plus any earnings on that amount) before I filed my taxes for that year. The earnings were treated as taxable income, but that was minimal in my case. If you've already filed or it's been longer than your tax deadline, there's a 6% excise tax on excess contributions for each year they remain in the account. Don't delay dealing with it - that penalty can add up!
Just a heads up that it's sometimes worth checking if your employer will adjust the plan deductible to maintain HSA eligibility. When the limits changed a few years ago, my company bumped our deductible up by $100 mid-year specifically so employees wouldn't lose HSA eligibility. Might be worth asking your benefits department if they're planning to make any adjustments in July when your plan renews.
This is great advice. Our company did the same thing when the limits changed in 2022. HR sent out a notice that they were adjusting the deductible to maintain HSA eligibility for everyone. They said it was easier than dealing with all the payroll adjustment requests that would happen otherwise.
Have you looked into filing Schedule C with your taxes? When I was a contractor, I was able to deduct a ton of expenses related to my work - part of my internet bill, phone, computer depreciation, even a portion of rent for my home office space. The self-employment taxes still suck (that 15.3% hits hard), but deductions can really bring down your taxable income. Don't forget to look into the Qualified Business Income deduction too - it lets you deduct 20% of your net profit in most cases.
Thanks for this! Would I just list "temp worker" as my business on the Schedule C? And for the home office, do I need to have a dedicated room or can it be like a desk in my bedroom? I'm worried about getting audited if I claim too much.
You can list "Telecommunications Contractor" or something similar as your business. For home office, the IRS prefers a dedicated space, but it doesn't have to be an entire room - a dedicated desk area that's used regularly and exclusively for work can qualify. Just measure that specific area for your deduction calculation. Don't worry too much about an audit if you're claiming legitimate expenses. Just keep good records of your expenses and be reasonable with your deductions. For example, don't claim 100% of your internet if you also use it for personal stuff - 30-50% is more reasonable depending on how much you use it for work.
Regardless of the contractor situation, make sure you're setting aside money for next year's taxes! This was my biggest mistake when I first started getting 1099 income. You should be making quarterly estimated tax payments to avoid penalties.
Lourdes Fox
I think everyone's missing an important point here. If your relative paid $4,600 for your rental property expenses, that could potentially count toward the annual gift tax exclusion limit. For 2025, the gift tax exclusion is $18,000 per person, so your uncle would be fine, but it's something to consider if the amounts get larger or if he's making other gifts to you. Also, make sure you're not counting the expenses twice. The property management company probably already deducted their fees from the rental income before sending you the 1099. You'll want to carefully look at what expenses are already accounted for versus what additional expenses your uncle covered.
0 coins
Daniel White
ā¢That's a really good point about the gift tax exclusion - I hadn't even thought about that angle. My uncle definitely hasn't given me anywhere near the $18,000 limit, so we should be fine there. And yes, you're absolutely right about the management company. Looking closer at my statements, they've already deducted their management fee, cleaning costs, and a couple minor repairs from the rental income reported on the 1099. The expenses my uncle covered were mainly the property taxes, insurance premium, and a major plumbing repair that happened outside the management company's scope. Thanks for pointing this out!
0 coins
Bruno Simmons
What tax software are you using? I had this EXACT scenario last year with my beach condo (family member paid expenses) and TurboTax handled it perfectly. There's a specific section where you can enter expenses you paid, and it clearly separates those from the income reported on the 1099. Just make sure to document the gift nature of the payments somewhere in your records.
0 coins
Aileen Rodriguez
ā¢I tried doing this in H&R Block software last year and it was super confusing. It kept asking who paid what and I couldn't figure out where to note that my dad had paid some expenses as gifts. Did TurboTax have a specific field for this?
0 coins