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One thing to keep in mind - you mentioned you need to file 1099s for contractors. Make sure your preparer is handling the actual 1099 filing with the IRS, not just amending your personal returns! You need to submit the 1099-NEC forms to both the contractors AND the IRS. When I ran a photography business, I didn't realize I needed to do both - I sent copies to my second shooters but didn't properly file with the IRS. Ended up with penalties even though I thought I did it right.
Oh no, I didn't even think about this! So I need to make sure the 1099s are actually filed with the IRS too? My new preparer didn't mention anything about that specifically, just that we were amending my returns. Now I'm worried again...
Yes, you absolutely need to make sure the 1099-NECs are filed with the IRS! There are two parts to this process: sending copies to your contractors (which they need for their own tax filing) AND submitting them to the IRS. The deadline for filing 1099-NECs with the IRS is January 31st of the year following payment, so your 2022 forms were technically due January 31, 2023. There are penalties for late filing, but they're relatively small for small businesses if you file within 30 days of the deadline. The penalties increase the longer you wait, but filing late is still much better than not filing at all.
Did your preparer include the late filing penalties for the 1099s in your amendments? When I had to backfile 1099s last year, the penalties were around $50-$100 per form depending on how late they were. Not terrible, but something to budget for.
The penalties can actually be much higher depending on how many contractors and how late the filing is. I got hit with a $250 per contractor penalty for missing 1099s for my wedding video business. Definitely ask your preparer about this!
One thing nobody mentioned yet - make sure the dog grooming business qualifies as a business and not a hobby in the IRS's eyes. If they determine it's a hobby, you can't deduct losses against other income. They look at whether you run it in a businesslike way, depend on the income, put in time and effort to make it profitable, etc. A few years of losses might be ok but they get suspicious if it never makes money.
That's a really good point! My sister definitely treats it like a business - she has separate bank accounts, business cards, advertising, and she's been working on adjusting her pricing to be more profitable. She's only been doing it for about 18 months, so this is her first year with a full 12 months of operation. Does that help her case for it being a legitimate business vs a hobby?
Yes, that definitely helps her case! Separate business accounts, marketing materials, and actively working on pricing strategies all demonstrate business-like behavior. The fact that it's only been running for 18 months is also helpful - the IRS generally expects businesses might have losses in their early years. For additional protection, I'd suggest she document her efforts to make the business profitable - like market research, business plan updates, or courses she's taken to improve her skills or efficiency. The IRS uses a nine-factor test for determining hobby vs. business, and documentation showing profit motive is crucial. With her full-time job providing income, she's not dependent on the grooming business for livelihood, which could be one mark against her, but the other factors you mentioned strongly support treating it as a legitimate business.
Has anyone used TurboTax Self-Employed for reporting a business loss? Is it worth the extra cost compared to the regular version?
Just wanted to add my experience - I filed a late 2021 return in October 2023 and got my refund about 14 weeks later. The Where's My Refund tool didn't show any info for the first 8 weeks, then suddenly updated with an expected deposit date. One thing to be aware of is that the IRS pays interest on late refunds, so you might actually get slightly more than what your tax software calculated. My refund had about $76 in interest added to it.
Wait the IRS actually pays interest when they're late with your refund? Is that automatic or do you have to request it somehow?
It's completely automatic! The IRS pays interest on refunds that are issued more than 45 days after the filing deadline (or the date you filed, if you filed after the deadline). The interest is calculated from the original due date of the return. The interest rate changes quarterly based on federal rates. Currently it's around 7% annually which is pretty decent. The interest gets added to your refund automatically - you'll see it as a separate amount on your refund check or direct deposit description. You will get a Form 1099-INT the following January because that interest is taxable income for the year you receive it.
Does anyone know if the state refund works the same way with the late filing? I'm in a similar boat with both federal and state returns.
States all have their own rules unfortunately. What state are you in? I know NY and CA don't penalize for late filing if you're due a refund, similar to federal.
Don't forget that if you're filing Schedule C for the business (which you probably are with a single-member LLC), you'll also need to complete Schedule SE for self-employment tax. The withholding payments from the payroll company for the owner are actually estimated tax payments, not traditional withholding like you'd see on a W-2. Make sure you're separating the business owner's draws/payments from the employee payroll. Only the employees should have traditional withholding.
Is this still true if the LLC owner is on payroll too? Like if they're getting a W-2 from their own company?
No, that changes things significantly. If the LLC owner is receiving a W-2 from the business (putting themselves on payroll), then they're treating the LLC as an S-Corp for tax purposes, not a single-member LLC with pass-through taxation. In that case, the owner's W-2 would have withholding just like any employee, and those withholdings would be credited automatically when you enter the W-2 in TurboTax. The business would still file its own return (typically Form 1120-S for an S-Corp), and the owner would receive a K-1 for their share of profits beyond their salary.
If your husband is the only owner of the LLC, did you elect S-corp taxation? Because that would completely change how this all works. With S-corp status, he should be on payroll like a regular employee with withholding that would show up on a W-2 that gets entered directly into TurboTax.
Emma Davis
One thing nobody mentioned is that if you're owed a refund, there's no penalty for filing late! The IRS doesn't penalize you for filing late if they owe YOU money. The 3-year deadline is just to claim your refund, not a penalty deadline. BUT if you owed taxes (instead of being due a refund), then you'll face failure-to-file and failure-to-pay penalties plus interest. Just something to keep in mind depending on your situation.
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GalaxyGlider
ā¢Is this really true? I thought there was always a penalty for filing late regardless of whether you owe money or are getting a refund.
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Emma Davis
ā¢Yes, it's absolutely true! The IRS only charges penalties and interest when you owe them money and pay late. They have no incentive to penalize people who are owed refunds - they're actually saving money by holding onto your refund longer! The only "penalty" for filing late when you're due a refund is that you lose the refund entirely if you wait longer than 3 years from the original due date. So for 2020 taxes, you'd lose your refund if you don't file by May 17, 2024. But there are no failure-to-file penalties or interest charges when you're getting money back.
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Malik Robinson
Don't forget to check if you need to file state tax returns too! Free federal filing options don't always include state filing for free, especially for prior years. Some states have their own free filing programs separate from the federal ones. Also, even with simple returns, you might qualify for credits you don't know about from those years. The Earned Income Credit and education credits could apply even with basic W-2 income. Don't leave money on the table!
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Isabella Silva
ā¢This! I thought I just had a "simple return" for 2020 but turned out I qualified for education credits from some classes I took that year. Added almost $1000 to my refund that I wouldn't have gotten if I just rushed through it.
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