This is super informative! I had no idea about the "Wealth Squad" - is this something regular people with side businesses need to worry about? Or is it more for super wealthy individuals? Like what's the threshold where they start getting interested?

The Wealth Squad typically focuses on individuals with income or assets over $10 million, so most regular people with side businesses wouldn't be on their radar specifically. However, anyone with unusual income patterns can still trigger standard IRS compliance flags. For more typical side businesses, it's the regular IRS examination divisions that might notice discrepancies. The important thing is maintaining good records that show the source of your income and legitimate business expenses. Unexplained deposits or lifestyle expenses that don't match reported income are what typically trigger closer examination, regardless of income level.

True about shell companies! I work in banking and you wouldn't believe how sophisticated some fraud schemes are. But even with elaborate setups, people eventually slip up. Either they can't resist flaunting wealth or they make a reporting mistake. That's usually how they get caught.

Do you know if California requires a separate extension filing?

California automatically grants you the same extension as federal (6 months) without requiring a separate form - but ONLY if you don't owe additional tax. If you do owe CA tax, you need to file Form FTB 3519 and make a payment by the original due date to avoid penalties. New York also gives an automatic extension matching the federal timeframe. Texas doesn't have state income tax so no worries there. Most states follow federal extensions but there are definitely exceptions, so always double-check your specific state's requirements.

TaxAct tried to charge me last year when I went to submit the extension. Did you actually get through the whole process for free?

Thanks for bringing this up! I checked my paystubs and they definitely show federal and state tax withholding, so I should be getting a W-2. They were taking out Social Security and Medicare too. I'm thinking maybe they just don't have my current address since I moved shortly after leaving? But still, they should've responded to my emails asking about it. So frustrating.

That's good you confirmed they were withholding taxes! In that case, they're definitely required to provide a W-2. The address issue could definitely be part of the problem - sometimes companies just mail them to the last address they have on file. You might want to check if your former employer used a third-party payroll service like ADP, Paychex, or Gusto. If they did, you might be able to create an account directly with that service and access your W-2 electronically. Many of my past employers used these services, and I could get my tax forms even years later by logging into those platforms.

This actually works surprisingly well! When my husband's former employer was ignoring his requests, he physically went to their HR office. Amazing how quickly they produced his W-2 when he was standing right in front of them. Sometimes the old-school direct approach is still the most effective.

Do you know if interest is calculated on the penalties too or just on the original tax amount? This feels like such a scam if they're charging interest on penalties...

Yes, unfortunately, the IRS charges interest on both the unpaid tax amount AND on the penalties. So you're paying interest on your interest, essentially. They calculate interest daily using the federal short-term rate plus 3 percentage points, and it compounds daily. This is why tax debts can grow so quickly if left unpaid. If you're seeing a higher balance than expected, this compounding effect is often the culprit.

I successfully got a failure-to-pay penalty removed last year using something called First Time Abatement. If you've had a clean record for the past 3 years (filed and paid on time), you can usually get penalties waived once as a courtesy. Just call and specifically ask for "First Time Penalty Abatement." They don't advertise this but it's a real thing!

Can you explain more about this Personal Holding Company tax? I've never heard of this and I'm currently using a Wyoming C Corp for my investments. Is this something that applies to all investment income in a corporation?

The Personal Holding Company (PHC) tax applies when a closely held C corporation (few shareholders) has at least 60% of its adjusted ordinary gross income coming from "passive" sources like dividends, interest, royalties, and certain rents. If the corporation doesn't distribute this income to shareholders, it can get hit with an additional 20% tax on the undistributed income. It doesn't apply to all investment income - capital gains from selling stocks aren't PHC income. But interest and dividends are. If you're trading frequently enough to qualify as a "trader" rather than an "investor" in IRS eyes, you might avoid this. But occasional traders often get caught by these rules. Wyoming has no state income tax which is good, but the federal PHC tax would still apply if you meet the criteria.

Unfortunately, the QSBS exclusion specifically excludes businesses where the principal asset is the reputation/skill of employees, and businesses in finance, investing, or similar fields. A C Corp whose primary activity is trading or investing wouldn't qualify for the QSBS exclusion. The QSBS benefit is aimed at operating businesses in qualified sectors like manufacturing or technology, not investment vehicles. There are some creative structures where a portion of activities might qualify, but it's complex and would require very specific planning with a qualified tax attorney.

Thanks for clearing that up! I wondered if there was a way to make it work, but sounds like it's not viable for investment activities. Back to comparing the standard LLC vs C Corp options then. Appreciate the expert insight!