But won't the employees get in trouble if they file with forms they know are wrong? My manager told us we HAD to wait for corrected W-2s.

No, employees won't get in trouble for filing with incorrect W-2s as long as they file an amendment once they receive the corrected forms. The IRS understands that errors happen with tax documents. Your manager is being overly cautious. While waiting for corrected W-2s is certainly the cleaner approach, the IRS allows taxpayers to file with the information they currently have and then correct it later through the amendment process. Just make sure you keep both the original and corrected W-2s for your records, and file the amendment (Form 1040-X) promptly once you receive the corrected form.

Did any of your employees get audited because of this? That's what I'm most worried about.

Would changing the payroll schedule that drastically cause problems with our employees? I'm thinking they might not like having their pay periods shifted around, especially around the holidays when cash is tight for many people.

It does require some careful communication with your team. We gave our employees about 3 months notice before implementing the change, and offered short-term advances to anyone who needed help with the transition. Most people adjusted within a month or two. It also doesn't have to be a permanent change - some businesses do a "bonus" mid-December payment that effectively prepays some January work, then return to normal scheduling in January. The key is getting those funds out of your business account before December 31st so they don't contribute to your year-end retained earnings.

C-Corp has double taxation though. They'd pay corporate taxes and then personal taxes on any dividends. With $9.5m ARR, seems like they'd end up paying more overall unless they plan to reinvest almost everything back into the business.

You're right about the double taxation concern. It works better for businesses planning significant reinvestment rather than regular profit distributions to owners. A possible middle ground might be the "hybrid approach" where they elect S-Corp taxation but establish a reasonable salary structure and timing that helps manage cash flow better throughout the year. They could also look into establishing separate entities for different business functions, though that adds complexity.

I'm confused about the guaranteed payments part. If we do guaranteed payments instead of distributions, don't we end up paying MORE in taxes because of the self-employment tax? Or is there some advantage I'm missing?

You're right about potentially paying more in taxes with guaranteed payments due to self-employment tax. However, there are situations where guaranteed payments make sense: When you need consistent income regardless of profitability (similar to a salary), guaranteed payments provide that predictability. They're also useful when partners contribute significantly different levels of work - you can compensate for work through guaranteed payments while maintaining equal ownership through distributions. Some partnerships use a combination approach: modest guaranteed payments for actual work performed, then distributions for the remaining profits. This balances the need for regular income with tax efficiency. The right structure depends on your specific situation, including cash flow needs, relative contributions of partners, and other tax considerations unique to your circumstances.

I think everyone's overcomplicating this. COGS is for when you're selling STUFF not SERVICES. If your making furniture or selling t-shirts you have COGS. If your just providing creative work its not COGS, its just business income.

Good point - I'm in Minnesota. Does anyone know how MN handles capital gains taxes? Are they taxed differently than regular income at the state level?

Minnesota taxes capital gains as regular income, unlike the federal government which gives preferential rates to long-term gains. So you'll pay your normal Minnesota income tax rate on all your capital gains regardless of how long you held the investments. Minnesota's income tax rates range from 5.35% to 9.85% depending on your income bracket. Given your regular 22% federal bracket, you're probably looking at the middle Minnesota brackets (6.8% or 7.85%). There's no separate capital gains rate structure at the state level.

This is super important! Tax-loss harvesting saved me thousands last year. If you have any investments at a loss, you might want to sell those at the same time to offset some of your gains.

That's a great point about tax-loss harvesting. Just remember the IRS limits capital loss deductions against ordinary income to $3,000 per year. However, you can use capital losses to offset unlimited capital gains. Any unused losses can be carried forward to future tax years.

Thanks for mentioning this! I almost made that exact mistake. Do you know if tax software like TurboTax or H&R Block still offer access to prepare 2020 returns or am I stuck doing the paper forms at this point?

Most tax software still allows you to prepare 2020 returns, but you'll likely need to purchase their software rather than using their free online versions which typically only support the current tax year plus maybe one year back. TurboTax, H&R Block, and TaxAct all offer desktop or downloadable software for prior years. However, you'll still need to print and mail the return - electronic filing is generally not available for returns from 2020 at this point in 2024.

This is important! I messed this up on my late-filed return and it delayed my processing by months because the IRS had to manually review and adjust it.