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.

Are the Tax Institute guides updated every year? My main concern is spending money on resources that might become outdated with tax law changes.

Yes, they update them annually to reflect the latest tax legislation and rulings. That's actually one of their big selling points - you're getting the most current information, which is crucial in tax accounting where rules change frequently. The recent editions include all the changes from the last federal budget and recent ATO interpretations. Even if you buy last year's edition at a discount, the core concepts remain valid, but for specifics like rates and thresholds, you'd want the current version.

I second this! PwC's summaries are gold. Also check out the free CCH IntelliConnect resources if your uni library subscribes - saved me heaps of $$ on books.

I just checked the SSA site like you suggested and was able to create an account! You're right, I can see my earnings there, though it only shows quarterly totals not the withholding info. Super helpful for figuring out what I made before January though! One more question - if I file using Form 4852 with my best estimates and later receive my actual W-2, do I need to amend my return?

Yes, if you receive your W-2 after filing with Form 4852 and notice any significant differences between your estimates and the actual W-2 amounts, you should file an amended return using Form 1040-X. However, if the differences are very small and don't affect your tax liability, the IRS generally doesn't require an amendment. The good news is that most employers electronically report W-2 information to the IRS, so even if you don't have the physical form, the IRS likely has your wage and withholding information in their system. This is why it's so helpful to speak with them directly about your situation.

This is good advice but just be careful with the January estimate. Tax withholding often changes at the beginning of a new year because of FICA limits and tax table changes. So your January withholding percentages might be slightly different than December.