Thanks for mentioning this! My AGI for 2023 will be around $175,000, so I'd need to hit the 110% threshold. My concern is that I've had very little withholding for 2024 since most of my income this year is from self-employment, and I didn't make any quarterly payments yet. That's why I was hoping to use the overpayment strategy to catch up a bit.

Based on your situation with $175,000 AGI and mostly self-employment income, you're right to be concerned about catching up on those estimated payments. The 110% safe harbor would definitely apply to you. Since you've missed the first couple of quarterly payments for 2024, you will likely face some underpayment penalties for those specific quarters. However, overpaying on your 2023 return will help minimize additional penalties going forward. Make sure to make your remaining quarterly payments for 2024 on time (September 15 and January 15) to avoid further penalties.

Does anyone know exactly how much the underpayment penalty actually is? Is it worth stressing about? I'm in a similar situation and wondering if I should just pay it and move on rather than jumping through hoops.

Does this vary by state though? I've heard some states actually require the tax to be refunded no matter what, while others leave it up to the store policy?

Yes, it absolutely varies by state. Some states like California have specific regulations requiring retailers to refund sales tax on returned items even with gift receipts, as long as the return meets the store's normal return policy timeframe. Other states leave it up to the retailer's discretion. The complexity increases with online purchases being returned to physical stores, or items purchased in one state being returned in another. The tax jurisdiction issues get very complicated, which is why many corporate retailers default to the simplest accounting approach. Local managers often have some flexibility with store credit though, even if they can't technically "refund" the tax portion through their standard return process.

Totally agree! I work retail and we're WAY more likely to make exceptions for nice customers than demanding ones. We actually have a button in our system for "customer satisfaction adjustment" that managers can use for situations exactly like this.

Wouldn't I still be personally liable as a sole proprietor though? That's my biggest worry - if someone gets hurt at one of our events or something else goes wrong, I don't want to risk my personal assets.

Yes, you would be personally liable as a sole proprietor - that's the main drawback. If liability protection is your primary concern, then an LLC does make sense. In that case, I'd still recommend keeping it as simple as possible with a single-member LLC unless your friends are insisting on being official partners. Make sure you get proper event insurance regardless of your business structure. Even with an LLC, if something goes wrong at an event, having good insurance is often more practically important than your business structure, especially for small businesses where people sometimes accidentally "pierce the corporate veil" by mixing personal and business finances.

S-Corps are so overrated for small businesses. The accounting and payroll costs eat up any tax savings unless you're clearing like $75k+ in profit. Plus you have to run actual payroll every month which is a pain.

Wait, so even with our divorce agreement stating we each claim one kid per year, the IRS might still give both kids to whoever they lived with more? Our custody is 50/50 on paper, but they probably stayed with me slightly more nights because my ex travels for work sometimes.

The divorce agreement is a legal document between you and your ex, but the IRS follows their own rules when there's a dispute. So yes, if you had the kids more nights, the IRS might side with you and allow your claims - but that doesn't mean you're not violating your legal agreement with your ex. If you win with the IRS but your claim violates your divorce agreement, your ex can take you to family court for enforcement. The court could order you to pay your ex the difference in tax benefit or could find you in contempt. Some judges take these violations very seriously. That's why it's generally better to follow your agreement even if IRS rules might let you claim both children.

This is actually really good advice. Even if you and your ex don't get along, a direct conversation might avoid a much bigger problem. Courts don't look kindly on violations of divorce agreements, especially financial ones.

Thanks for the detailed response! I did notice our health insurance section on the paystub looks different than it did a few months ago. Do employers have to notify employees when they make these kinds of changes to how benefits are taxed?

Employers should notify employees about changes to benefit taxation, but the requirements vary by state and the type of benefit. For health insurance specifically, they should provide updated plan documents that explain the tax treatment. However, these notices are often buried in annual enrollment materials or benefit updates that employees might overlook. The best approach is to request documentation from HR about any recent changes to benefit tax treatment. Ask specifically about your health insurance premiums and whether they changed from pre-tax to post-tax deductions. If they made this change without proper notification, you might have recourse through your state's labor department depending on your location.

Good point. For 2025, the Social Security wage base (the FICA cap) increased to $168,600, up from $160,200 in 2023. This means employees earning above the previous threshold are now paying Social Security tax on a larger portion of their income.

Thanks for confirming! That makes sense. So higher earners would definitely see more coming out of their checks without any shady business practices being involved. Probably worth checking if all the affected coworkers are earning above that previous threshold.