Thanks for bringing this up. Do the streamlined procedures actually cover Form 5472 though? I thought those were mainly for individual tax returns and FBARs, not for business entities and their reporting requirements?

You're right that the streamlined procedures primarily focus on individual returns and FBARs. Form 5472 penalties technically aren't included in the standard streamlined relief program. However, once your friend enters the streamlined program for their personal returns, they can often make a separate reasonable cause argument for the business filings that has a higher chance of success. The IRS tends to view compliance efforts more favorably when taxpayers are comprehensively addressing all their filing obligations. So while the Form 5472 penalties aren't directly covered, being in the streamlined program can create a more favorable environment for negotiating those specific penalties through separate reasonable cause requests.

The Taxpayer Advocate Service has been completely overwhelmed since COVID. They're now only taking the most extreme hardship cases. Unless your friend can prove they're facing immediate eviction or something similar, TAS probably won't take the case.

Thanks for this info! I had no idea there were "marketplace facilitator" laws. Do you know if there's an easy way to check what my state requires? I've been collecting and remitting sales tax on the full amount (including their commission) which sounds like it might be wrong.

The easiest way to check is to google your state name plus "marketplace facilitator sales tax law" - most states have published guidance specifically for restaurants dealing with delivery apps. In most states that have these laws, the delivery apps should be giving you reports that show what portion of sales tax they collected vs what you need to collect. If you've been remitting tax on the full amount including their commission, you might actually be overpaying! You might want to look into filing an amended return to get that money back. Some of my restaurant clients have received significant refunds after realizing this mistake.

On the tax-exempt topic - be super careful with catering orders for churches and non-profits. I learned the hard way that in my state, they need to provide their exemption certificate BEFORE the sale, not after. Had to eat the tax cost on a $2000 order because they gave me their certificate a week later!

That's an angle I hadn't considered. The grant money is from my advisor's research funding, and I'm definitely working on their project rather than just my own educational pursuits. The money is paid biweekly like a salary, but it's never been called a salary explicitly - it's always referred to as a "research stipend." Does that distinction actually change how I should report it on my taxes?

Yes, the distinction can definitely change how you report it! If the money is compensation for services rendered (which sounds possible in your case since you're working on your advisor's project and being paid regularly like a salary), it would be treated as employment income rather than a scholarship/fellowship. In that case, the university should have issued you a W-2 for that portion of income. But universities are notoriously inconsistent with how they classify these payments. Some will issue 1099-MISCs for research stipends, while others report them as scholarships on the 1098-T, and some don't report them at all (expecting you to self-report).

This is excellent advice. I work in a university accounting office, and I can tell you that how the university reports these payments matters a lot. If they issued a W-2 for any portion, that's definitely reported as wages. If they included the research stipend on the 1098-T as a scholarship, that's how the IRS will expect to see it reported.

Thanks for breaking down the numbers! So even with the extra costs of payroll processing and additional tax filings, I'd still come out way ahead. Do you recommend using a payroll service or trying to handle it myself?

Definitely use a payroll service. The cost is minimal (usually $50-75/month for just yourself) and the peace of mind is worth it. They handle all the tax deposits, quarterly filings, W-2s, etc. Trying to DIY payroll is asking for trouble - the penalties for missed deadlines or incorrect deposits are steep. I use Gusto for my S corp payroll, but there are plenty of good options like OnPay, QuickBooks Payroll, or SurePayroll. Most accounting software integrates with these services too, making bookkeeping easier.

Wait, I thought QBI applied to S-Corp distributions too? My accountant definitely included my S-Corp distributions in QBI calculations last year...

Yes, that's exactly what I said - QBI applies to S corp distributions but NOT to the salary portion. So if you take $150k salary and $120k in distributions from your S corp, only the $120k would potentially qualify for the QBI deduction. Your accountant was correct to include S corp distributions in QBI calculations. I was just pointing out that when you compare sole proprietorship to S corp, you need to account for the fact that the salary portion of S corp earnings won't qualify for QBI, whereas all net income from a sole proprietorship potentially qualifies.

Do you ever get pushback from clients when suggesting extensions? I have a few who seem to think an extension increases audit risk (though I've told them repeatedly this isn't true). Any tips for convincing stubborn clients?

I definitely get that pushback all the time! The audit risk myth is surprisingly persistent. What works best for me is showing clients the actual IRS data - extensions don't increase audit risk, but amendments definitely can. I explain that filing an extension is a standard, accepted practice that millions of businesses use every year. However, filing an amended return can sometimes trigger additional review. I frame the extension as the more conservative, safer approach that gives us time to maximize their legitimate deductions while ensuring compliance.

Always go with option 2 and file the extension. Part of our job as professionals is educating clients about proper procedure, even when it's not what they want to hear. I explain to clients that while they might be eager for their K-1, receiving an incorrect one that later needs amendment could cause them much bigger headaches - potentially requiring them to amend their personal returns as well. Most clients understand when you frame it as protecting them from future complications.

Thanks for the advice! I ended up filing the extension yesterday and explained to the client that this was the proper approach. They were initially upset but calmed down when I explained how amendments could potentially affect their personal return and possibly increase scrutiny. Will definitely continue taking this approach in the future - better to have a momentarily unhappy client than create a bigger tax mess down the road!