I know everyone's focused on whether your roommate qualifies as a dependent, but has anyone considered the potential consequences for your roommate if you claim them? If they're an international student, being claimed as a dependent might affect their tax status or even their visa status depending on their specific situation. My friend almost had issues with his F-1 visa renewal because of a similar arrangement.

Just wanted to add that the IRS really looks closely at dependent claims that don't follow traditional family structures. I tried claiming my longtime roommate years ago (we had a similar arrangement where I paid all the bills and she covered other expenses). Got audited and had to repay the tax benefit plus a penalty. Make sure you have solid documentation of actually supporting them if you go this route!

Make sure you keep ALL your supporting documentation accessible for at least 4-5 years. My company claimed ERC in early 2022, got our refund about 3 months later, and then just received an audit notice last month asking for additional documentation proving our eligibility. We had everything organized (quarterly P&Ls showing revenue decline, employee counts by quarter, detailed wage calculations showing PPP vs non-PPP payroll, etc.), but I'm seeing forum posts from people who didn't keep good records and are really struggling with audits. The IRS is definitely increasing scrutiny on these claims.

Anyone know the current processing timeframe for 941-X refunds? I submitted mine for Q2 and Q3 2020 about 12 weeks ago and haven't heard anything.

One thing nobody's mentioned yet - if you're planning to grow significantly, the C Corp structure might have long-term advantages. I switched from S-Corp to C-Corp last year because: 1) We wanted to reinvest most profits into scaling the business 2) The flat 21% corporate rate was lower than my personal tax bracket 3) We're planning to seek outside investors eventually 4) We could provide better benefits (health insurance, etc.) The key is whether you plan to keep most money in the business. If you're regularly pulling out profits, you'll face that double taxation issue with C-Corps (corporate tax + dividend tax). Also worth noting: the timing of your entity change might trigger a "short year" for tax purposes, requiring multiple tax returns for the same calendar year. Can get complicated!

Quick tip: Don't forget about QBI (Qualified Business Income) deduction! If you stay as a partnership or go S-Corp, you might qualify for up to 20% deduction on your pass-through income. This is HUGE and can make pass-through entities more attractive than C-Corps in many cases. C-Corps don't get this deduction. At $120k in profits (split between two people), you'd likely qualify for the full QBI deduction without running into the income limitations or service business restrictions.

Just want to add that the CARES Act also gave the option to spread the income (not the penalty, but the actual distribution income) over 3 years on your tax returns, even if you didn't recontribute. So your cousin might have elected to report 1/3 of the distribution on his 2020, 2021, and 2022 returns. If he did that, he might want to consider the tax implications before recontributing the full amount.

My tax preparer told me that for 2020 specifically, you actually needed to designate on your tax return that the distribution was COVID-related by filing Form 8915-E. Did your cousin do that when he filed his 2020 taxes? If not, he might need to amend his 2020 return first before he can take advantage of the penalty waiver or recontribution options.

This is a common scam called "dependent fraud" and it's one of the things the IRS specifically looks for. Your friend and her sister could both be in serious trouble. What they're doing is clearly illegal. I work with a community tax clinic and we see the aftermath of these cases all the time. The penalties can include: - Paying back all refunded money (often $3,000-5,000 per child per year) - 20% accuracy-related penalty - 75% fraud penalty in some cases - Interest on all unpaid amounts - Ban from claiming certain credits for 2-10 years - Possible criminal prosecution The IRS has been cracking down on this type of fraud specifically in recent years. They have systems that flag suspicious dependent claims, especially when the children's address doesn't match the tax filer's address.

My sister actually got busted for this exact thing last year. She was claiming my niece who lived with their dad. The IRS sent her a letter demanding proof that the child lived with her. When she couldn't provide it, they made her pay back THREE YEARS of tax refunds plus penalties! It was like $16k total and she's still paying it off. Tell your friend it's not worth it. The IRS has been getting way more aggressive about this lately with their new funding. They know exactly what to look for.