Oh no, I didn't even think about this! So I need to make sure the 1099s are actually filed with the IRS too? My new preparer didn't mention anything about that specifically, just that we were amending my returns. Now I'm worried again...

Yes, you absolutely need to make sure the 1099-NECs are filed with the IRS! There are two parts to this process: sending copies to your contractors (which they need for their own tax filing) AND submitting them to the IRS. The deadline for filing 1099-NECs with the IRS is January 31st of the year following payment, so your 2022 forms were technically due January 31, 2023. There are penalties for late filing, but they're relatively small for small businesses if you file within 30 days of the deadline. The penalties increase the longer you wait, but filing late is still much better than not filing at all.

The penalties can actually be much higher depending on how many contractors and how late the filing is. I got hit with a $250 per contractor penalty for missing 1099s for my wedding video business. Definitely ask your preparer about this!

That's a really good point! My sister definitely treats it like a business - she has separate bank accounts, business cards, advertising, and she's been working on adjusting her pricing to be more profitable. She's only been doing it for about 18 months, so this is her first year with a full 12 months of operation. Does that help her case for it being a legitimate business vs a hobby?

Yes, that definitely helps her case! Separate business accounts, marketing materials, and actively working on pricing strategies all demonstrate business-like behavior. The fact that it's only been running for 18 months is also helpful - the IRS generally expects businesses might have losses in their early years. For additional protection, I'd suggest she document her efforts to make the business profitable - like market research, business plan updates, or courses she's taken to improve her skills or efficiency. The IRS uses a nine-factor test for determining hobby vs. business, and documentation showing profit motive is crucial. With her full-time job providing income, she's not dependent on the grooming business for livelihood, which could be one mark against her, but the other factors you mentioned strongly support treating it as a legitimate business.

I used it last year for my photography side gig that showed a small loss. It was pretty straightforward for getting the Schedule C done correctly, and it asked all the right questions to make sure I got all possible deductions. I think it was worth it for the peace of mind.

Wait the IRS actually pays interest when they're late with your refund? Is that automatic or do you have to request it somehow?

It's completely automatic! The IRS pays interest on refunds that are issued more than 45 days after the filing deadline (or the date you filed, if you filed after the deadline). The interest is calculated from the original due date of the return. The interest rate changes quarterly based on federal rates. Currently it's around 7% annually which is pretty decent. The interest gets added to your refund automatically - you'll see it as a separate amount on your refund check or direct deposit description. You will get a Form 1099-INT the following January because that interest is taxable income for the year you receive it.

States all have their own rules unfortunately. What state are you in? I know NY and CA don't penalize for late filing if you're due a refund, similar to federal.

I tried that first but couldn't find the zero wage indicator box anywhere in the interface. Is it hidden in an advanced section somewhere? The BSO interface is not exactly user friendly.

It's definitely not in an obvious place! You need to first select "Report Wages to Social Security" from the main BSO menu, then choose "Create/Edit W-2/W-2c Online." After you've entered the employee information, there should be a checkbox labeled "Zero Wage" near the bottom of the wage information section. If you still don't see it, make sure you're using the W-2 Online application and not the W-2 file upload option, as they have different interfaces. Also, sometimes you need to complete all the required fields first (name, SSN, address) before that option becomes visible. The BSO system is definitely frustrating to navigate!

Most regular tax software is for filing your personal or business taxes, not for creating and filing W-2 forms. You need specific payroll software or the BSO system for W-2s. TurboTax won't help with this particular issue.

Can I ask how long it took between submitting your S corp election and receiving the rejection/notices about your unfiled returns? Was there any warning or did they just hit you with everything at once?

It took about 6 weeks from when I submitted Form 2553 until I received the rejection letter. There was no warning at all - the rejection came first which specifically mentioned "taxpayer not in compliance with filing requirements" as the reason. Then about 2 weeks after that rejection letter, I started receiving separate notices for each unfiled tax year requesting that I file returns immediately. The notices came with proposed penalty amounts that increased with each year I was behind. The whole process created a much bigger headache than if I'd just caught up on filings first.

I used a CPA when I was in this exact situation last year. Having them handle everything definitely helped. They filed my missing returns first, waited about 45 days, then submitted the S corp election. Everything went through without issues. They told me the key was getting the personal returns processed BEFORE submitting Form 2553. Also, they filed a disclosure statement with my catch-up returns explaining the late filing was unintentional which may have helped avoid penalties.

Thanks for sharing your experience! That 45-day waiting period between filing the missing returns and submitting the S corp election makes a lot of sense. Did your CPA mention anything about whether you needed to wait for formal processing confirmation from the IRS before submitting the 2553?