That's interesting - I've heard about this S Corp approach before. At what income level does it generally make sense to make that switch? I'm currently making around $85,000 in profit annually.

The general rule of thumb I've heard from tax professionals is that S Corp election starts making sense financially when your net profit is consistently above $60,000-80,000. At your $85,000 profit level, it could definitely be worth exploring. The main consideration is balancing the additional costs (more complex tax filing, payroll processing, etc.) against the self-employment tax savings. You also need to pay yourself a "reasonable salary" which the IRS expects to be in line with industry standards for your role. The remaining profit can then be taken as distributions without self-employment tax.

This! I made this mistake my first year and ended up with a $550 penalty. Now I use the IRS Form 1040-ES worksheet to calculate my quarterly payments.

How exactly did you document the "worthlessness"? Did you need an independent appraisal or was your own documentation sufficient? I'm in a similar situation but don't want to spend more money on an appraiser if I don't need to.

I used a combination of internal financial statements and business records rather than paying for an expensive appraisal. I created a documentation package that included monthly P&L statements showing consistent losses, screenshots of competitor pricing that showed we couldn't compete profitably, documentation of failed attempts to sell the business (emails with potential buyers or brokers), and a formal business memo explaining the market conditions that made continuation impossible. My CPA said the key was showing I had made legitimate efforts to make the business work or sell it before declaring it worthless. We also included bank statements showing the business accounts were depleted. This approach worked for me, but situations vary - if your business had substantial physical assets rather than just a website, you might need more formal valuation. The most important thing is showing you've exhausted reasonable options before taking the tax loss.

If you're expecting lower income next year, it might make sense to delay the liquidation until January. Capital losses (which some of this likely will be) are more valuable in higher income years since they offset income. But if some qualifies as ordinary loss under Section 1244, that might be more valuable in a higher income year.

This is super helpful, thank you! My 1099 income is around $25k annually, and I'm paid biweekly at my main job, so I think I'd need about $275 in extra withholding per check based on your formula. I'll definitely try this approach instead of dealing with quarterly payments.

That sounds about right for your situation. Just make sure you're accounting for any business deductions you'll claim on Schedule C, as those will reduce your taxable self-employment income. If you have significant business expenses, you might be able to reduce that extra withholding amount a bit. For example, if you have $5k in legitimate business expenses, you'd only need to calculate the extra withholding on $20k instead of the full $25k.

This is really good advice. I had the same issue with H&R Block's software last year - somehow my 1099 income wasn't flowing correctly to Schedule SE. I ended up having to file an amended return because the self-employment tax was missing entirely.

Doesn't setting aside 30% of everything mean you're overpaying by a lot? Especially after deductions and everything, isn't the actual tax rate much lower than that?

You're right that it often means setting aside more than you'll ultimately owe, but that's intentional. The 30% covers federal income tax, self-employment tax (15.3%), and usually state income tax too. After deductions, you might end up with a lower effective rate - maybe 20-25% all-in for many people. But I've found it's much better to slightly overpay than to come up short. Plus, knowing that my taxes are covered gives me peace of mind. If I have extra in my tax savings account after filing my annual return, I just transfer some of it to my retirement account or reduce the next quarter's payment.

For quarterly estimated taxes, you'd select "Estimated Tax" as the reason for payment and "1040-ES" as the form number. Then you'll need to select the tax year and quarter you're paying for. It's actually pretty straightforward once you know which options to pick!

Thanks for the insights from your experience! Just to clarify - if my kids are receiving both W-2s from our businesses AND have their own separate self-employment income, which version would they need? Also, does TaxAct make it easy to handle the investment income reporting for all of us?

If your kids have both W-2 income and separate self-employment income, they'd definitely need the Self-Employed version. The W-2 part is easy with any version, but once you add self-employment income with business deductions, you need the higher tier. TaxAct does handle investment income reporting pretty well in my experience. All versions (even Deluxe) include basic investment reporting for things like dividends and capital gains. The interface walks you through entering 1099-DIV and 1099-B forms. If you have more complex investments like rental properties or partnerships, you'd need the Self-Employed version for those too.

I've used both. TurboTax is more user-friendly but WAY more expensive, especially for multiple returns with self-employment. TaxAct Self-Employed is about half the price of TurboTax Self-Employed and covers basically the same forms. TaxAct's interface isn't as pretty but gets the job done.