Remember that different PARTS of your settlement might be taxed differently. This is something my accountant explained that I hadn't considered: 1. Compensation for physical injuries/sickness: NOT taxable 2. Emotional distress stemming from physical injuries: NOT taxable 3. Emotional distress without physical injury: TAXABLE 4. Punitive damages: Always TAXABLE 5. Lost wages/back pay: TAXABLE 6. Interest on any of the above: Always TAXABLE The paperwork should break this down. If it doesn't clearly state how much falls into each category, you should absolutely ask for clarification from whoever is administering the settlement.

One thing that hasn't been mentioned yet is the timing of when you receive your settlement versus when it's taxable. I learned this the hard way with my own harassment settlement - even if you receive the money in December, you might be able to defer some of the tax impact depending on how the settlement is structured. Some settlements are paid out over multiple years, which can help with the tax bracket issue that Yuki mentioned. Others allow you to choose between a lump sum or structured payments. If you have that option, it's worth running the numbers both ways since spreading the income over several years could significantly reduce your overall tax burden. Also, don't forget about state taxes! Some states don't tax settlement income the same way the federal government does. I was so focused on federal taxes that I completely forgot to research my state's rules until tax time. The key is getting all this figured out BEFORE you receive the money so you can plan accordingly. Once that check is deposited, your options become much more limited.

I went through this exact situation with my dissolved LLC in 2021. The key thing to understand is that the IRS requires a final return even with zero activity - it's how they officially close your business account in their system. Here's what you need to do: 1. File Form 1065 for 2020 with all zeros but check the "Final Return" box at the top 2. Include Schedule K-1s for both members marked as final returns 3. Attach a statement explaining the business was dissolved in 2020 with the dissolution date For penalties, you definitely have grounds for reasonable cause abatement since you genuinely misunderstood the filing requirements. When you file, include a detailed letter explaining that you read the instructions and believed no filing was required due to zero activity. Reference IRC Section 6651(a)(1) and cite "reasonable cause and not due to willful neglect." The IRS agent's suggestion about amending 2019 doesn't make sense - you need the final return for the actual year of dissolution. I successfully got my penalties waived using this approach, so don't panic about the late filing fees.

I had a very similar situation with my dissolved partnership and want to share what worked for me. Like you, I thought no filing was needed for a year with zero activity, but learned the hard way that the IRS still requires that final return. Here's the exact process I followed that got my penalties fully waived: 1. Filed Form 1065 for the dissolution year with all financial lines showing zeros 2. Checked the "Final Return" box prominently at the top of Form 1065 3. Prepared Schedule K-1s for each partner marked as "Final K-1" 4. Included a separate statement with the business name, EIN, and exact dissolution date For the penalty abatement, I wrote a detailed reasonable cause letter explaining that I had carefully read the Form 1065 instructions and genuinely believed no return was required when there was no income, expenses, or business activity. I emphasized that this was an honest misunderstanding of the tax code, not willful neglect. The IRS accepted my explanation and waived all penalties (which would have been over $2,000). The key is being thorough in your documentation and showing you made a good faith effort to comply based on your understanding of the rules. Don't let that IRS rep confuse you about amending 2019 - you definitely need to file the 2020 return as your final return since that's when you actually dissolved. Good luck!

Has anyone used TurboTax to handle this kind of situation? Do they have a good section for sorting out 1099 deductions vs employee expenses? Trying to figure out if I need to pay for a CPA this year.

I'm dealing with a very similar situation and wanted to share what I learned from my research. The key issue here isn't just the mileage deduction - it's the misclassification problem that several others have mentioned. For the mileage question specifically: No, you cannot deduct your daily commute to the carpentry shop, even as a 1099 contractor. The IRS considers travel from your home to your regular place of business as personal commuting expenses, regardless of your tax classification. However, here's what you CAN potentially deduct as a legitimate contractor: - Travel between different job sites (not from home to the first site) - Tools and equipment you purchase yourself - Work-related supplies - Portion of vehicle expenses for business use (not commuting) - Professional development/training costs But here's the bigger concern - based on your description, you're likely misclassified. If your boss controls your schedule, provides tools, and treats you like an employee, you should probably be getting a W-2. This misclassification is costing you money in additional self-employment taxes. I'd recommend tracking your actual work arrangement details (who provides tools, who sets your schedule, do you work for other companies, etc.) and consider getting professional guidance on whether to challenge your classification with the IRS.

I hate how the IRS treats small S-Corps with these insane penalties! My brother-in-law has a 1-person S-Corp, filed 4 months late (busy with actual real work lol) and got hit with $840 in penalties even though he owed ZERO tax. It's absolutely ridiculous.

I completely understand your frustration! As someone who's dealt with S-Corp filings for several years, I can confirm that yes, the penalties apply even when there's no tax liability. The $210 per shareholder per month penalty is automatic under IRC Section 6699. A few key points for your situation: - The penalty starts accruing from the day after the original due date (March 15th for calendar year S-Corps) - It applies for up to 12 months maximum - Drake should calculate this penalty, but definitely verify it manually One thing that might help your client: if they have a clean filing history for the past 3 years, they may qualify for first-time penalty abatement. Also, if there were legitimate circumstances that prevented timely filing (like their previous accountant's issues), they could potentially argue "reasonable cause" for penalty relief. My advice: file the current year return ASAP, and consider submitting a penalty abatement request with a detailed explanation of the circumstances. Even if partially successful, it could save your client hundreds or thousands in penalties.

I'm really sorry this happened to you - missing the 83(b) election deadline is one of those gut-punch moments that so many startup employees experience. The 30-day window is unfortunately non-negotiable, and I've seen countless people in similar situations over the years. Since your shares had a $0.00 FMV at grant, you would have had essentially no tax liability if you'd filed the election on time. Now you'll be taxed as ordinary income on whatever the fair market value is at each vesting date. Given that it's been about 1.5 years since your grant, your company may have had one or more 409A revaluations that could significantly impact your tax bill. My advice: reach out to your HR or equity administration team immediately to get the current 409A valuation. This will help you estimate what you'll owe when your first 25% vests. If the valuation has stayed relatively flat, your tax impact might be minimal. But if your company has grown or raised funding, you need to start preparing financially. Consider setting aside 35-45% of the estimated vested share value for taxes (this covers federal, state if applicable, and payroll taxes for most brackets). Also ask about your company's policy on share sales - if they don't allow employees to sell shares to cover taxes, you'll need to pay out of pocket. The good news is there are no penalties for not filing the election, and your cost basis will be stepped up to the FMV at vesting, so you won't face double taxation on sale. It's not the end of the world, just requires more careful tax planning going forward.

I'm really sorry you're dealing with this - the missed 83(b) election is unfortunately a very common mistake that happens to so many startup employees. The 30-day deadline is absolute with no exceptions, so there's no way to retroactively file it now. Since your equity had a $0.00 fair market value when granted in January 2024, you would have owed virtually nothing in taxes if you had filed the election on time. Now you'll face ordinary income tax on the fair market value of your shares as they vest, which could be significant if your company's valuation has increased over the past 1.5 years. The most important thing now is to get ahead of the tax planning. I'd recommend immediately requesting the current 409A valuation from your company's finance or HR team so you can estimate what you'll owe when your first 25% vests. If your startup has raised funding or grown substantially, this could be a meaningful tax bill that you'll need to pay out of pocket (since most private companies don't allow share sales to cover taxes). Start setting aside cash now - generally 35-40% of the estimated vested share value should cover federal income tax, state taxes if applicable, and payroll taxes. Also consider whether you'll need to make quarterly estimated tax payments to avoid underpayment penalties. The silver lining is that there are no penalties for missing the election, and your cost basis will be stepped up to the FMV at each vesting date, so you won't be double-taxed when you eventually sell. It's definitely not ideal, but with proper planning, it's very manageable.