Wow that's scary. What was your W2 to distribution ratio that triggered the audit? Were there any warning signs before they came after you?

We went from 100% W2 to about 25% W2 and 75% distributions, which was way too aggressive. There weren't any specific warning signs before the audit notice arrived. They simply selected our return for examination. During the audit, they looked at our involvement in the business, the services we performed, and comparable salaries in our area for property managers. They determined that our "reasonable" salary should have been around 65-70% of what we were taking out of the business.

This is such an important point! I had the same issue when trying to get a construction loan for a new property development. My lender basically ignored my S-Corp distributions as qualifying income and only counted my W2 earnings, which made my debt-to-income ratio look terrible.

Thanks for mentioning this! I almost made that exact mistake. Do you know if tax software like TurboTax or H&R Block still offer access to prepare 2020 returns or am I stuck doing the paper forms at this point?

Most tax software still allows you to prepare 2020 returns, but you'll likely need to purchase their software rather than using their free online versions which typically only support the current tax year plus maybe one year back. TurboTax, H&R Block, and TaxAct all offer desktop or downloadable software for prior years. However, you'll still need to print and mail the return - electronic filing is generally not available for returns from 2020 at this point in 2024.

This is important! I messed this up on my late-filed return and it delayed my processing by months because the IRS had to manually review and adjust it.

This is a good point! My company does this and it caused massive confusion for me. I thought I had all my shares but actually about 40% had been sold automatically for withholding. The transaction history in my brokerage account showed this, but it wasn't obvious at first glance.

Does this work for state tax overpayments too? I overpaid New York state by about $3k and wondering if there's an equivalent process.

For New York State overpayments, the process is different. You'll need to contact the NYS Department of Taxation and Finance directly. They don't have a direct equivalent to the IRS transcript system, but you can request an account statement by calling 518-457-5181. For a $3k overpayment to NYS, you should file Form DTF-973 "Request for Refund of Overpayment or Credit Balance." Include all documentation showing both payments (bank statements, canceled checks, confirmation numbers). New York is generally faster than the IRS in processing these requests - typically 4-6 weeks rather than 8-12 weeks.

That's how my accountant works too. We get a secure message that says "APPROVAL REQUIRED" in the subject line with a breakdown of what's owed and a checkbox to authorize payment. Nothing happens automatically.

Thanks for confirming! I'm going to stick with my current accountant then, as that process seems much safer. I think the takeaway here is that we should all clearly establish payment procedures with our tax preparers at the beginning of the engagement, and get it in writing. As tax preparation becomes more digital, these authorization processes need to be more explicit, especially when we're talking about potentially large sums of money being transferred. I'd recommend everyone have a specific conversation about payment authorizations with their accountant before tax season next year.

I had no idea about these exemptions! We definitely qualify for the homestead one since this is our primary residence. Do these typically have income limits or other requirements? Also, can I apply for 2023 taxes still or would it only affect 2024?

Most homestead exemptions don't have income limits - they simply require that the home is your primary residence (usually you can only claim one homestead exemption in a state). Some states do offer additional income-based exemptions on top of the standard homestead benefit. For 2023 taxes, it depends on your county. Some allow retroactive applications while others don't. Many counties allow you to apply for the current tax year up until their deadline (often in spring). I'd call your assessor's office ASAP and ask if you can still apply for 2023. If not, definitely get your application in for 2024. Even if you've missed the window for this year, getting it set up for next year is still worthwhile - these exemptions typically remain in place automatically for future years once approved.

I've done it twice in the last 5 years without any special service. First time I just submitted photos showing problems with my property (cracked foundation, water damage in basement) and they reduced my assessment by 8%. Second time I printed out assessment values for 6 similar homes in my neighborhood that were valued lower, and they reduced mine by 12%. The key is documentation and being polite but persistent. The assessor's office isn't personally trying to get more tax money - they're just following their procedures and often working with outdated or incomplete info. If you provide better data, many will adjust accordingly.

That's really helpful to know, thanks! Did you have to attend a hearing or was it all done through paperwork? I'm nervous about having to present my case in person to some board.