This is actually exactly how their program works! It's a one-time payment when the patent is filed, not based on how successful the patent becomes. Do you know if that changes how I should report it? The 1099-MISC still lists it in Box 2 as royalties.

You should generally report income according to how it's listed on your tax forms to avoid mismatches that could trigger IRS notices. Since your company reported it in Box 2 as royalties, you should report it as royalty income on Schedule E. If you believe the payment is more accurately characterized as a bonus or award rather than a royalty, you could include a brief explanation with your tax return. However, the practical difference in tax treatment between royalty income and other income is minimal in most cases - both are subject to ordinary income tax rates but not self-employment tax.

This is a really good point. My previous employer had a tiered system - $2k when filed, $5k when granted, and then a percentage of licensing revenue if it ever generated any. Worth checking your former employer's policy.

Thank you for this suggestion! I hadn't even thought about paper filing as an option. Do you know if there's any additional form I need to fill out since the electronic extension was rejected? And how long does it typically take for the IRS to process a paper extension?

You don't need any additional forms - just the standard Form 4868 for extension. Write a brief note in the margin referencing the electronic rejection if you want, but it's not required. Paper processing is taking about 3-4 weeks right now according to what I've heard, but the postmark date is what matters for filing on time, not when they process it. Just be sure to estimate your taxes properly and include payment if you owe. The extension gives you more time to file, but any taxes owed were still due on April 15th. Keep a copy of everything and the certified mail receipt in your records.

YES! TurboTax kept rejecting my roommate's return for "duplicate filing" but when he called, they admitted it was a glitch in their system, not the IRS. They had to escalate it to their tech team and it took 3 days to fix. Might be worth calling TurboTax support directly to see if it's a known issue.

Wait WHAT? You had to pay $800 for a business that never operated? That seems absolutely ridiculous! Is that legal?

Yes, unfortunately it is legal. California charges an $800 minimum franchise tax to all LLCs registered in the state, whether they do business or not. Many states have similar fees, though California's is notoriously high. The logic behind it is that you're paying for the privilege and benefits of having limited liability protection, regardless of whether you use it. First-year LLCs in California now get a break on this fee, but after that, you owe it annually until you properly dissolve the entity. That's why it's so important to formally dissolve an LLC you're not using - otherwise these fees keep accumulating year after year.

I actually haven't done that part yet - I only dealt with the tax returns through the revenue department! Thanks for pointing this out. Looks like I need to file dissolution paperwork with the Secretary of State as well to completely close everything down.

Good point about the state tax! I didn't even think of that. How long would the state typically take to catch up after an IRS audit?

States usually find out within a year after the IRS audit is completed. The IRS and state tax authorities share information, though the timing varies by state. Some states automatically adjust your state tax when they receive info about federal changes, while others require you to file an amended state return within a specific timeframe (usually 30-90 days) after your federal adjustment. If I were you, I'd be proactive and check with your state tax department now. It's always better to address it early rather than let additional interest accumulate if you do owe more.

I'd just pay it. In my experience, amending old returns is a headache and often triggers more scrutiny. Plus you'd still owe the interest regardless.

Thanks for this list! The letter mentions error code 1040-SC3-745 which apparently relates to Line 10 on Schedule 3 (Excess Social Security and tier 1 RRTA tax withheld). I don't even remember entering anything there so I'm super confused. Could this happen if I had multiple W-2s and the software calculated something wrong there?

Yes, that's exactly what probably happened! Error code 1040-SC3-745 is specifically for excess Social Security withholding issues. This typically occurs when you had multiple employers during the year and collectively they withheld more than the maximum Social Security tax allowed. The 2024 Social Security wage base limit is $168,600, meaning that's the maximum amount subject to Social Security tax. If your combined wages from multiple jobs exceeded this limit, you're entitled to a credit for the excess withholding - but the calculation needs to be precise. The tax software should have calculated this correctly if you entered all W-2s accurately. Double-check that you entered the Social Security wages (Box 3) and Social Security tax withheld (Box 4) exactly as they appear on each W-2.

The rejection letter phone numbers are just as useless as the main IRS line. I called the "dedicated" number on my rejection letter 23 times last month and never got through. Just endless "due to high call volume" messages and disconnects.