How do you determine what percentage is "reasonable"? Is there a specific formula the IRS uses or is it more of a judgment call?

There's no specific formula or percentage the IRS mandates - it's more of a facts and circumstances test. The IRS looks at factors like your qualifications, duties, time spent in the business, what comparable positions pay in your industry and region, and the financial performance of your business. For some businesses, a 50/50 split might be perfectly reasonable, while in others (especially service businesses where the owner's expertise is the primary value), the salary portion should be higher. I recommend researching salary data for your position in your area using resources like the Bureau of Labor Statistics or industry compensation surveys to support whatever split you choose.

I've used both. Gusto is MUCH more user-friendly for S-Corp payroll specifically. They have an owner setup wizard that walks you through things like reasonable compensation documentation. QuickBooks is more robust for overall accounting but their payroll can be confusing for S-Corp owner-employees. Gusto also automatically handles all the special forms for paying yourself as an S-Corp owner.

That's really important to know - I hadn't considered the long-term compliance requirements. If the OIC is accepted, I'll definitely need to set up a system to help him stay on track with quarterly payments. Maybe setting up automatic transfers to a tax savings account? Would monthly estimated payments be allowed instead of quarterly to make it more manageable?

Monthly payments towards quarterly tax obligations are definitely doable and often more manageable for people with executive functioning challenges. I recommend setting up an automatic transfer to a separate "tax account" on a monthly basis. The IRS just wants their quarterly payments received on time - they don't care how you save for them. Another approach that helps many of my clients is having a tax professional set up automatic reminders and check-ins. The most important thing is creating a system that doesn't rely on memory or executive function. Payment plans with automatic drafts can also be very helpful if needed in the future.

This is a great point. When I submitted my OIC, the IRS initially rejected it because they calculated "imputed income" for my housing situation since I was staying with family. I had to resubmit with documentation showing the arrangement was temporary due to financial hardship.

Thank you for pointing this out! He actually does help care for our parents occasionally, so I'll make sure to document that as part of the living arrangement. He doesn't currently receive any assistance programs but may qualify for some based on income. Would applying for those programs before submitting the OIC be beneficial? Or would that potentially complicate matters?

Does this work for accounts that hold REITs? Those distributions are especially complicated with return of capital, etc. I'm struggling with exactly this issue right now for an estate I'm administering.

Yes, it actually works quite well for REITs, which are one of the most complicated assets for estate fiscal year accounting. The brokerage's tax center will typically show the breakdown of REIT distributions into ordinary income, qualified dividends, capital gain distributions, and return of capital. For the fiscal portion where you don't yet have the official breakdown, many brokerages will let you see the preliminary classification based on what the REIT has announced. REITs are required to announce their dividend tax classifications, even though the official 1099 comes later. If you can't find this in your brokerage's system, you can often go directly to the investor relations section of the REIT's website and find their dividend tax classification announcements.

Is that really true? I thought you always use the form for the year in which the fiscal year ends. So for a Aug 2022-July 2023 fiscal year, wouldn't you use the 2023 forms since that's when the fiscal year ends?

You're absolutely right about depreciation recapture. When you sell a rental property, any depreciation you claimed (or were entitled to claim) during the rental period must be "recaptured" and is taxed at a maximum rate of 25%. This is separate from the capital gains tax on any appreciation in the property's value. So the total tax on a rental property sale is often a combination of: 1. Depreciation recapture (up to 25%) 2. Capital gains tax on the appreciation (0%, 15%, or 20% depending on income) 3. Possibly the 3.8% Net Investment Income Tax if income is above certain thresholds This makes it even more important for the OP to ensure they're accounting for all possible deductions and basis adjustments to minimize the overall gain.

That's a really good point! I do have some stocks that are currently at a loss. If I sell those before December 31, I could offset some of the capital gains. I was holding onto them hoping they'd recover, but maybe taking the loss now makes more sense tax-wise. I'll talk to my CPA about this strategy. Thanks for the suggestion!

Thanks for the advice! So for my 2023 unreported income, should I file an amended return now or wait until after I file my 2024 taxes next year? And what kind of penalties might I be looking at?

I'd recommend filing an amended return for 2023 as soon as possible. The longer you wait, the more penalties and interest can accumulate if you end up owing tax. Since the amount is relatively small, your penalties would likely be minimal, especially if you qualify for first-time abatement (which the IRS often grants to taxpayers with previously good compliance history). For your 2024 taxes that you'll file in 2025, keep them completely separate from the 2023 issue. Handle the amendment now, then start fresh with good record-keeping for the remainder of 2024. Remember that quarterly estimated tax payments might be required for self-employment income, though with your amounts, you might fall below the threshold where those are necessary.

That's not entirely accurate. You can switch from actual expenses to standard mileage in later years, but only if you used standard mileage in the first year. If you start with actual expenses, then you're locked in.