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Have you tried using the override function in TurboTax? I had a similar issue last year, and there's a way to tell the software to ignore certain validation warnings if you're confident your information is correct. Look for an option like "I'm sure my information is correct, continue anyway" or something similar on the error screen. Sometimes it's hidden behind a "more options" button. This worked for me when I had a situation where my state withholding was calculated differently than federal.
Where exactly is this override option? I'm staring at the error screen right now and don't see anything like that. Is it only in certain versions of TurboTax?
It's not always obvious - look for small text links near the bottom of the error message that say something like "I want to continue anyway" or "Override this warning." Sometimes you have to click on "Why am I seeing this?" first, and then the override option appears. If you're using the downloadable version, it might be under "Tools" ā "Options" ā "Error checking" where you can adjust the sensitivity level. For the online version, sometimes you need to click on a "More options" or "What should I do?" link that expands additional choices.
Before you go crazy with workarounds, double check if you accidentally duplicated some income on your state return that's not on your federal. I made this exact mistake - entered my W-2 income twice on my California return but only once on federal. Drove me nuts for days until I spotted it!
This!! I had the same issue. Check if you accidentally entered a 1099 or W-2 twice in the state section. TurboTax's interface makes this so easy to do by accident.
One thing nobody's mentioned yet - make sure you understand if these are profits interests or capital interests. They're taxed very differently. Profits interests generally have no value at grant (only future value), while capital interests have value on day one. With profits interests, you typically don't need to pay taxes upon receipt, but with capital interests you might. Also check if these units have any "threshold" amount. Some LLC units only pay out after the company reaches a certain valuation, which affects their current value and tax treatment.
Thanks for bringing this up! How would I know if I have profits interests vs capital interests? The agreement uses the term "restricted incentive units" throughout and mentions something about only being eligible for distributions after I've vested and after all capital contributions have received a return of some percentage. Does that sound like profits interests?
That definitely sounds like profits interests based on the language about distributions only happening after capital contributions receive their return. This is good news tax-wise! Profits interests are designed to give you a share of future growth without taxing you on existing value. The "after all capital contributions have received a return" language is classic profits interest structure - it means your units only have value after the existing investors get their money back plus some preferred return. Just make sure you understand the vesting schedule and any potential acceleration clauses. Also, check if your company will provide tax distribution provisions to cover any phantom income that might be allocated to you.
Your situation sounds confusing, but I think the biggest tax issue with LLC equity that nobody's mentioned is self-employment tax. When you're a partner in an LLC, you might owe self-employment tax (15.3%) on your allocated income. This is significantly higher than the regular employment taxes you're used to as a W-2 employee (7.65%, with the employer paying the other 7.65%).
OP just to give you a different perspective - I work as a K9 handler in security and successfully deducted a portion of my dog training classes. The key was that I'm 1099 independent contractor, not a W-2 employee. I documented how the specific training skills directly related to my security contracts. If you're W-2, you're probably out of luck since the 2018 tax law changes eliminated most unreimbursed employee expenses. But if you're self-employed (filing Schedule C), you might have a case for a partial deduction. Just document everything like crazy in case of audit.
Thanks for this insight! I'm actually W-2 at my main job but I've been picking up some independent security gigs on weekends (about 10-15 hours per week) where I'm paid as a contractor. Would that change things since I'm partially self-employed? And what kind of documentation would you recommend keeping?
That definitely changes things! For the independent contractor work, you can potentially deduct a portion of the karate lessons that corresponds to your self-employment income. So if your 1099 work is 25% of your total income, you might reasonably deduct 25% of your martial arts training. For documentation, keep receipts for all classes, a log of your training hours, and most importantly, documentation showing how these specific skills are used in your contract work. I also keep client contracts that mention security skills required, emails discussing security requirements, and a written explanation of how each training element directly contributes to my services. The more specific you can be about the connection between the training and your security services, the better.
just a helpful hint - i'm a tax preparer and if you decide to deduct these, make sure you're tracking everything meticulously. i've seen too many clients audited for unusual deductions. the karate expense would go on Schedule C if you're a contractor, and you'd need to be able to show it's "ordinary and necessary" for your specific security business (not just helpful). one approach is to only deduct a reasonable percentage based on business use vs. personal benefit. like if you can demonstrate 40% business use, just deduct that portion. way less likely to trigger problems.
If you have student loans, you might want to consider having extra withholding on your W-4. I didn't fill mine out properly at my first job and ended up having a huge tax bill because I had multiple income sources that pushed me into a higher bracket. In Step 4(c) you can add extra withholding each paycheck. Even an extra $25-50 per check can add up and prevent a surprise bill next April.
Thank you for this advice! I do have student loans that will be going into repayment soon. How do I figure out exactly how much extra to withhold? Is there like a calculator or something I can use?
The IRS has a Tax Withholding Estimator tool on their website that's pretty helpful. You input your expected income, student loan interest, and other details, and it gives you a recommended amount for extra withholding. For a rough estimate, if you're early in your career making under $60k with typical student loan interest, having an extra $40-50 withheld from each biweekly paycheck often puts you in a good position. But the calculator will give you a more personalized number based on your specific situation.
One thing nobody mentioned - if you don't fill out a W-4, most payroll systems automatically default to withholding as "Single with zero adjustments" which is usually the HIGHEST withholding level. So you'll have more taxes taken out of each check than you might need to. I personally prefer slightly overwithholding (I use the "single, zero" option even though I could claim some adjustments) because I like getting a refund rather than owing money, but some people prefer having more in each paycheck.
Victoria Charity
Don't forget about estimated tax payments for next year! With income this high, you need to be making quarterly payments or you'll get hit with underpayment penalties. My business income jumped dramatically in 2023 and I got slapped with almost $4,000 in penalties because I didn't realize this. The IRS expects you to pay as you earn, not just at tax time.
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Dominic Green
ā¢This is actually really helpful - I had no idea about the quarterly thing. How do I figure out how much to pay each quarter if my income isn't consistent? My construction projects vary a lot month to month.
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Victoria Charity
ā¢You have a couple of options for calculating your estimated payments. The safest method is paying 100% of your previous year's tax (or 110% if your income was over $150,000). This gives you a "safe harbor" from penalties even if you end up owing more. If your income fluctuates, you can use the "annualized income installment method" using Form 2210. This lets you make payments based on what you actually earned in each period rather than 25% each quarter. Most construction businesses have seasonal fluctuations, so this might work better for you. A good tax software or accountant can help you run these calculations.
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Jasmine Quinn
Honestly at your income level, you should be talking to a tax ATTORNEY, not just a CPA. They can help you set up more advanced strategies like captive insurance companies, cost segregation studies if you buy commercial property, or even set up a management company with a defined benefit plan. These are all legit strategies but they need professional setup. I learned this the hard way after DIYing my taxes when my business hit 7 figures.
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Oscar Murphy
ā¢Completely agree - especially for construction. My brother's construction company got hammered in an audit because they hadn't structured things correctly. Not worth the risk when you're dealing with this kind of money. A good tax attorney will save you way more than they cost.
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