What about for a single-member LLC? Are the rules any different since it's a disregarded entity for tax purposes? Could I take loans from my business more easily?

For a single-member LLC that's a disregarded entity, the situation is actually quite different. Since a disregarded entity is treated as the same taxpayer as you for federal tax purposes, technically you can't loan money to yourself - it would be like taking money from one pocket and putting it in another. The business funds are already considered your funds from a tax perspective, so there's no tax advantage to structuring withdrawals as loans. You're already being taxed on the business profits regardless of whether you withdraw the money or not (via Schedule C on your personal return). That said, for proper bookkeeping and to maintain the liability protection of your LLC, you should still document any personal withdrawals properly. If you're mixing business and personal funds without documentation, you risk piercing the corporate veil in legal situations.

Completely different. The billionaire strategy works because they're borrowing from a third party (bank or broker) using assets as collateral. They're not taking money directly from their companies without taxation. When Musk or Bezos get liquidity, they either: 1) Take loans from banks using their stock as collateral (legitimate third-party loans), 2) Sell shares and pay capital gains tax, or 3) Receive salaries/compensation that are taxed as income. The "loan" from your own business isn't actually a loan in the IRS's eyes unless it meets very specific criteria that most small business owners don't satisfy. Otherwise it's just income/distribution with extra steps.

That's a good point! All of these expenses are legitimate photography equipment (new lenses, lighting, a laptop used only for editing) and documented travel to shooting locations. My business income that year was around $36,000 so the $7,800 in additional expenses isn't out of proportion. Do you think that's going to raise any red flags?

Those expenses sound reasonable given your business type and income level. Photography equipment is clearly a necessary business expense, and as long as your travel was primarily for business purposes and you have documentation (like client contracts showing shoots on those dates), you should be fine. The $7,800 compared to $36,000 in income is a perfectly reasonable ratio for a photography business, which typically has higher equipment costs. Just make sure to categorize everything correctly on your Schedule C - put the equipment under "Equipment" not "Supplies" if it's over $2,500 per item and will last more than a year (might need to be depreciated rather than fully expensed, depending on whether you took Section 179 or bonus depreciation).

Yes! This happened to me. I amended to add some business expenses like OP is planning to do, calculated I was due about $1,300 back, but the IRS sent me $1,467. The difference was interest they added because of how long it took them to process the amendment.

8 You're right about the 3-year limit, but you're still within the window for 2020! The deadline for filing amendments to claim a refund is 3 years from the original due date of the return. For 2020 tax returns, the original filing deadline was May 17, 2021 (it was extended that year due to COVID). That means you have until May 17, 2024 to file an amended return and claim any additional refund. So you should act quickly, but you definitely still have time to file that amendment.

5 Thank you so much for clarifying this! I was worried I'd missed my window completely. I'll get on this amendment right away before the May deadline hits. Really appreciate the help!

10 Yes, the IRS definitely will send you a notice if they identify underreported income. They run an automated matching program where they compare the income reported on your tax return against what was reported to them by employers, banks, etc. The letter you received is probably a CP2000 Notice, which is not an audit but a proposed adjustment to your tax return based on this information matching.

You know what, I didn't update my W-4 after having the baby! I just assumed the child tax credit would be applied when filing, didn't realize I needed to adjust my withholding throughout the year. The bonus was both paid and repaid in the same tax year (2024), so it sounds like it should have been completely excluded from my W-2 rather than shown as a deduction?

Exactly right! The child tax credit is applied when filing, but updating your W-4 would have reduced your withholding throughout the year, giving you more in each paycheck instead of waiting for a refund. Many people prefer this approach rather than giving the government an interest-free loan. For the bonus that was paid and repaid in the same tax year, yes - it should have been completely excluded from your W-2 as if it never happened. It shouldn't appear as income and then be offset by a deduction. This could definitely be causing part of your tax issue. I'd suggest asking your payroll department specifically about this - whether they excluded the bonus amount completely from your taxable wages or if they included it in income and then added a deduction. The former is correct; the latter could be causing your tax problem.

This is great advice. Last year I had correct federal withholding but the state withholding column on my W-2 was completely wrong. Turns out my employer had been withholding for the wrong state for three months after I moved! Double-check everything, especially if you've had any life changes.

Could it be that the dad is thinking about the gift tax? Like maybe he's thinking that since he didn't charge interest, it counts as a gift and he has to pay gift tax on it?

You're on the right track. In theory, the forgone interest on an interest-free loan can be considered a gift from the lender to the borrower. But there are two important points here: First, the annual gift tax exclusion is $17,000 per person (in 2023), so the imputed interest on a $9,500 loan would be well below that threshold. Second, even if it were above the threshold, it would just require reporting on a gift tax return - actual gift tax typically wouldn't be owed until someone gives away millions over their lifetime. So either way, there shouldn't be any actual tax payment required. The dad might be confused about these concepts or might be trying to retroactively charge interest and calling it a "tax" to make it seem official.

That's interesting! Which states have different rules? I'm in California and planning to loan money to my sister for her down payment, so now I'm worried!