Thanks for pointing that out! I was wondering why my paycheck summary shows both OASDI and Medicare as separate items. So even if OASDI stops after hitting the cap, the Medicare part (1.45%) continues indefinitely?

Yes, exactly! While the OASDI portion will stop once you hit the cap ($168,600 for 2025), the Medicare portion never stops. You'll continue paying the 1.45% Medicare tax on all your earned income regardless of how much you make. And if your income exceeds $200,000 for single filers or $250,000 for married filing jointly, you'll also pay that additional 0.9% Medicare surtax on the amount above those thresholds. This is part of the Additional Medicare Tax that was implemented as part of the Affordable Care Act.

This is helpful but what about if your income fluctuates? I get paid base + commission so each paycheck is different.

Thanks for the warning about the standard deduction amounts changing. I totally would have missed that! Do you think it's worth paying for basic tax software rather than literally copying from paper forms? It sounds like there are enough changes that I could mess up.

Honestly, I'd definitely recommend using software even if it's a basic version. The software will have all the updated numbers, forms, and will do the calculations for you which reduces math errors. Plus it will walk you through questions that might trigger you to remember things like "oh yeah, I did start that savings account" or whatever. Basic tax software is usually around $50-70 for federal and state, which is MUCH cheaper than the $800 you were quoted. It's a good middle ground between completely DIY paper forms and paying a professional. I use FreeTaxUSA now and it's been great - only about $30 total.

Did you find it difficult to switch to doing it yourself? I'm scared I'll mess something up and get audited.

That's really helpful, thanks! Did changing your partnership agreement have any other tax implications we should be aware of? Also, did you have to make this change before the tax year began, or could you implement this partway through the year?

Changing the agreement did increase our self-employment taxes slightly since guaranteed payments are subject to SE tax. However, the health insurance deduction more than offset this increase for most partners. You can implement this change partway through a tax year. We made the change in August and just documented that going forward, the premium reimbursements would be treated as guaranteed payments. Your partnership will need to keep detailed records of the reimbursements and make sure they're properly reflected on your K-1s. The mid-year change is fine as long as you clearly document when the policy changed and handle the accounting consistently after that date.

Good point! In New York we have the same issue - different rules for state vs federal treatment of health insurance premiums. Always check both sets of regulations or use tax software that handles state-specific rules.

Thank you!! This is exactly what I needed to know. When you made the switch, did you have to wait for formal approval before filing your taxes as an S-Corp, or could you file that way based on having submitted the election form?

When I submitted my Form 2553, I did wait for the formal approval letter before filing my taxes as an S-Corp. However, if you've submitted the form and tax season is approaching, you have options. You can file an extension to give yourself more time to resolve this. This doesn't extend your payment deadline, but it gives you until October to file the actual returns. In the meantime, you can keep following up with the IRS about your election status. If you're confident you submitted everything correctly, you could also proceed with filing as an S-Corp, attaching a copy of your submitted Form 2553 to your return with an explanation that it's pending approval.

For 2024, you needed to file Form 2553 within 2 months and 15 days of the beginning of the tax year (so by March 15, 2024 for calendar year businesses). But you can still file late with a "reasonable cause" statement explaining why you missed the deadline, and the IRS may accept it. Or you can just make the election for 2025 instead.

Thanks for the info! Guess I missed the deadline for this year. I'll probably just plan to do it for 2025 rather than trying to explain a late filing. Do you know if I should file it now for next year or wait until January?

Thanks for mentioning the loan interest - that hadn't even occurred to me. So even though I took this huge financial hit, I still can't deduct the interest I'm paying on the loan? That seems like salt in the wound. For the police reports, I filed one locally but haven't done the IC3 report yet. Will that specifically help with the tax situation or is it just generally a good idea?

Unfortunately that's correct about the loan interest. Personal loan interest isn't deductible regardless of what happened to the money. It's definitely salt in the wound, but that's how tax law works currently. The IC3 report is important specifically for tax purposes because it serves as official documentation of the fraud. If the IRS ever questions your claimed losses, having both a local police report and an IC3 report significantly strengthens your position that this was a legitimate scam and not just a bad investment. The more official documentation you have, the better positioned you'll be to defend any deductions you claim related to this incident.

I spoke with a CPA who specializes in crypto, and she said it depends on how you document it. If you can prove it was truly worthless (complete loss with no chance of recovery), you can potentially claim the full loss in the year it became worthless. But you need strong documentation - police reports, evidence of the scam, etc. Most people just default to the capital loss approach because it's safer.