How would you know if they made this election? Is there specific paperwork they would have?

They should have filed Form 8832 (Entity Classification Election) and/or Form 2553 (Election by a Small Business Corporation) with the IRS if they made that choice. Ask your client if they ever filed these forms or received confirmation of S-Corp status from the IRS. Most small business owners remember making this election because it's a significant tax decision that usually involves discussing it with a tax professional first. They'd also have been filing very different tax forms in previous years - Form 1120-S instead of just including a Schedule C with their personal return. Plus, if they were an S-Corp, they should have been paying themselves a reasonable salary with payroll taxes.

Omg yes this! I had a client put all their rental property repairs on the same credit card as their other business expenses and sorting it out took FOREVER.

If my profit is only about $7k like I mentioned, would I still need to worry about estimated payments? My regular job already withholds taxes, if that makes a difference.

With only a $7k profit, you probably don't need to worry about estimated payments, especially if you have regular withholding from a job. The key question is whether adding this $7k to your income would cause you to owe an additional $1,000 in taxes when you file. If you're in the 22% tax bracket, a $7k short-term capital gain would generate roughly $1,540 in additional tax. But if your current withholding is already covering your normal tax liability with some cushion, you likely won't need to make an estimated payment. You can also increase your withholding at your job for the remainder of the year to cover the additional expected tax if you're concerned.

I used TurboTax Deluxe last year for my home sale and it worked fine. It asks you for the purchase price, sale price, and improvements, then calculates everything. Pretty straightforward if your situation isn't too complex. Just make sure you have all your numbers ready before you start.

I don't see any attachment? Could you repost or share how you're handling the documentation retention section specifically? We're debating whether we need to keep the verification documents (IDs, etc.) or just the information.

Sorry about that! Can't believe I forgot to attach it. For document retention, we specify that we keep the FinCEN filing confirmation and basic ownership information for 7 years per our normal tax record retention policy. We explicitly state that we do NOT retain copies of government IDs, birth certificates or other verification documents provided by beneficial owners. We view these documents only to verify the information being filed and then either return or destroy them. This reduces our liability for storing sensitive personal documents while still fulfilling our professional obligations.

We've found a tiered flat fee structure works best. Basic fee for entities with 1-3 beneficial owners, then an additional fee per owner beyond that. We also charge separately for amendments and updates. This has been easier to explain to clients than hourly billing, and honestly more profitable since we've gotten efficient at the filings.

Do you know if we can switch methods? I tracked actual expenses in 2021 but want to use standard mileage rate for 2022 onward since it's easier. Is that allowed or do you have to be consistent?

If you used actual expenses in the first year you used your car for business, you're generally locked into that method for the life of that vehicle. However, if you used the standard mileage rate in the first year, you can switch between methods in subsequent years. So in your case, if you tracked actual expenses in 2021 (the first year you used the car for business), you would need to continue using that method for that particular vehicle. If you get a new vehicle, you could start fresh with either method. It's one of those IRS rules that catches people by surprise, so definitely something to keep in mind when planning your deductions.

Totally agree! I drive for multiple apps and keep a separate mileage tracking app running the whole time I'm working. The in-app trackers miss TONS of deductible miles. Also don't forget you can deduct miles when you're driving between deliveries looking for your next gig - those count as business miles too!

Thanks for bringing this up! I hadn't considered the basis issue. Do you recommend any specific tracking method for keeping tabs on this throughout the year? Is this something I should be having my bookkeeper monitor?

Your bookkeeper should definitely be tracking this if they're familiar with S corporations. The simplest method is to maintain a basis worksheet or schedule that gets updated with each capital contribution, income/loss allocation, and distribution. QuickBooks and other accounting software don't automatically track S corp basis, so you'll need a separate spreadsheet or basis tracking tool. Some tax preparation software includes basis worksheets that you can update throughout the year. The key is documenting everything contemporaneously rather than trying to reconstruct it at year-end.

There's no rules about timing for tax purposes since the income is passed through to you regardless of when distributions happen. But practically speaking, many accountants recommend keeping distributions somewhat proportional to your salary throughout the year rather than taking one massive distribution and small salary. Looks less suspicious if you get audited.