Thanks for that warning. My goal isn't to change careers - I'm planning to expand my real estate portfolio and possibly move into commercial properties in the future. Would that still count as my "current" business or would the IRS see commercial real estate as a new trade?

Expanding from residential to commercial real estate would generally still be considered the same trade or business since you're still in property management and real estate investment. The IRS would likely view this as a natural progression within your current business rather than entering a new field entirely. Going from real estate into something completely different like investment banking (as in my case) is what triggers the "new trade or business" limitation. Just make sure you document your intention to expand within real estate rather than presenting it as preparation for a career change.

In TurboTax, you'd enter it under the Schedule E section for your rental property. When you get to the expenses part for each property, there's an "Other Expenses" category where you can add custom expense items. That's where I put my real estate continuing education costs last year.

Wait, can employers actually do that? I assumed once the year was over, all the tax stuff was set in stone. Can they really go back and fix withholding errors after the fact?

They can't change the actual withholding after the year ends, but there are a couple of options. First, they can issue a corrected W-2 if there were actual errors in reporting. More practically though, some employers will provide compensation to cover tax liabilities resulting from their payroll errors - basically paying you an additional amount to offset some of your tax burden. This isn't required by law, but many companies have policies for this since payroll errors can cause significant financial hardship for employees. It's worth having a conversation with both HR and payroll about their error resolution policies. Document everything, be polite but firm that this was their error, and ask what they can do to help make it right.

Exactly this! The IRS calls it a "Waiver of Penalty Due to Federally Declared Disaster, Mathematical or Clerical Error by the IRS, or Certain Other Conditions" (Part II of Form 2210). A payroll system error could qualify under certain conditions!

Wait really? The mileage deduction is that much? I never tracked my miles but I was doing Doordash like 4 nights a week for about 8 months. How would I even calculate that now after so much time has passed?

You can create a reasonable estimate based on your delivery history. Most delivery apps keep a record of your deliveries - try to get that data from Doordash if you can. If that's not possible, make a good faith estimate. Calculate your average deliveries per shift, estimate miles per delivery (including driving to pickup locations), and multiply by your working days. Document how you arrived at this estimate in case of questions. For 4 nights a week for 8 months, you're looking at roughly 128 working days. Even at a conservative 30 miles per shift, that's 3,840 miles or about $2,150 in deductions! Just be honest but thorough - this could significantly reduce what you owe.

Good point about state taxes. One thing to add - some cities also have local income taxes that apply to self-employment income. I found out the hard way after getting a notice from my city tax department a year after dealing with the IRS!

Thanks for this warning. Can I ask how much the penalties ended up being in your case? And did you eventually have to file all the back returns anyway?

The penalties were brutal - about $5,200 for just two years of unfiled S corp returns. They hit you with $435 per month for up to 12 months per unfiled return. And yes, I still had to file all the back returns anyway, plus pay a CPA to help me sort through the mess. The worst part was reconstructing records from years ago. All told it probably cost me close to $8,000 including penalties, professional fees, and state filing costs to clean it all up. Definitely take care of this now while everything is still fresh and you have all your records easily available.

Great point! I was wondering about this because I have the opposite situation - I paid some personal expenses from my business account. How would that be handled on the corporate return?

So even if I explain to the IRS that I couldn't file accurately because my employer hasn't given me my W-2, they'll still charge penalties if I end up owing?

Exactly. The IRS doesn't care why you couldn't pay on time - they only care that you didn't pay by April 15. Your issue with your employer is separate from your obligation to pay taxes on time. That's why you need to make your best estimate and pay that amount by the deadline. Think of it this way: the IRS considers your taxes due as you earn income throughout the year. The April 15 deadline is already a grace period to finalize everything. So waiting on documents doesn't extend your obligation to pay what you already owe.

I went through this in 2023 and couldn't get the penalties removed despite documenting all my attempts to get my W-2 from my ex-employer. The IRS agent told me it's my responsibility to estimate and pay on time regardless of having the final documents. It really sucks but that's how they enforce it.