I've heard about the S-corp option but wasn't sure if it made sense for a small business like mine. Is there a certain income threshold where it becomes worth the extra hassle and paperwork? And would this help me fix my current situation with the incorrect W2?

S-corps generally start making financial sense once your business profit is around $40,000-$50,000 annually, though this varies by industry. Below that, the savings on self-employment tax often don't outweigh the additional costs (filing separate returns, payroll processing, possibly higher accountant fees). For your current W2 situation, converting to an S-corp now wouldn't retroactively fix the issue. You'd still need to correct the reporting for 2024. However, it would provide a clean path forward for properly paying yourself starting this year. The ideal approach is to fix the past issue separately (either by amending returns or following your accountant's guidance) while setting up the proper structure for the future.

This is exactly what I do too. I have a real estate LLC and I just take draws when I need money. Pay quarterly estimated taxes and then report everything on Schedule C at tax time. No need for the whole payroll hassle unless you're making serious money.

I only did payroll to get ADP's promotional rate - they had a deal where we got a big discount if we had at least 3 people on payroll. Since I had 2 actual employees, I added myself as the third to save money. I'm fine just taking draws going forward, but now I'm stuck with this incorrect W2 situation for 2024 that I need to fix. Still learning all the LLC tax stuff as I go!

Where exactly do you find the AGI on the account transcript? I'm looking at mine and see the line 150 for total tax, but I don't see anything labeled as AGI. Is it under a different code?

You're right, it's not explicitly labeled as AGI on the transcript. Look for line item 150 (tax per return) first to orient yourself. Then look for the code 11701 which usually appears above that - it shows your "Adjusted Gross Income Per Return". The number next to that code is what you want to use. If you don't see code 11701, you may need to check for any transaction codes like 290 or 291 which indicate adjustments were made to your original return. These adjustments could be why your known AGI doesn't match what the IRS has on file.

This is the correct answer for my situation! I didn't need to file last year because I was a student with minimal income. Tried putting 0 as last year's AGI and my return was accepted immediately. Thanks for mentioning this!

That's really helpful to know for next year. Do you need to file anything special to request the extension or is it just a simple form? And does getting this extension for the business return also give you more time for your personal return?

Filing for the extension is very straightforward - Form 7004 is a simple one-page form that you can e-file. You don't even need to provide a reason for needing the extension. The S-Corp extension does not automatically extend your personal return though. Those are separate filings with different deadlines. You'd need to file Form 4868 to extend your personal 1040 if needed. But having the business extension gives you more time to get the K-1 properly prepared, which makes your personal return more accurate when you do file it.

I learned this the hard way! My first year with an S-Corp I only took distributions because I thought that was the advantage. Got a nasty letter from the IRS later. Now I use Gusto for payroll and it makes the whole process super simple.

Thank you for this suggestion - I didn't know about Form 14157 or that I could request a copy of the return. Would getting the return also show who actually prepared it? I'm worried the "friend" may have used someone else's information too.

The tax return copy will show who signed as the preparer, though in fraud cases, they sometimes leave that section blank or use fake information. However, it will definitely show all the forms and schedules that were filed, which helps you understand the full extent of the fraud. When you file Form 14157 to report the preparer, you can include any information you have about them - full name, address, phone number, etc. If your brother received any paperwork from this person or has text messages discussing the tax preparation, include copies of those as evidence.

Do you recommend getting a specialized tax attorney who has experience working with people with disabilities? I had a similar situation with my sister and found that regular tax pros weren't very helpful with the special considerations.

Thanks for this advice. What kind of documentation did they specifically want to see during your audit? Just invoices or something more detailed? I'm worried because I'm not sure we've been tracking things that carefully.

This is so true! My brother-in-law used his resale certificate to buy a TV for his "office" and got caught in an audit. Ended up paying the tax plus a 25% penalty! Not worth the risk.