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!

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.

You need to submit a new W-4 form to your employer. It's fairly straightforward: 1. You can get the form from your HR department or download it from irs.gov 2. The current W-4 doesn't use "allowances" anymore - instead you directly enter dollar amounts 3. If you want less withheld (bigger paychecks, smaller refund), you'd use Line 4(b) to list deductions or use the worksheet to calculate an additional withholding amount Most payroll systems also have an online tool where you can update your W-4 electronically without filling out the paper form.

Thank you, that makes sense! I had no idea it was called a W-4, I was looking for some kind of "withholding adjustment request" or something. Will definitely talk to our HR person tomorrow.

Not odd at all - I've heard financial advisors call this "defensive financial planning." Sometimes the mathematically optimal choice isn't the best one when you factor in real-world complications. As long as you're making an informed choice rather than just defaulting into it, I think that's totally reasonable.

Yes! We did this last year and it worked great. Donated to our usual charities plus prepaid some planned donations for this year. Itemized last year and will take standard deduction this year. Saved about $2,300 in taxes by concentrating deductions in one year instead of spreading them out.

That's a good point! Do you know if I can open an HSA myself as a contractor? My health insurance is a high-deductible plan but it's not through an employer since I'm self-employed.

Absolutely you can! That's actually one of the great things about HSAs - you don't need an employer to open one. As a self-employed person with a qualifying high-deductible health plan (HDHP), you can open an HSA through many banks, investment companies like Fidelity or Vanguard, or specialized HSA providers. Just make sure your health plan qualifies as an HDHP under IRS guidelines. For 2025, that means a minimum deductible of $1,600 for individual coverage or $3,200 for family coverage. The maximum 2025 contribution is $4,150 for individual coverage or $8,300 for family coverage, with an extra $1,000 catch-up contribution if you're 55 or older.

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.