Another thing to consider - check if your 1099 was issued as a 1099-MISC or a 1099-NEC. For settlements, it should typically be a 1099-MISC with the amount in Box 3 (Other Income). If they issued it as a 1099-NEC, that could cause additional issues since that's supposed to be for non-employee compensation. Also, keep in mind that some portions of your settlement might be tax-free if they were for physical injuries or physical sickness. However, for FCRA cases, the settlement is usually considered fully taxable since it's typically for economic or emotional damages.

This is exactly why I hate dealing with legal settlements and taxes - it's so confusing! I went through something similar with a class action settlement a few years ago and ended up paying way more than I should have because I didn't know about these special deduction rules. One thing I learned the hard way is to keep absolutely everything documented. Make sure you have copies of your settlement agreement, the lawyer's fee breakdown, and any correspondence about how the payment was structured. The IRS might want to see proof of what actually went to attorney fees versus what you received. Also, if your accountant isn't familiar with FCRA settlements specifically, it might be worth getting a second opinion from someone who handles these types of cases regularly. I found that general tax preparers sometimes miss these specialized deductions because they don't see them very often. The above-the-line deduction can make a huge difference in what you actually owe, so it's worth making sure it's done right.

I'm so sorry you're dealing with code 976 - I know how incredibly frustrating this whole situation is! I've been stuck with the same code since early February and the waiting has been absolutely brutal. Code 976 means your refund is being held for manual review, usually because they need to verify something like income, dependents, or credits on your return. The worst part is not knowing exactly what they're reviewing or how long it'll actually take. From what I've learned through this nightmare process: check your transcript weekly for any updates, keep records of your calls to the IRS (though their customer service is pretty useless right now), and if you hit the 120-day mark, definitely reach out to the Taxpayer Advocate Service - they supposedly have more authority than regular IRS reps. Most 976 cases get resolved within 45-120 days according to what I've read, but it feels like forever when you're in the middle of it. I'm really hoping both of us see some movement soon - this waiting game is so stressful, especially when you're counting on that money! Stay strong and keep checking for updates! 🤞

I've been dealing with code 976 since late February too and I completely understand your frustration! The code means your refund is under manual review - usually for income verification, dependent validation, or credit confirmation. From what I've experienced and researched, the timeline is typically 6-16 weeks, though some cases can go up to 120 days. The uncertainty is definitely the hardest part since the IRS doesn't give you specifics about what triggered the review or exact timelines. Here's what's helped me cope: check your online transcript weekly for any code changes, keep detailed records of any IRS contact attempts, and if you hit the 120-day mark, definitely reach out to the Taxpayer Advocate Service - they have more authority than regular customer service. I know it's incredibly stressful when you're counting on that money, but most 976 cases do eventually get resolved. Try to stay patient and keep monitoring your transcript for updates. Wishing you a speedy resolution! 💙

Just wanted to add one more consideration that hasn't been mentioned yet - make sure you're calculating depreciation based on the correct depreciable basis when you converted to rental use. Since you lived in the property first, your depreciable basis for the rental period would be the LESSER of: 1) your adjusted basis at the time of conversion (original cost plus improvements minus any casualty losses), or 2) the fair market value of the property when you converted it to rental use in May 2019. This matters because if your property appreciated significantly during those first 2 years of personal use, you can't depreciate based on the higher fair market value - you're limited to your original adjusted basis. You'll need to determine what the FMV was in May 2019 (maybe get a comparative market analysis from a realtor for that time period) and use whichever number is lower as your starting point for calculating the 4 years of depreciation.

One additional resource that might help you understand the calculation is IRS Publication 523 (Selling Your Home), which specifically covers the Section 121 exclusion rules for mixed-use properties. Since you lived in the home for 2 years before converting to rental, you may qualify for a partial exclusion on the personal-use portion of the gain. The key is that you'll need to separate your total gain into two parts: the portion allocable to personal use (first 2 years) and the portion allocable to business use (rental period). Only the personal-use portion would potentially qualify for the Section 121 exclusion, and even then, you can't exclude any depreciation recapture. Given the complexity with the mixed-use timing, depreciation recapture, and potential partial exclusion, I'd definitely recommend getting a tax professional involved. But understanding these basic concepts beforehand will help you ask the right questions and verify their work makes sense.

Great thread! I'm also an S-Corp owner dealing with health insurance reporting. One thing I'd add is to make sure you're coordinating with your payroll processor (if you use one) about including the health insurance in your W-2. I made the mistake my first year of handling the health insurance deduction correctly on my personal return but forgetting to tell my payroll company to include those premiums in my W-2 wages. This created a mismatch that triggered questions from the IRS. Also, keep detailed records of all your health insurance payments throughout the year. I maintain a simple spreadsheet with monthly premium amounts and payment dates - it makes year-end reconciliation much easier and provides backup documentation if needed.

One thing to watch out for if you're new to S-Corp health insurance reporting - make sure you understand the timing requirements. The health insurance premiums need to be paid by your S-Corp during the tax year to qualify for the deduction in that same year. I learned this the hard way when I tried to reimburse myself in January for premiums I had personally paid in December of the prior year. The IRS doesn't allow that - the S-Corp itself must make the payments directly to the insurance company or through payroll during the actual tax year you're claiming the deduction. Also, if you have employees, you'll need to make sure health insurance is available to them on the same terms, or there are specific ownership percentage rules that apply. This gets complex quickly if you have other shareholders or employees, so definitely consult a tax professional if your situation isn't straightforward single-owner S-Corp.

Just want to add one more tip that helped us with a similar income disparity. If you're trying to avoid a huge tax bill but don't want to significantly reduce your monthly take-home pay, consider adjusting your W-4 withholding for just your bonus amounts. My husband and I have about a $55k income difference. Instead of having more withheld from every paycheck, we set our regular withholding correctly using the IRS calculator, but then elected for maximum withholding (22%) on all bonuses. Since you mentioned getting around $30k combined in bonuses, having the maximum withheld from those would cover a significant portion of your underwithholding without affecting your regular paychecks.

One more thing nobody has mentioned - if u already know ur gonna owe for 2024 and dont want to change ur withholding too dramatically, u can make quarterly estimated tax payments directly to the IRS. This way your paychecks stay about the same but you avoid a big bill (and possibly penalties) at tax time. For us, we decided to have a little extra taken out of each paycheck (about half of what was recommended) and then we make quarterly payments for the rest. Feels less painful to spread it out this way. The payment vouchers are on form 1040-ES and due dates are typically April 15, June 15, Sept 15, and Jan 15 of the following year.