Has anyone considered the business impact beyond just the tax implications? If you're moving from accrual to cash, how does that affect your financial statements for purposes of getting loans or investors? Most serious businesses use accrual for a reason.

Great discussion here! As someone who's handled several accrual-to-cash conversions, I can confirm that the net adjustment approach is correct. However, I'd add a few practical considerations: First, make sure you're capturing ALL accrual items - not just AR and AP. Look for prepaid expenses, accrued expenses, deferred revenue, etc. These can significantly impact your 481(a) calculation. Second, consider the timing of when to make this change. If your client expects lower income in future years, it might make sense to delay the change to spread the adjustment over those lower-income years. Finally, document everything thoroughly. The IRS can be quite particular about method change documentation, and having detailed workpapers showing how you calculated the adjustment will save headaches if they ever audit the change. One more tip: if the client has any NOL carryforwards, those can help offset some of the additional income from the 481(a) adjustment in the early years.

I've been following this thread and wanted to add one more resource that might help. If you're having trouble getting through to anyone at the IRS or the payroll company, you can also contact the Taxpayer Advocate Service (TAS). They're an independent organization within the IRS that helps taxpayers resolve problems when normal channels aren't working. You can reach them at 1-877-777-4778 or submit Form 911 online. They're particularly helpful in situations like yours where you're facing significant hardship due to IRS processes or delays. Since you've already filed an extension and been waiting months for resolution, this could qualify as a case they'd take on. TAS can sometimes get faster responses from other IRS departments and help coordinate between you, your former employer, and the payroll company. They also provide a case advocate who will work with you throughout the process until it's resolved. The service is completely free, and they're generally much easier to reach than the main IRS phone lines. Even if they can't solve everything immediately, they can at least give you a clear timeline and next steps, which might provide some peace of mind while you're dealing with this frustrating situation.

I've been dealing with a similar situation with a former employer who disappeared after closing, and I wanted to share what finally worked for me. After months of getting nowhere with the company directly, I ended up having success by approaching this from multiple angles simultaneously. First, I contacted my state's Department of Labor to file a wage complaint - turns out not providing W2s is considered a wage violation in most states. Within a week of filing the complaint, I got a call from someone associated with the former company who suddenly had access to payroll records they claimed didn't exist before. At the same time, I also reached out to the Taxpayer Advocate Service mentioned in earlier comments. Even though my situation got resolved through the labor complaint, the TAS representative I spoke with was incredibly knowledgeable and gave me a clear roadmap of exactly what documentation I'd need if I had to file Form 4852. My advice would be to not put all your eggs in one basket - file the labor complaint, contact TAS, try to reach the payroll company directly, and start gathering your documentation for Form 4852 all at once. Sometimes the threat of official complaints is enough to motivate people to suddenly "find" records they claimed were lost. The whole experience taught me that there are way more resources available to help taxpayers in these situations than I initially realized. Don't let a defunct employer hold your taxes hostage - you have multiple paths forward!

I just went through this same situation last month! The processing fee caught me completely off guard too. What really bothers me is that TurboTax doesn't make this fee obvious until you're basically done with everything. By that point, you feel locked into finishing with them rather than starting over elsewhere. I ended up paying $44 for the processing fee on top of my $119 preparation fee - that's $163 total just to file! Next year I'm definitely paying upfront with my card to avoid that extra charge. It's frustrating because they market the "pay with refund" option as convenient, but don't emphasize the significant additional cost until it's too late to easily back out.

I had this exact same experience with TurboTax this year! The processing fee is definitely separate from the preparation fee - it's what they charge you for the convenience of deducting their fees from your refund instead of paying upfront. I think what makes it so frustrating is that they don't make this crystal clear until you're deep into the filing process. When you see "pay with refund" it sounds like a free convenience, but that $40+ processing fee can really add up. For next year, I'm planning to just pay the prep fee directly with my credit card to avoid this extra charge entirely. It's one of those situations where the "convenient" option ends up being the more expensive one.

Has anyone tried just splitting the HSA contributions differently between spouses in OLT to get around this? Like instead of $4,250 and $900, maybe try entering it as $3,150 to the family HSA and $2,000 to the individual HSAs ($1,000 each)? OLT might be applying the catch-up contributions incorrectly when they're part of the family contribution, but might handle them correctly when entered as individual contributions.

I'm dealing with the exact same HSA calculation problem in OLT! My wife and I are both over 55 and had HDHP coverage for 8 months in 2024. OLT is completely ignoring our catch-up contributions and flagging legitimate contributions as excess. After reading through all these responses, I'm planning to try the redistribution approach first - entering our catch-up contributions as individual HSA contributions rather than family contributions to see if that tricks the software into calculating correctly. If that doesn't work, I'll definitely check out taxr.ai to get documentation of the correct calculation. It's frustrating that we have to work around these software bugs during tax season, but at least there seem to be several viable solutions here. Thanks everyone for sharing your experiences!

Another thing to consider - sometimes guaranteed payments are used when one partner contributes specialized assets to the partnership. For example, if your partner contributed intellectual property, equipment, or client relationships in addition to the cash contribution, the guaranteed payment might be compensating them for that. Check your partnership formation docs carefully. Even if you both contributed the same cash amount, there might be other contributions being compensated through these guaranteed payments.

This is a really common source of confusion! Based on what you've described, it sounds like your partner has been taking regular payments throughout the year (maybe monthly or bi-weekly draws?) while you've been leaving your share in the business and taking less frequent distributions. The key thing to understand is that guaranteed payments aren't about fairness - they're about timing and cash flow needs. Your partner needed regular income (hence the guaranteed payments), while you were comfortable waiting for distributions. At year-end, your total allocations should still be roughly equal as 50/50 partners, just structured differently on the K-1. However, this does create different tax consequences. Your partner is paying self-employment tax on those guaranteed payments (15.3%), while your distributions might not be subject to SE tax depending on how active you are in the business. I'd suggest sitting down with both your accountant AND your partner to review exactly how money was taken out during the year. Make sure everyone understands the tax implications and decides if this structure still makes sense going forward. Sometimes it's worth paying a bit more in SE tax for the cash flow predictability.