Great question about health insurance premiums! You absolutely can document owner's draws specifically for health insurance payments. In fact, I'd recommend being very specific in your documentation - note that it's an owner's draw for "health insurance premiums - self-employed deduction." The key is maintaining that clear separation: the business makes the draw to you as the owner, then you personally pay the health insurance premiums and claim the deduction on your personal return. This approach keeps your business and personal finances properly separated while still allowing you to fund those payments from business profits. Just make sure your LLC shows a net profit for the year, as that's required to claim the self-employed health insurance deduction. If your business has a loss, you can't deduct the premiums that year.

One thing that really helped me avoid commingling issues was creating a simple monthly "owner compensation" process. At the end of each month, I calculate what I need for personal expenses (including estimated tax payments) and take a single owner's draw rather than multiple ad-hoc withdrawals throughout the month. I keep a spreadsheet that breaks down exactly what that monthly draw covers - living expenses, estimated quarterly taxes, health insurance premiums, etc. This way I have clear documentation showing the business isn't directly paying personal expenses, but rather compensating me as the owner, and I'm using that compensation for my personal obligations. This approach has made my bookkeeping much cleaner and gives me confidence that I'm maintaining proper separation between business and personal finances. My accountant loves it because the paper trail is crystal clear if we ever face an audit.

This has been such an enlightening thread! I'm in a nearly identical situation with our marketing consultancy LLC. My partner contributed initial funding but does zero operational work, while I handle everything - client acquisition, project delivery, invoicing, you name it. After reading through everyone's experiences, I'm pretty confident we've been overpaying on self-employment tax. Our accountant had us both paying SE tax on our K-1 portions, but it's clear my partner doesn't meet any material participation test. What really resonates with me is the documentation aspect several people mentioned. I've been inadvertently creating a perfect paper trail - all our client emails come through my business account, all project management is under my login, I'm the only one with QuickBooks access, etc. Meanwhile, my partner literally has no business-related digital footprint because they're completely uninvolved. I think I'll start by reviewing our operating agreement to make sure there's no language requiring all members to pay SE tax, then probably move forward with amending our 2023 return. The potential savings of $2,000+ that others mentioned would definitely make the amendment process worthwhile. Has anyone here worked with a CPA who specializes in partnership tax issues? I'm starting to think our current accountant might not be the best fit for LLC partnership taxation, especially after telling us "all members always pay SE tax" without considering material participation rules.

I've been following this discussion closely as someone who went through a similar situation with our family business LLC last year. Reading through all these experiences has been incredibly validating! We had the exact same issue - I run all operations of our consulting business while my spouse is purely an investor/silent partner. Our original CPA insisted we both pay self-employment tax, but after getting a second opinion from a partnership tax specialist, we discovered we'd been overpaying for two years. The key insight that helped us was understanding that material participation isn't just about ownership percentages - it's about actual involvement in business operations. The IRS has seven specific tests for material participation, and if you don't meet any of them, your K-1 income generally isn't subject to SE tax. For Jordan's original question about TurboTax - make sure when it asks about material participation, you're very specific about who does what. The software should handle the SE tax calculation correctly once it knows only you materially participate. One thing I haven't seen mentioned yet - if you do decide to amend previous returns, you can typically go back three years to claim refunds for overpaid SE tax. In our case, amending 2022 and 2023 got us back about $4,200 total. The process was straightforward and definitely worth the effort. The documentation suggestions everyone's shared are spot on. Having clear records showing the difference in participation levels gives you confidence if the IRS ever questions your filing position.

Another quirk to be aware of - qualified dividends! If your synthetic long crosses an ex-dividend date, any dividend equivalents you effectively receive aren't eligible for qualified dividend tax treatment. With actual share ownership, you can get the preferential qualified dividend tax rate if you meet the holding period requirements. But with a synthetic long, you're technically not receiving dividends - you're just seeing the options prices adjust to account for the dividend. So any dividend benefit gets taxed as ordinary income through the options pricing.

This is a great discussion on a complex topic. One thing I'd add is that the IRS has been increasingly scrutinizing synthetic positions in recent years, especially when traders use them to manufacture tax losses while maintaining economic exposure to the underlying asset. The wash sale treatment that @Andre Lefebvre mentioned is definitely the correct approach for scenario 2. What many people don't realize is that the IRS views the entire synthetic long strategy as a single integrated transaction, not separate option trades. This is why timing the individual legs differently doesn't necessarily help you avoid wash sale treatment. I'd also recommend keeping very detailed records of your synthetic positions, including the dates opened, premiums paid/received, and your intent when entering the strategy. If you get audited, being able to demonstrate that this was part of a legitimate investment strategy (rather than tax loss harvesting) will be important. The key principle to remember is that tax treatment should follow economic substance. Since a synthetic long has the same risk/reward profile as owning shares outright, the IRS expects the tax consequences to be similar as well.

Just a heads up to the original poster - if you haven't been making consistent estimated tax payments before now, you might want to check if you'll face any underpayment penalties. Starting EFTPS now is great going forward, but it doesn't fix any past underpayment issues. The IRS has a "safe harbor" rule where you generally avoid penalties if you pay 100% of last year's tax liability (or 110% if your income was over $150,000) or 90% of this year's liability in timely estimated payments.

As someone who just went through this exact process last month, I can confirm that the enrollment timeline is crucial to plan for. I'd also add that when you do enroll, make sure to keep your EFTPS login credentials somewhere very secure - unlike other online accounts, you can't just reset your password easily if you forget it. One thing that helped me was setting up recurring reminders in my calendar for the quarterly due dates (January 15, April 15, June 15, and September 15) so I never miss a payment deadline again. The peace of mind from electronic payments is definitely worth the initial setup hassle! Also, Sofia, since you mentioned having multiple businesses, you might want to consider keeping separate records of which payments correspond to which business income for your own bookkeeping, even though it all goes through one EFTPS account. It makes tax prep much easier at year-end.

This thread has been incredibly helpful! I'm dealing with a similar situation where I inherited a policy from my grandmother and am considering surrendering it. One thing I wanted to add that might be useful - if you're still trying to track down the exact cost basis, you might also want to check if your grandfather kept any old tax returns. Sometimes people deduct life insurance premiums as a business expense if it was a policy for business purposes, or there might be records of gift tax filings if large premiums were paid. Also, since you mentioned this was set up when you were a kid, there's a chance your grandfather might have paid premiums for several years after you became an adult. If he did, and you weren't aware of it, those payments would still count toward the cost basis even though you weren't the one making them. I'd definitely echo the advice about getting that cost basis verified - with the amounts you're dealing with, even a small difference in the basis calculation could save you hundreds in taxes. The 1099-R should show both the gross distribution and the taxable amount, but it never hurts to double-check their math before filing.

Just wanted to add one more thing that might be helpful - when you do get your 1099-R form next year, make sure to keep all the documentation from your surrender (the policy statements, surrender paperwork, etc.) with your tax records. The IRS occasionally questions life insurance surrenders, especially larger amounts like yours, and having all the supporting documentation readily available can save you a lot of headaches if they ever ask for verification of the cost basis or how you calculated the taxable portion. Also, since this involves a policy that was set up by a family member decades ago, consider keeping copies of any documentation you find about premium payments or ownership transfers. This kind of paperwork can be really hard to reconstruct years later if the insurance company's records are incomplete or if there are ever questions about the transaction. Given all the great advice in this thread about verifying the cost basis, it sounds like you're on the right track to make sure everything is calculated correctly!