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3 Just fyi, I got audited last year for exactly this situation. I was selling both business inventory and personal items on eBay but didn't clearly separate them. The IRS assumed ALL sales were business income and I had to prove which ones were personal items. Make sure you keep some kind of documentation showing which sales are from your business inventory vs. personal belongings. Even just a spreadsheet noting "personal item, purchased approximately 2015" helps establish your case if questioned. The IRS was actually reasonable once I explained and showed my records, but it was stressful going through the process. Don't commingle personal and business sales without good record-keeping!
9 Ugh that sounds like a nightmare. Did they accept your explanation for items where you didn't know the exact purchase price? I have so many things I couldn't possibly document when or what I paid.
3 They were surprisingly reasonable about items without exact purchase documentation. For older items, they accepted good faith estimates based on what similar items would have cost when purchased. For gifts, they weren't concerned if sold at reasonable prices. What flagged my account was the pattern - I had hundreds of sales that looked commercial in nature. The key was demonstrating which were one-off personal items vs. regular inventory I purchased to resell. Once I showed that distinction clearly, it resolved most issues.
5 One more thing to consider is the new reporting requirements from payment processors. Starting in 2023, platforms like PayPal, Venmo, and eBay are required to send 1099-K forms for anyone with more than $600 in annual transactions. This doesn't change what's taxable (selling personal items at a loss still isn't taxable income), but it does mean you might receive a 1099-K that includes BOTH your business sales AND personal item sales if you use the same account. When you get that form, you'll need to reconcile it on your tax return - reporting your business income on Schedule C while explaining that a portion of the 1099-K amount was from non-taxable personal item sales.
1 Oh crap, I didn't know about the $600 reporting threshold! I definitely sold more than that in personal stuff this year clearing out my apartment. How exactly do you "explain" on your tax return that some of it wasn't taxable? Is there a specific form?
You don't need a specific form to explain the difference! When you receive a 1099-K that includes both business and personal sales, you report your actual business income on Schedule C as usual. Then, if there's a discrepancy between what's on the 1099-K and what you're reporting as business income, you can attach a statement explaining that a portion was from non-taxable personal item sales. Many tax software programs now have built-in fields to help reconcile 1099-K forms that include mixed transaction types. The key is keeping good records showing which sales were business inventory vs personal items, especially if you're using the same PayPal or eBay account for both. The IRS is aware that these 1099-K forms often include non-taxable transactions, so they're not expecting every dollar on the form to be reported as income. Just be prepared to explain the difference if asked!
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I just went through this same headache with my CP30 notice a few weeks ago! After trying the IRS website for hours, I ended up calling the practitioner priority line (I'm an enrolled agent) and the IRS rep confirmed the process that others have mentioned here. The key is going to irs.gov/payments, selecting "Pay Your Tax Bill," then "Direct Pay from Your Bank Account" to avoid fees. When you get to the payment details, select "Balance Due" and "Individual" as taxpayer type. Make sure the tax year matches your CP30 notice. For the "Apply Payment To" section, select "Estimated Tax" since CP30s are specifically for missed quarterly payments. Most importantly, put your full CP30 notice number in the comments field - this is crucial for proper application. One thing I learned that might help others: if you're paying close to the deadline, the IRS considers the payment submitted on the date you complete the transaction online, not when it processes from your bank account. So even if it takes 2-3 days to clear, you're covered as long as you submit before the due date on your notice. Keep your confirmation number safe! The IRS rep told me that's your proof of timely payment if there are any issues later.
This is really helpful coming from an enrolled agent! I've been stressed about making sure my payment gets applied correctly. Quick question - when you mention putting the "full CP30 notice number" in the comments, are you referring to the long number at the top of the notice, or is there a specific CP30 identifier I should be looking for? My notice has several different numbers on it and I want to make sure I'm using the right one.
Look for the notice number that starts with "CP30" followed by a series of digits - it's usually located in the upper right corner of your notice. This is different from your SSN, the tax year, or the amount owed. It should look something like "CP30 0012345678901" or similar. That's the specific identifier the IRS uses to track your particular notice and ensure your payment gets applied to the right account and time period. If you're still not sure which number to use, you can also include multiple identifiers in the comments field just to be safe - something like "CP30 notice #[notice number] for tax year 2024 Q4 estimated tax.
I've been dealing with IRS notices for years and wanted to share a few additional tips that might help. First, if you're having trouble finding your CP30 notice number that others mentioned, it's typically in the upper right corner and will say something like "Notice CP30" followed by a date code. One thing I always do is take a screenshot or photo of the confirmation page after submitting payment - don't just rely on the confirmation number. The visual proof can be helpful if there are any disputes later. Also, if you're worried about timing and your due date is really tight, consider making the payment and then calling the IRS a few days later to confirm it was applied correctly. Yes, the hold times are brutal, but it's worth the peace of mind to verify everything went through properly, especially if you're close to additional penalty deadlines. The Direct Pay option really is the way to go - no fees and it's considered submitted immediately even though it takes a few days to process from your bank account.
Unfortunately there's no magic number for shorter IRS wait times, but I've found a few strategies that help. First, try calling right when they open at 7 AM in your time zone - you'll still wait but usually not as long. Avoid Mondays and the day after holidays when call volume is highest. The general customer service line (1-800-829-1040) is what you'll want for payment verification. If you're really desperate and the wait is unbearable, some people have had success with the services others mentioned earlier in this thread like Claimyr that wait in line for you, though I haven't tried them personally. Honestly though, if you followed the steps everyone outlined here (Direct Pay, selected Estimated Tax, included your CP30 notice number in comments), there's a 99% chance your payment will be applied correctly without needing to call. The IRS system is pretty good at matching payments when you provide the right details.
Unfortunately, there's no magic number for shorter IRS wait times - they all route to the same system eventually. But I've found calling first thing in the morning (8 AM EST) or late in the afternoon (around 4-5 PM EST) tends to have slightly shorter holds. Avoid Mondays and the day after holidays if possible. That said, if you're not in a rush to verify, you can also check your IRS online account (if you have one set up) in about a week. The payment should show up there once it's processed. For CP30 payments specifically, as long as you included your notice number in the comments and selected the right tax year, the chances of misapplication are pretty low. The IRS automated systems are actually pretty good at matching payments to the correct notices.
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Something important that hasn't been mentioned - if your LLC has been an S corp for several years, you should really look at the built-in gains tax implications before converting to partnership status. When you convert, there's a "deemed liquidation" where the IRS essentially treats it as if you sold all your business assets at fair market value. If your business has appreciated significantly since becoming an S corp (like real estate or goodwill value), this could trigger substantial taxes. Sometimes it's better to just start a new entity rather than convert an existing one.
What if the business doesn't own much in terms of hard assets? We're a consulting firm with minimal equipment and no real estate. Would the built-in gains still be a major concern?
Even without hard assets, you still need to consider goodwill and other intangibles that may have developed. A service business often has its biggest value in client relationships and reputation, which can create significant goodwill value. You should get a business valuation or at least a rough estimate of your company's fair market value versus your basis in the business. If there's a big difference, that's potential taxable gain. Sometimes a consulting business can be primarily structured around current income with minimal built-in gains, which would make the conversion less costly from a tax perspective.
Has anyone here actually gone through with an S Corp to partnership conversion who can speak to the actual filing process? Our accountant seems unsure about the exact sequence of forms.
That's super helpful, thanks! Did you have any issues with payroll continuity during the transition? I'm wondering if we need new EIN or can keep the same one.
You can keep the same EIN throughout the conversion - the IRS doesn't require a new one just for changing tax classification. For payroll, you'll need to update your payroll provider about the entity change since you'll be switching from W-2s for S corp owner-employees to Schedule K-1s for partnership distributions. Make sure to handle any final payroll tax deposits for the S corp period and then transition to partnership accounting for the new period. The timing can be a bit tricky with quarterly payroll taxes, so coordinate with your payroll company well in advance.
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Has anyone experienced this change getting challenged on audit? Our firm is recommending this to several eligible clients, but some partners are worried about aggressive positions on the 481(a) adjustment, especially for clients with large inventory values.
I had a client audited last year who had made this change in 2021. The IRS did scrutinize the 481(a) adjustment (which was around $320k), but ultimately accepted it. The key was having thorough documentation of beginning inventory values and ensuring the client fully qualified as a small business taxpayer under the gross receipts test.
This is exactly the kind of detailed discussion I was hoping to find! I'm dealing with a similar situation for three different clients right now, and the consensus here is really helpful. One thing I want to add based on my recent experience - make sure to carefully document the business purpose for the method change beyond just the immediate tax benefit. While the cash flow advantage is obvious, I've found it helpful to document operational reasons too, like simplified bookkeeping for small businesses that don't have sophisticated inventory tracking systems. Also, for those worried about audit risk mentioned by Felix - I think the key is making sure your clients truly qualify under the gross receipts test and that you're not pushing the boundaries. The regulations are pretty clear for straightforward retail/wholesale businesses under the threshold. Has anyone dealt with this change for service businesses that also sell some products? I have a client who's primarily a service provider but also sells related merchandise - wondering if the mixed nature of their business creates any complications.
AstroAce
Something nobody's mentioned yet - if you're doing sponsored content or getting free products, that's a whole different tax situation! I got a nasty surprise when my accountant told me all those "free" kitchen gadgets and food items companies send me count as taxable income at their fair market value. So while I'm expensing my ingredients, I'm also paying taxes on the free stuff. The tax benefits aren't as amazing as they first seem...
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Yuki Kobayashi
•Do you have to pay taxes on free products even if you don't keep them? Like if a company sends me ingredients and I use them all in a video?
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Anastasia Kozlov
Great question! I'm a tax preparer who works with several content creators. The key thing to understand is that the IRS looks at the "primary purpose" test. If you're buying ingredients specifically to create content, and the food happens to be consumed afterward, you have a stronger case for deducting the full amount. However, I always recommend the "documentation is everything" approach. Keep a simple spreadsheet tracking: date of purchase, amount spent, which video it was used for, and what percentage appeared on camera. Some of my clients photograph their ingredients before cooking to show they used everything for content. One thing to watch out for - if you're consistently buying way more food than what appears in your videos, or if your grocery bills suddenly skyrocket after starting your channel, that could raise questions. The IRS wants to see that your expenses are reasonable and directly related to your business income. Also remember that your channel needs to show profit intent. If you're deducting thousands in food expenses but only making $50/month from YouTube, that's going to look suspicious. The hobby loss rules could apply.
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