I messed this up last year and just paid the 6% excess contribution penalty becuz I didn't understand recharacterization. DON'T DO WHAT I DID! The penalty repeats every year until you fix it too. For what it's worth, I use Fidelity and when I finally called them about fixing it this year, they were super helpful. They walked me thru the recharacterization process over the phone. Their system automatically moves the proportional amount of earnings too, so I didn't have to calculate anything.

This is such a helpful thread! I'm in a similar boat - discovered I'm over the income limit after already contributing. One thing I want to add for anyone else going through this: make sure to check if your employer offers after-tax 401k contributions with in-service withdrawals. My HR department told me about this option which might be better than the backdoor Roth route depending on your situation. You can contribute way more than the IRA limits (up to $70k total including employer match for 2024), and if your plan allows it, you can roll the after-tax portion directly to a Roth IRA. Just another option to consider alongside recharacterization. Every situation is different but it's worth exploring all your retirement savings strategies when you're in the higher income brackets.

Just to summarize everything for Dylan and anyone else still confused - here's the simple breakdown: **401(k) through your employer:** - Already handled automatically through payroll - Pre-tax contributions reduce your taxable income (shown in W-2 Box 1) - No additional forms needed for your tax return - You'll see the total in Box 12 of your W-2 with code "D" **Separate IRA contributions ($2,500 in your case):** - Report on Schedule 1, Line 20 if it's a Traditional IRA - Subject to income limits since you have a workplace 401(k) - For 2025: phase-out starts at $78k (single) or $129k (married filing jointly) - You have until April 15, 2026 to make additional IRA contributions for tax year 2025 **Bottom line:** Your 401(k) is already taken care of, but you'll need to handle that $2,500 IRA contribution on your tax return if you want the deduction and you're under the income limits. The confusion is totally understandable since there are so many different retirement account types and rules. Focus on just these two pieces for your situation and you should be good to go!

This thread has been incredibly educational! As someone who's been procrastinating on filing taxes because of similar confusion, I finally feel like I understand the basics. I've been contributing to both a 401k and a traditional IRA, and like many others here, I was completely lost about what needed to be reported where. The key insight for me was learning that 401k contributions are already "baked into" your W-2 - I had no idea that Box 1 was already reduced by my contributions. I kept looking for some separate form to report them on. One thing I'm still curious about though - if I contributed to both a traditional IRA and a Roth IRA during 2025 (split my contributions between both), do I need to report both on different forms, or just the traditional IRA on Schedule 1? I put $2,000 in traditional and $1,500 in Roth, staying under the $7,000 total limit. Also, for anyone else who found the tax software confusing, I ended up calling my IRA provider (Fidelity) and they were able to walk me through exactly how my contributions should be reported. Sometimes the investment companies have tax specialists who can clarify these account-specific questions better than generic tax software.

This has been an absolutely fantastic deep dive into partnership guaranteed payments and S-Corp holding companies! As someone who's been researching multi-entity structures for months, this thread has answered questions I didn't even know I had. I wanted to add one consideration that might be helpful for others - the impact of state-specific LLC charging order protections when you convert single-member LLCs to partnerships. Some states have stronger asset protection for single-member LLCs than multi-member structures, so adding the S-Corp as a partner could potentially weaken your asset protection, even though it improves the tax situation. Also, for those worried about the complexity and compliance costs, I've found that using a centralized accounting system that can handle multi-entity reporting makes a huge difference in managing the ongoing administrative burden. The initial setup is definitely complex, but once the systems are in place, the quarterly reporting and tax prep becomes much more manageable. One question for the group - has anyone dealt with foreign partnership reporting requirements (Form 8865) if the S-Corp holding company owns interests in partnerships that have foreign partners or operations? I'm wondering if this adds another layer of complexity that could impact the cost-benefit analysis. The documentation and business substance points everyone's made are spot-on. I'm definitely planning to establish formal management services agreements and maintain detailed records from day one rather than trying to create documentation after the fact.

This has been an incredibly comprehensive and educational thread! As someone who's been considering a similar holding company structure, I'm grateful for all the detailed insights shared here. One aspect I'd like to add that might be helpful for others considering this structure - the importance of timing the implementation carefully around your business cycle. If you have seasonal partnerships or businesses with irregular cash flows, you want to make sure the guaranteed payment amounts are sustainable throughout the year, not just based on peak earning periods. I'm also curious about how these structures interact with retirement plan contributions. If the S-Corp holding company becomes your primary source of W-2 wages (from the reasonable salary), does this impact your ability to make SEP-IRA or Solo 401(k) contributions from the partnership income? It seems like the guaranteed payments flowing to the S-Corp might change how you calculate earned income for retirement plan purposes. The documentation requirements everyone has discussed are clearly crucial. I'm planning to establish quarterly review meetings between the holding company and each partnership to create a paper trail of legitimate management oversight activities. Has anyone found particular types of management reports or strategic planning documents that work well for demonstrating the substantive business purpose of the guaranteed payments? Also, given all the state tax complexity mentioned throughout this thread, I'm wondering if it makes sense to start with a simpler structure initially and gradually add complexity as income grows, or if the setup costs make it better to implement the full structure from the beginning. Thanks again to everyone who's contributed their expertise here - this has been more valuable than any paid consultation I've had!

Previous tax returns also matter if you have any unused credits that can be carried forward. I learned this the hard way - had a big capital loss in 2022 that I could've been applying to offset gains for the next few years, but I forgot about it completely when I switched tax software in 2023! Cost me a few hundred in extra taxes.

Your previous return can also flag potential audit triggers if there are big differences year to year. My income doubled between 2022 and 2023 and I got a letter from the IRS asking for documentation. Having my previous returns organized helped me respond quickly.

I'm confused about the tax implications here. When the LLC sells chickens to the owner, isn't that income to the LLC that flows through to the owner anyway? Seems like you're just paying yourself and creating a wash transaction?

One thing to consider that hasn't been mentioned yet - make sure you're also thinking about the timing of these transactions. If you're taking chickens for personal use throughout the year, it's better to document and pay for them as you go rather than trying to do a bulk adjustment at year-end. Also, keep in mind that if your poultry business grows significantly, you might want to consider electing S-Corp status for your LLC. This could provide some tax advantages, but it would also change how these owner transactions need to be handled. Worth discussing with a tax professional if your business income gets substantial. The approach you're describing is solid - just make sure your "fair market value" pricing is reasonable and defensible. Use what you'd actually charge other customers, or what similar products sell for locally. The IRS likes to see consistency in how you value business assets and inventory.