Reading through all these responses, I wanted to add one more practical consideration that hasn't been mentioned yet - the timing of when you make the loan can affect the AFR rate you need to use. The Applicable Federal Rate changes monthly, and you're locked into whatever rate is in effect when you actually make the loan. Since AFR rates have been fluctuating, it might be worth checking the current month's rate versus next month's before you transfer the money, especially if you're considering charging a minimal interest rate as some folks suggested. You can find the current AFR rates on the IRS website under "Applicable Federal Rates (AFR) Rulings." For short-term loans (3 years or less), you'd use the short-term AFR rate. Also, one thing that helped me when I did a family loan was setting up a separate savings account just for tracking the loan payments. It makes record-keeping much cleaner come tax time, and if you do end up with imputed interest to report, having that clear paper trail makes everything easier for your accountant. The advice about the $100k threshold and personal use exception seems spot-on for your situation. Given that your brother-in-law is dealing with divorce expenses, this should clearly qualify as personal use rather than investment, which could save you from most of the imputed interest headaches.

This has been such a helpful thread! I'm dealing with a similar family loan situation and had no idea about all these nuances with AFR rates and imputed interest. One question I haven't seen addressed - what happens if the family member can't make payments on schedule? I know someone mentioned building in flexibility, but from a tax perspective, does it create issues if the loan payments get delayed or if you end up forgiving part of the debt later? I'm wondering if there are specific ways to handle payment deferrals or modifications that don't trigger additional tax complications. Like, if you originally set up the loan properly but then need to adjust the terms due to continued financial hardship, does that require new documentation or create new gift tax implications? Also, has anyone dealt with a situation where the family loan ended up being partially forgiven? I'm trying to understand what that would mean tax-wise for both the lender and borrower. Really appreciate everyone sharing their experiences - this is exactly the kind of real-world guidance that's impossible to find just reading IRS publications!

I had something similar happen last year. I received both a W-2 and 1099-NEC from the same company and my tax preparer filed it wrong too. It got fixed with an amendment and literally nothing happened. No audit, no questions, nothing. The IRS is so backlogged right now they're not going after these small issues, especially when you fix them yourself. The only thing you might want to check is if you need to file an amended state return too if your state has income tax. Sometimes the state revenue departments can be even more behind than the IRS in processing.

I understand your panic - I went through something very similar two years ago with a misclassified 1099. The key thing to remember is that you've already done the right thing by filing an amended return quickly. From my experience working with small business tax issues, the IRS typically only initiates employer investigations when they see systematic problems across multiple employees or significant dollar amounts involved. A single corrected filing, especially one that you self-reported and fixed, rarely triggers broader scrutiny. Your amended return essentially tells the IRS "disregard the original Form 8919 - the income was correctly classified as independent contractor work." Since you're paying the additional taxes owed and showing good faith compliance, this should close the loop from their perspective. The fact that your employer legitimately uses both W-2 and 1099 workers (you have separate roles) actually works in your favor here. If anything ever did come up, your employment situation would be easy to explain and justify. Try not to stress too much - you caught the error quickly and handled it properly. That's exactly what the amendment process is designed for.

Keep detailed records of all the expenses you're paying for your parents throughout the year! This was crucial when I claimed my elderly father as a dependent. I created a spreadsheet tracking mortgage payments, property taxes, utilities, groceries, medical expenses, clothing, etc. The IRS wants to see that you're providing more than 50% of their total support, so having documentation makes this much easier to prove. For the house situation, calculate the fair rental value of what they'd pay to live elsewhere and count that as support you're providing, even though your dad's name is on the deed. Also consider opening a separate checking account just for their expenses if possible - makes tracking much cleaner come tax time. The co-ownership won't hurt you as long as you can show you're covering the actual costs of supporting them.

One thing I haven't seen mentioned yet is the relationship/member of household test. Since you're all living together in the same house, your parents automatically meet the "member of household" requirement, which is good news. This means they don't have to meet the stricter "qualifying child" relationship test. Also, make sure you understand how the co-ownership affects the support calculation. The IRS looks at fair rental value - so if your house would rent for $2,000/month, that's $24,000 in housing support you're providing annually. Add up all the other expenses (utilities, food, medical, etc.) and compare that to what your parents contribute from their savings. Since you mentioned their savings are "almost gone," it sounds like you're definitely providing more than 50% of their total support. The key is being able to document this if the IRS ever asks. Keep receipts for everything you pay on their behalf!

Don't feel bad, I've been filing S-corp returns for 8 yrs and still get confused sometimes. Quick tip: if you're using tax software, most of them will flag percentages over 100% as errors during the review process. That's another reason to file electronically rather than paper - the software can catch simple mistakes like this before submission. Makes the whole process less stressful!

I'm glad to see this got resolved! As someone new to S-corp filing, this thread has been really educational. It's reassuring to know that even experienced business owners sometimes face confusion with tax forms. The distinction between number of shares vs. percentage ownership makes perfect sense now that everyone has explained it. I'll definitely keep this in mind when I eventually need to file my own business taxes. Thanks to everyone who contributed - this is exactly the kind of helpful discussion that makes this community valuable!

can someone explain how the 183 day rule works? ive heard this mentioned but im confused about what counts as a "day" in a state. if i sleep in one state but work during the day in another which one gets that day?? also what if ur traveling a lot between multiple states for work?

The complexity everyone's describing here is exactly why I ended up hiring a tax professional who specializes in multi-state returns. I tried to figure out my California-to-Nevada move on my own and kept getting overwhelmed by all the different rules and exceptions. One thing that really helped me understand was keeping a detailed calendar of where I spent each night during the year I moved. It sounds tedious, but when you're dealing with aggressive states like California, having documentation of your physical presence can be crucial if they ever challenge your residency status. Also, don't forget about the economic nexus test that some states use alongside the physical presence test. California looks at factors like where your income is sourced, where your professional licenses are held, and where you maintain business relationships. Just moving physically isn't always enough if you're still economically tied to the state. For your rental property in California, you'll definitely need to continue filing California non-resident returns for that income even after establishing Texas residency. Texas doesn't have state income tax, which is great, but make sure you're properly reporting that California rental income to avoid any issues down the road.