Quick question - I'm using TurboTax for my business and it's asking me about bonus depreciation for my commercial property. Is there a simple way to figure this out or do I need professional help at this point?

Great breakdown from everyone here! As someone who went through this exact decision process with a similar multi-building commercial property, I want to emphasize a few key points: The depreciation recapture situation is crucial to understand upfront. When you sell in 20-30 years, you'll pay 25% tax on ALL depreciation claimed (including bonus depreciation), plus capital gains on any appreciation above your depreciated basis. This isn't necessarily bad - you're essentially getting an interest-free loan from the government - but plan for it. With your $260k W2 income, you might hit passive activity loss limitations. Since you're not a real estate professional, your ability to deduct passive losses against your active income is limited to $25k annually (and phases out completely at higher income levels). Any excess losses carry forward, but this affects the timing of your tax benefits. Consider a 1031 exchange strategy for your eventual exit. This lets you defer both capital gains AND depreciation recapture by rolling into another like-kind property. Given your 20-30 year timeline, you could potentially do multiple exchanges and never pay the recapture tax. One more thing - make sure you're allocating the purchase price correctly between land and improvements. The IRS expects this to be reasonable based on local assessments and appraisals. Too aggressive an allocation toward improvements can trigger scrutiny.

Don't overlook the cashflow implications of going all-in on retirement contributions your first year. I made this mistake with my S-Corp. I maxed out my solo 401(k) contributions in year one ($22,500 employee deferral + 25% of my salary as employer contribution), then realized I hadn't left enough operating capital for quarterly estimated taxes and business investments. I had to take a personal loan to cover obligations, which was stressful and cost me interest. Consider building a 3-6 month operating expense cushion before maxing out retirement contributions, especially if you're projecting strong growth that will require capital reinvestment.

Great thread! As someone who recently went through a similar transition from employee to S-Corp owner, I wanted to add a few practical considerations that took me by surprise: 1. **Payroll complexity**: Once you set up your S-Corp, you'll need to run actual payroll for yourself (including withholdings, quarterly 941s, etc.). This isn't just about calculating the "reasonable salary" - you need systems in place. I use Gusto, which costs about $40/month but handles all the compliance automatically. 2. **Timing of contributions**: Unlike when you were an employee with automatic 401(k) deductions, you'll need to manually coordinate your employee deferrals with your payroll. The IRS requires employee contributions to come from actual paychecks, not just business transfers. 3. **State considerations**: Depending on your state, S-Corp elections might have different implications for state taxes and retirement contributions. Some states don't recognize federal S-Corp elections, which could complicate your planning. The mega backdoor Roth strategy is definitely worth pursuing if your income supports it, but make sure you have the operational infrastructure in place first. I'd recommend starting with a basic solo 401(k) setup in year one to get comfortable with the mechanics, then upgrading to the specialized providers mentioned above once your business is more established. Also consider working with a tax professional who specializes in S-Corps - the peace of mind is worth the cost when you're dealing with both business formation and complex retirement planning simultaneously.

I was in your exact situation last year. Bought a condo, had some side income, and was trying to figure out retirement accounts. I ultimately chose to use a CPA and it was 100% worth it. They found property tax deductions I didn't know about, helped me set up a proper tracking system for my wife's freelance work, and guided me through the backdoor Roth process. The way my CPA explained it, the biggest value wasn't just for that tax year but in setting up a system that would benefit us for years to come. They helped us understand what expenses to track for the freelance work and how to structure things optimally. The peace of mind was worth the $350 I paid.

Has anyone used TurboTax for handling a new home purchase? I'm wondering if their deluxe or premier version can handle all these situations without needing a CPA.

Has anyone actually been audited for this issue? I'm curious what the penalties are if the IRS finds that you took distributions before reasonable compensation. Is it just a matter of reclassifying the distributions as wages and paying the additional payroll taxes, or are there actual penalties involved?

This is a really common mistake for new S-corp elections, so don't panic too much! Your CPA's suggestion about reclassifying as shareholder loans is probably your best bet here. I went through something similar when I first elected S-corp status. The key things to remember: First, document everything properly with a formal promissory note that includes reasonable interest (use the IRS Applicable Federal Rate). Second, actually follow through on the repayment schedule you set up - the IRS wants to see this is a real loan, not just a paperwork exercise. Since you're dealing with a relatively small amount ($10k), the loan approach is much cleaner than amending returns. Amending would require recalculating payroll taxes for multiple quarters, which gets messy and expensive fast. Going forward, just make sure you hit your reasonable compensation threshold before taking any distributions. The good news is that catching and correcting this quickly shows good faith compliance, which the IRS does consider if they ever review your returns.

Have any of you tried handling the correction by issuing a special distribution to the underpaid owners to catch them up? Our CPA advised us to do this rather than trying to recoup money from partners who received too much. Said it was cleaner from a documentation standpoint.

I'm dealing with a very similar situation right now - 3 equal partners in an S-Corp who have been taking unequal distributions for about 4 years. Our new accountant also flagged this as a major issue. One thing I learned that might help you: the IRS looks at the overall pattern and business justification. If the disproportionate distributions were truly based on legitimate business needs (like one partner covering more expenses or working significantly more hours), you may have more flexibility in how you correct this. That said, the safest approach is definitely to get everyone back to their proper ownership percentages. We're planning to use the catch-up distribution method mentioned by others here - seems like the cleanest way to fix past issues without creating personal loans between partners. Have you calculated exactly how much each partner is over/under their proportionate share? That will help determine the best correction strategy and whether you need to worry about the materiality thresholds that could trigger amended returns.