The red flag for me is that this person makes $75k and claims ZERO withholding? That's way past the threshold where anyone could reasonably claim exemption. For 2025, you basically need to expect to make less than the standard deduction (around $14,000 for single filers) to legally claim exemption. I'd recommend checking IRS Publication 15 (Circular E) section on "Withholding From Employees' Wages" which specifically addresses invalid Forms W-4. Your payroll provider should absolutely know better - they're giving terrible advice if they're just pointing to the exemption section without mentioning the income threshold issue.

This is a serious compliance issue that needs immediate attention. As a tax preparer who's seen similar situations, I can tell you that someone making $75K annually cannot legitimately claim exemption from federal withholding unless they have extraordinary circumstances (which would be extremely rare at that income level). The IRS is very clear about this - to claim exemption, you must expect to owe NO federal income tax for the year. With a $75K salary, even after the standard deduction, this person would owe several thousand dollars in federal taxes. Your concern about company liability is absolutely justified. The IRS can and will hold employers responsible for accepting obviously invalid W-4 forms. You should document this issue immediately and escalate it to your company's owner or HR department. The longer this continues, the worse the potential penalties become. I'd strongly recommend having your company request a corrected W-4 from the managing director immediately. If he refuses, you should withhold taxes as if he's single with no allowances - that's what the IRS requires when you can't rely on the employee's W-4. Don't let "we're just following his instructions" be your only defense when the IRS comes knocking.

As someone who's been working in security for several years, I'd recommend documenting everything carefully regardless of whether you can deduct it now. Keep all receipts, maintenance records, and any communication with your employer about equipment requirements. The tax law suspending employee deductions expires in 2025, so you may be able to claim these expenses in future years. Also, make sure you're getting the best value for your required equipment. Check with other guards at your company about preferred suppliers or group purchasing opportunities. Sometimes you can get better deals when multiple people order together. And definitely push for that stipend idea mentioned above - it's worked for other security companies and shows you're thinking about solutions rather than just complaining about costs.

Just wanted to add another perspective here - if you're classified as an independent contractor rather than an employee, the tax situation changes completely. As a 1099 contractor, you can deduct business expenses including required equipment on Schedule C. I'd recommend carefully reviewing your employment arrangement. If your employer dictates when and how you work, provides training, and controls most aspects of your job, you're likely an employee. But if you have significant control over how you perform your duties, work for multiple clients, or operate more independently, you might qualify as a contractor. The distinction matters a lot for taxes. Contractors can deduct equipment, vehicle expenses, training costs, and other business expenses. However, you'd also be responsible for self-employment taxes. It's worth having a tax professional review your specific situation to determine your proper classification. If you are misclassified as an employee when you should be a contractor (or vice versa), you can file Form SS-8 with the IRS to get an official determination of your worker status.

I think most people are overlooking something important - the $47,000 in renovations mentioned in the original post. Those receipts are GOLD when calculating your adjusted basis! Make sure you've kept meticulous records of EVERYTHING you've done to improve the property. Not just the obvious renovations, but also: - Roof repairs - HVAC upgrades - Plumbing or electrical work - Window replacements - Landscaping improvements (if they add value) - Deck or patio additions I had a client who nearly forgot about $23,000 in windows and insulation they'd added over the years. That significantly reduced their taxable gain. Also, don't forget to include closing costs from when you purchased as part of your basis, and selling costs (commissions, etc.) as deductions from the sale price.

As someone who works in real estate tax consulting, I want to emphasize a key point that might provide additional peace of mind: the FIRPTA withholding requirement has specific safe harbors built in precisely for situations like yours. Since you're selling your primary residence and the sales price is likely under $1.1 million (based on your mention of the $500k capital gains exclusion being relevant), there's actually a buyer's exemption that can apply. If the buyer is acquiring the property as a residence and the purchase price is $1.1 million or less, they're not required to withhold under FIRPTA even if you were considered a foreign person (which you're not as a green card holder anyway). This creates a double layer of protection in your situation. However, I'd still recommend getting the proper documentation from your title company to avoid any confusion or delays at closing. One practical tip: when you compile those renovation receipts, organize them chronologically and create a simple spreadsheet showing the date, description, and amount for each improvement. This will make things much smoother for both the closing and your tax return preparation. The IRS loves organized documentation, and it shows you're taking the reporting requirements seriously.

This is a great discussion! I'm dealing with a similar situation right now where my client switched from tax basis to GAAP, and I was getting confused about whether this required a Form 3115 or could be handled as a simple adjustment. From what I'm gathering here, the key points are: 1) Don't touch the beginning Schedule L balances 2) Use M-2 Line 2 for the cumulative adjustment with an explanatory statement 3) Handle current year differences through M-1 One thing I'm still unclear on - how do you determine if this is truly a "change in accounting method" requiring Form 3115 versus just a correction of how financial statements are prepared? My client's operating agreement has always required GAAP, but they've been filing tax basis financials. Does that make it a correction rather than a method change? Also, for those who have been through this - how detailed should the explanatory statement be? Should I include a full reconciliation of all affected accounts or just a summary of the major categories? Thanks for all the helpful insights in this thread!

This is exactly the kind of situation that makes transitioning from audit to tax so challenging! You're dealing with a classic accounting method change issue, and the good news is that several people here have given you solid guidance. I'll add one practical tip that helped me when I faced a similar situation: create a simple reconciliation worksheet that shows the cumulative book-tax differences from all prior years. This becomes the basis for your M-2 Line 2 adjustment and also serves as your supporting documentation. The worksheet should show: - Beginning tax basis retained earnings (from prior year Schedule L) - Plus: Cumulative GAAP adjustments (mainly your depreciation differences) - Equals: GAAP basis retained earnings (what should be on current year books) The difference between tax and GAAP retained earnings is your M-2 Line 2 adjustment. One thing I haven't seen mentioned yet - make sure your depreciation differences are calculated correctly for ALL prior years, not just recent ones. I made the mistake of only going back a few years initially and had to redo everything when I realized the cumulative impact was much larger. Also, regarding the Form 3115 question that's been raised - if your client's books and records have always been maintained on a tax basis and you're now switching to GAAP for financial reporting purposes, this is likely a method change requiring Form 3115. The fact that the operating agreement may have required GAAP doesn't change how the books were actually maintained. Hang in there - once you get through this first one, similar situations become much more manageable!

Don't forget about requesting penalty abatement! After I filed my back taxes (3 years worth), I submitted a penalty abatement request using the "First Time Penalty Abatement" policy and got almost $2800 in penalties removed. The IRS doesn't advertise this option but it exists if you haven't had previous penalties in the past 3 years.

Ben, I completely understand the anxiety you're feeling - I was in a very similar situation a few years ago as a freelance photographer with 2 unfiled years. The good news is that the IRS really does work with people who come forward voluntarily. Here's my step-by-step recommendation based on what worked for me: 1. **Get professional help immediately** - Find a CPA or Enrolled Agent who specializes in back taxes and self-employment. This isn't the time for DIY software given your multiple years and SE income. 2. **Gather everything systematically** - Don't stress about perfect organization yet. Just separate income records (1099s, client payments) and expense receipts by tax year (2022, 2023, 2024). 3. **File in the right order** - Your tax pro will likely recommend preparing all three years but filing them strategically. Usually most recent year first to get you back in compliance status. 4. **Payment plan is very doable** - The IRS offers reasonable installment agreements. With your income levels, you'll likely qualify for a monthly payment plan that won't break the bank. 5. **Don't panic about penalties** - Yes, there will be some, but there are abatement options available, especially for first-time situations with reasonable cause like yours. The hardest part is taking that first step, which you're already doing by posting here. You've got this!