That's a really good point that I hadn't fully considered. My main reason for electing S Corp status was indeed to save on self-employment taxes. My accountant last year did help structure things efficiently with my salary vs. distribution ratio. I guess I need to weigh the software savings against potential missed optimization opportunities. Do you think there's a middle ground? Like using software to prepare the forms but maybe having an accountant review them for an hour or two at a lower rate?

That middle ground approach can absolutely work! Many accountants offer a "review only" service that's significantly cheaper than full preparation. You'd prepare everything using software, then they review for optimization opportunities and red flags. In my experience, the best tax savings come from planning throughout the year, not just at filing time. Consider finding an accountant who offers quarterly check-ins to help with ongoing strategy (like timing purchases, retirement contributions, etc.). Even with just a review service, a good accountant should be able to identify if your salary/distribution split is optimal for your situation, which is the main S Corp advantage.

Thanks for mentioning the free fillable forms option! I'm pretty comfortable with tax concepts but hadn't considered going that route. Quick question - when you use the IRS free fillable forms for the 1120-S, how do you handle the K-1 generation? Does it automatically create those based on your inputs, or do you have to fill out separate K-1 forms manually? Also, you're absolutely right about the quarterly 941s - I've been handling those through my payroll service but it's good to remember that's an ongoing requirement separate from the annual filing. For someone just starting to self-prepare S Corp returns, would you recommend beginning with software and then potentially moving to free fillable forms once more comfortable with the process?

This is really helpful advice about holding off on spending the state refund! I'm curious though - when you say "adjustments that affect your state taxes," what are the most common types of changes that would require amending a state return? Is it mainly income adjustments, or are there other things to watch out for? As a first-time married filer, I want to make sure I understand what could potentially go wrong so I can be prepared.

I'm actually using QuickBooks too, but I'm not super familiar with all its features. Could you share how you navigated to that inventory adjustment entry? Is it something specifically designed for tax corrections?

In QuickBooks Online, you can go to Inventory > Adjust Quantity/Value on Hand. There you can create an adjustment that changes the quantity and/or value of your inventory items. There's a field for "Adjustment Account" where you can select an expense account to track these adjustments (many people use "Inventory Shrinkage" or create a custom account like "Inventory Count Corrections"). The important part is filling out the "Memo" field with a detailed explanation of why you're making the adjustment - in your case, something like "Correction of 2022 ending inventory count error." This creates documentation right in your accounting system. It's not specifically designed for tax corrections, but it creates the paper trail you need to explain the discrepancy on your Schedule C. Then when you run your reports, the adjustment will be visible and properly documented.

This is really helpful advice about documentation! I'm curious - when you say you kept a spreadsheet showing the original vs corrected counts, did you also include photos or other proof of the actual physical inventory? I'm wondering if having visual documentation would be overkill or actually beneficial in case of questions later. Also, your point about quarterly spot checks is smart. Do you focus those checks on high-value items only, or do you also sample some of your lower-cost inventory? I'm trying to figure out the most efficient way to prevent this kind of error in the future without spending too much time on inventory management.

The IRS doesn't explicitly state a preference as long as all wash sales are properly identified and reported. But in practice, most major brokerages (Schwab, Fidelity, etc.) now report wash sales by adjusting the cost basis of replacement shares, which is the TradeLog approach you mentioned.

This is really helpful context! As someone new to dealing with wash sales, I'm curious - when you say "exit the position completely," does that mean I need to wait until I've sold all shares of that security before the wash sale calculations are finalized? I have some positions where I've been buying and selling the same stock multiple times throughout the year, so I'm not sure when the "wash sale chain" actually ends.

Great question! The "wash sale chain" can get really complex when you're actively trading the same security. You don't necessarily need to exit the entire position - it's more about tracking each specific lot of shares and their associated wash sale adjustments. For example, if you buy 100 shares, sell at a loss (wash sale), then buy 100 replacement shares, the disallowed loss gets added to the cost basis of those replacement shares. When you eventually sell those replacement shares, that's when the wash sale "resolves" for that particular chain - regardless of whether you still hold other shares of the same stock. The tricky part is when you have overlapping wash sale periods with multiple buys and sells. Most good tax software will track these individual chains automatically, but if you're doing it manually, you'll want to use FIFO (First In, First Out) or specific lot identification to keep track of which shares are tied to which wash sale adjustments. This is actually another reason why the software discrepancies you're seeing happen - different programs may use slightly different methods for matching up wash sale chains when you have complex trading patterns.

This is such an important point. Our operating agreement had a section that specifically said all tax liabilities from prior years would remain with the original owners, but we didn't specify WHO would manage the audit process and pay for representation.

That's exactly the issue we ran into. Our agreement addressed financial responsibility but not who would actually handle all the administrative aspects. The original managing member of our LLC has moved on to other ventures and doesn't want to spend dozens of hours dealing with audit document requests, but they're the ones who have all the historical knowledge. We ended up having to negotiate a separate agreement where the new entity hired the former managing member as a consultant specifically to handle the audit proceedings. It was expensive and created unnecessary tension that could have been avoided with proper language in the original merger agreement.

Great point about the formal valuation! I hadn't considered how the undistributed profits might affect the overall exchange ratio. Did you find that the acquiring company tried to discount the value of those profits since they represent "trapped" cash that hasn't been distributed yet? I'm worried they might argue our $87K in undistributed profits shouldn't be valued dollar-for-dollar in determining our ownership percentage in the merged entity. Also, when you mention making sure it's structured as a contribution under Section 721 versus a sale - what specific language or documentation should we be looking for to ensure it's treated correctly? Our preliminary term sheet just says "share exchange" but I want to make sure we don't accidentally trigger a taxable event.