Just be careful about taking distributions without paying yourself a reasonable salary first. The IRS really scrutinizes this with S Corps since it's a common area of abuse. If they determine your salary is unreasonably low, they can reclassify all those distributions as salary retroactively and hit you with back taxes and penalties.

I was in a very similar situation when I started my consulting practice! One thing that really helped me was understanding that the "reasonable salary" doesn't have to be perfect from day one - you can adjust it as you learn more about your business. Since you're already bringing in consistent $8k/month from consulting, I'd suggest starting with around $4,500-5,000 monthly salary (which aligns with what others have suggested) and then taking distributions for the remainder as needed for your living expenses. The key is being able to justify your salary if questioned. Document comparable salaries for consultants in your field and location - sites like Glassdoor, PayScale, or even job postings can help establish what someone with your skills would earn as an employee. Also, don't let the money just sit there stressing you out! You can absolutely start paying yourself through a payroll service like Gusto while you wait for your CPA to have more availability. Just keep good records and be prepared to adjust if they recommend something different later.

Don't forget to check if your state has also assessed late filing penalties! I went through this exact thing last year, got the federal penalty abated through reasonable cause, and then two months later got hit with state penalties for the same late filing. Had to go through the whole process again with the state tax agency.

Just wanted to share that I went through something very similar with my partnership return last year. We had delayed 1099s from a major client who completely messed up their year-end reporting, and I ended up with a $1,800 penalty for filing 6 weeks late. I wrote my own reasonable cause letter and it worked! The key things I included were: 1) A clear timeline showing when we should have received the 1099s vs when we actually got them, 2) Documentation (emails) showing we had requested the forms multiple times, 3) Proof that we filed immediately upon receiving the missing documents, and 4) Our clean compliance history for previous years. I addressed the letter to the correspondence address on the penalty notice, included all our partnership details, and sent it certified mail. It took about 8 weeks, but they fully abated the penalty. The IRS agent I eventually spoke with said that third-party document delays are actually one of the most common and accepted reasonable cause situations. Don't let the CPAs scare you into thinking this is too complicated to handle yourself - if you can clearly explain what happened and provide some basic documentation, you have a really good shot at getting this resolved without paying professional fees that exceed the penalty amount.

Has anyone used TurboTax for backdoor Roth reporting? I'm trying to DIY this and it keeps giving me errors when I enter my recharacterization.

I went through almost the exact same situation last year! The key thing that saved me was getting everything properly documented on Form 8606. Since you did both the 2023 recharacterization AND the 2024 conversion in the same tax year, you'll need to be extra careful about the sequencing. For your 2023 amended return: You'll report the recharacterized contribution as a nondeductible traditional IRA contribution on Form 8606. This establishes your basis. For your 2024 return: You'll show the conversion on Form 8606 Part II, using the basis you established from 2023. Any earnings that accumulated between your original contributions and the conversion date will be taxable. The tricky part is that some tax software doesn't handle this cross-year complexity well. Make sure your preparer understands that the 2023 recharacterization creates nondeductible basis that carries forward to reduce the taxable portion of your 2024 conversion. If they miss this connection, you could end up paying tax on money that should be tax-free. I'd strongly recommend double-checking their work on Form 8606 - specifically that they're correctly calculating your nondeductible basis from the recharacterized 2023 contributions.

One thing nobody's mentioned - if you're exercising underwater ISOs, make sure to check if your company might offer a re-pricing or exchange program. Some companies will cancel underwater options and reissue at a lower strike price, which might be better than exercising underwater options. Worth asking your HR or stock admin before making any moves.

Great discussion everyone! I've been dealing with a similar underwater ISO situation and wanted to add one more consideration that helped me make my decision. Even though there's no immediate AMT impact for exercising underwater ISOs, you should also factor in your company's 10-year option expiration timeline. In my case, some of my underwater ISOs were granted 7+ years ago and were approaching expiration. Since there's no tax penalty for exercising underwater, I decided to exercise those older grants to at least convert them to actual shares before they expired worthless. This way, if the stock does recover in the next few years, I'll benefit from any appreciation above my strike price. The key insight for me was realizing that letting underwater options expire is a guaranteed loss, but exercising them (even at a loss) at least gives you a chance to recover if the company turns around. Obviously only do this with money you can afford to lose, but it's another angle to consider in your planning.

Don't forget to consider state tax implications too! My exchange was fine for federal purposes but my state (CA) had different rules about how much gain I could defer. Ended up having to pay state tax on part of the exchange that was tax-deferred federally.

Based on your numbers, here's how your basis calculation should work: Your adjusted basis in the relinquished property was $95,000 ($325,000 - $230,000 depreciation). For the new property basis calculation: - Start with old adjusted basis: $95,000 - Add additional cash invested: $0 (since your net proceeds after boot exactly equaled your purchase price) - Add recognized gain: $410,000 (the cash boot you received) - Subtract boot received: $410,000 This gives you a new basis of approximately $95,000 in your replacement property. The key point is that in a 1031 exchange, you're essentially carrying over your low basis from the old property to the new one. The $410,000 boot you took will be taxed as capital gains, but it doesn't increase your depreciable basis in the new property. So yes, your depreciable basis will be much lower than the $1,025,000 you paid - it will be close to your original adjusted basis of $95,000. This means you'll have less depreciation deductions going forward, but you've already benefited from $230,000 in depreciation on the original property. Make sure to file Form 8824 with your tax return to properly report this exchange!