Wait, seriously? My accountant has been using Form 1116 every year even though my foreign taxes are just around $550 and I file jointly with my spouse. Is this something TurboTax would automatically detect?

Yes, TurboTax should absolutely detect this and give you the option to use the simplified approach if you qualify. It's called the "exemption from filing Form 1116" and it applies when your qualified foreign taxes are under $600 for married filing jointly. Your accountant might be using Form 1116 because there are some situations where using it could be more advantageous even below the threshold, especially if you have carryover credits from previous years. But for most people under the threshold, taking it directly on Schedule 3 is much simpler and works just fine.

I've used both and honestly H&R Block's handling of Form 1116 is more transparent. It shows you the actual form as you're working and explains the limitations better. TurboTax hides a lot of the calculations behind the scenes. H&R Block also has better handling of multi-country calculations if you have investments in different regions. The downside is their interface isn't as sleek as TurboTax.

Can you explain how the "gross up" works? Do you just pay them more to cover the taxes, or is there some specific calculation?

We basically increase the payment amount to account for the roughly 15.3% self-employment tax they'll owe. So if we want them to net $1,000 after SE tax, we'd pay about $1,180 instead. There's no perfect calculation because their actual tax situation depends on all their other income and deductions, but this is a rough approximation that helps prevent surprises. We record the full grossed-up amount as the guaranteed payment on their K-1.

There's a narrow exception if the LLC has elected to be taxed as an S-Corp (not a partnership) AND the payments are for services outside the member's normal owner duties. But that's clearly not the case for the original poster since they file Form 1065 as a partnership.

Oh man I hadn't even thought about state taxes. I'm in Virginia - do you know if they handle 401k distributions the same way the feds do?

Virginia generally follows the federal treatment of retirement distributions, so if it's taxable for federal purposes, it will likely be taxable for Virginia as well. However, Virginia has its own deductions and credits that might help offset some of the additional income. I'd recommend checking the Virginia Department of Taxation website or contacting them directly. You might need to file an amended state return as well. Virginia's statute of limitations for tax assessments is generally 3 years, so they could potentially come after you for this even if they haven't yet.

This is good advice. I set up an installment agreement for about $40k a few years ago. Process was actually pretty straightforward online for amounts under $50k, but for $65k you'll probably need to call and talk to someone. They'll ask about your monthly expenses and income to determine what you can pay.

Is that true across all states? I'm in Florida and starting a similar business. Did your broker explain why there's a difference in rates between the two structures?

From what our broker explained, it's not universal across all states but is common in many. The difference comes from how insurance companies assess risk based on historical claims data. They have more data on contractor LLCs than LLPs since LLCs are much more common in the construction industry. In Florida specifically, I've heard the difference can be even more pronounced because of how your state handles construction defect claims and the associated liability. Insurance companies have specific rating factors for different business structures, and LLCs in contracting tend to have more favorable loss histories in their actuarial data. Definitely worth getting quotes for both structures from a broker who specializes in contractor insurance.

Can you explain more about how that works? We're just starting but hoping to grow quickly. How complicated was switching to S-Corp taxation?

That's reassuring to hear! Have you ever heard of the IRS taking back a refund once it was deposited? That's my main worry - spending the money and then suddenly finding out there was some mistake and owing it all back.

I've never personally heard of the IRS taking back a refund after it was deposited unless there was actual fraud involved or a massive calculation error. If you filed honestly and the amount matches what your tax software calculated, you should be absolutely fine. If it gives you peace of mind, you could keep the bulk of it in your checking account for a week or so before moving it to savings or spending it. But really, once it's in your account, it's almost certainly legitimate and yours to keep.

Great advice. I just checked my transcript and it showed my refund was processed even though the tracker still says "received" like OP's situation. The transcript is definitely more reliable!