Thanks for sharing your experience! Did you face any issues with the timing of revoking your S election? I've heard there might be optimal times during the fiscal year to make the switch. Also, did you experience any unexpected costs during the conversion process that I should budget for?

Timing definitely matters. We revoked our S election mid-year which created some accounting complexity with a partial-year S-Corp return and partial-year C-Corp return. In retrospect, doing it at year-end would have been cleaner. As for unexpected costs, the biggest ones were accounting fees for handling the more complex tax filings and legal fees for updating our shareholder agreements. Our accountant charged about $2,800 for the additional work, and legal fees were around $4,000. We also needed to update our capitalization table and stock certificates, which wasn't expensive but took more time than expected. Budget at least $7-8K for a smooth transition.

In theory, you could create a two-entity structure - an S-Corp for operations that pays management fees to a C-Corp holding company where investors put their money. But honestly, it's overly complicated and most serious VCs will run away from this setup. The legal and accounting overhead usually erases any tax benefits. We tried something similar and abandoned it after our Series A investors balked at the complexity.

How exactly does this work? Do you just transfer shares directly to the charity somehow? And do all charities accept stock donations or just the bigger ones?

You transfer the shares directly to the charity's brokerage account - most medium and large charities have a process for this. You'll need to contact their donation department for their specific instructions. They'll usually provide their broker info and account number. Many smaller charities can accept stock donations too, but some might not have the infrastructure. In those cases, there are donor-advised funds like at Fidelity or Schwab where you can donate the stock to the fund (getting the tax deduction immediately), then grant the money to any charity from there. The best part is you completely avoid the capital gains tax you would've paid if you sold the stock yourself, plus you still get the full market value as a deduction.

Technically those are deductible but practically not worth the hassle. You'd need receipts for everything, and most stores don't automatically provide them for these small donations. Plus, if you're taking the standard deduction anyway, they won't help your tax situation at all.

Thank you for mentioning this! Do you know if they help with tip income situations specifically? That's the part my cousin is most worried about.

Yes, they absolutely help with tip income situations! In fact, that's one of the most common issues they deal with for restaurant workers. They can help your cousin figure out how to reconstruct reasonable tip records if they didn't keep detailed logs, and they understand the specific challenges facing tipped employees. The LITC volunteers typically include tax professionals who donate their time and have experience with these exact scenarios. They won't judge your cousin for not filing - their goal is just to help people get into compliance with the least financial pain possible.

How far back can you claim refunds? My boyfriend hasn't filed in like 6 years but he's pretty sure he'd get refunds.

You can only claim refunds going back 3 years. So for the 2025 filing season, you can claim refunds for 2022, 2023, and 2024. Any potential refunds from years before that are unfortunately lost forever - that's why it's important to file ASAP if your boyfriend thinks he's due refunds! For the older years (beyond the 3-year window), he should still file the returns to get into compliance, but he won't be able to get any refunds from those years even if the calculations show he would have been entitled to them.

Thanks for this tip! So if I understand correctly, I could still potentially avoid the penalty even now? My broker is Vanguard - would I just call them and ask for a "return of excess contribution" specifically for my 2020 contribution? Do you know if there's a time limit for doing this correction?

Yes, you would call Vanguard and specifically request a "return of excess contribution" for tax year 2020. Be very clear about which tax year you're correcting. There is a time limit - ideally you want to do this before the tax filing deadline for that year (including extensions). Since we're well past the 2020 deadline, you'll still owe the 6% penalty for 2020, but removing the excess now stops you from owing the penalty for subsequent years too. The excess contribution continues to be penalized 6% every year until you either remove it or "absorb" it by using up part of a future year's contribution limit.

I second FreeTaxUSA! TurboTax really struggles with Form 5329 and excess contributions. My tax preparer actually recommended I switch to FreeTaxUSA specifically for handling my IRA issues.

Thanks for bringing up special allocations - I wasn't familiar with that concept or the "substantial economic effect" requirement. What exactly counts as having "economic effect beyond tax savings"? Would things like my wife handling all the management responsibilities as GP while I provide most of the funding as LP qualify? And yes, we've considered an S-Corp too, but I was concerned about the "reasonable salary" requirement. Our business is projected to make around $300k/year, and I wasn't sure what would be considered "reasonable" for our industry (real estate investments).

Your wife handling all management responsibilities while you provide funding could potentially create economic effect beyond tax savings, as it reflects the different roles you're playing in the business. Document her actual time spent, decisions made, and management activities to substantiate her role. The key is having her GP role reflect genuine business operations, not just a paper arrangement. For S-Corps in real estate investing with $300k annual income, reasonable salary benchmarks typically range from $60k-$120k depending on location, portfolio size, and actual services performed. The IRS looks at comparable compensation for similar roles in your market. I recommend researching salary surveys for real estate investment managers in your area to establish a defensible figure.

The IRS calculator is pretty basic and doesn't account for complex allocations. I'd recommend the tools at business.gov instead - they're more comprehensive. And yes, states definitely have different rules! California is particularly strict with partnership structures and charges an $800 minimum annual tax regardless of profitability. New York and Delaware have more favorable treatments. Check your state's secretary of state website for specific requirements.

Thanks for the business.gov suggestion! I'll check that out instead. And I had no idea California charges $800 annually regardless of profit - that's good to know since we might expand there eventually. I'll definitely look up my state's requirements on the secretary of state website.