Do you know if this applies the same way for the Additional Child Tax Credit? And is line 18 showing the combined total of both credits or just the regular CTC? I'm looking at my form and can't figure it out.

The phase-out applies to the total Child Tax Credit before it gets split between the regular CTC and Additional Child Tax Credit. So if your total CTC gets reduced due to income phase-out, both portions would be affected. Line 18 typically shows the total combined amount of Child Tax Credit you're receiving (including both the non-refundable portion and the refundable Additional Child Tax Credit portion). If you want to see the breakdown, you need to look at Schedule 8812 which shows the detailed calculations.

Yes, you can absolutely file an amended return for previous years if you didn't receive the correct Child Tax Credit. Generally, you have 3 years from the original filing deadline to submit an amendment. So for 2021 taxes (filed in 2022), you have until April 2025 to amend.

11 Good point about the tax consequences, but isn't there a way to avoid some of these issues? I thought I read something about a post-termination transition period where you can still distribute AAA balances tax-free?

4 Yes, that's correct. After S corporation status ends, there is a post-termination transition period (generally 1 year after the last day of the last S corporation tax year) where shareholders can still receive distributions from the former S corporation's AAA tax-free to the extent of their stock basis. This can be really important for planning purposes. Some shareholders mistakenly believe all their distribution options end when S status is revoked, but this transition period provides a window to distribute accumulated S corporation earnings without dividend treatment under C corporation rules.

14 I dealt with something similar and we ended up going this route. The key was proving that we never operated as an S corp (no distributions, no K-1s issued, etc.) and that it was an honest mistake in the election. Saved us from having to do the split-year filings.

This is really helpful advice. I hadn't thought about documenting the strategy formally. Is there a specific format you'd recommend for this kind of business plan? Also, does the board approval need to happen annually or just once when implementing the strategy?

There's no required format, but I'd recommend including projected capital needs, specific growth milestones, timeline for expansion, and how the retained earnings will be used. Make it clear this is a temporary strategy until the business can support you full-time. Board approvals should definitely happen annually. At minimum, you should have annual minutes documenting review of the compensation strategy and business progress. Each year, note how the retained capital is being used toward your stated goals and reaffirm the strategy. This creates a pattern of consistent business purpose rather than looking like an afterthought if questioned.

YES! My brother-in-law got absolutely hammered for this exact situation. Ran his consulting S-corp for 2 years taking zero salary and only distributions. Got audited, and the IRS reclassified ALL his distributions as salary, meaning he owed back payroll taxes plus penalties and interest. Cost him over $30k when all was said and done. They specifically target S-corps for this issue because it's such a common tax avoidance strategy.

That's an interesting approach I hadn't considered. Would that be simpler to manage than tracking all these loan amounts and interest calculations? What kind of documentation would we need for a cost sharing arrangement?

A cost sharing arrangement could be simpler operationally but requires careful upfront documentation. You'd need a formal agreement specifying how costs will be allocated (usually based on projected benefits like expected sales or profits in each territory), which costs qualify for sharing, and how developed IP will be owned. The documentation is actually quite extensive. You'll need economic analysis to support your allocation method, regular documentation of actual costs incurred, and annual true-ups if estimates differ from reality. The IRS scrutinizes these arrangements closely under Section 482, so you'd want to prepare a transfer pricing study to support your approach.

We designated our intercompany loans as long-term investments so the foreign currency gains/losses are reported as Other Comprehensive Income instead of hitting our P&L directly. Talk to your accountant about whether that approach might work for your situation.

Thanks for bringing this up! We are claiming the Child Tax Credit for both kids, but I'm not sure if we've maxed it out. My husband does get 1099s and I know he needs to do the quarterly payments but honestly we never knew how to calculate them properly. Is there a simple formula to figure out roughly how much we should set aside from each check?

A simple rule of thumb is to set aside about 25-30% of his 1099 income for taxes. This covers both income tax and self-employment tax (which is roughly 15.3% alone). For proper quarterly payments, you can use the IRS Form 1040-ES worksheet, which helps calculate your required payments based on expected income. The due dates are April 15, June 15, September 15, and January 15 of the following year. Setting up a separate savings account just for taxes can be really helpful - deposit that percentage from each check immediately before you're tempted to spend it.

This is great advice! I'm a contractor too and opened a SEP IRA last year. Was able to contribute almost 20% of my income and it dropped me into a lower tax bracket. Saved me thousands.

Just be aware that SEP IRAs have an earlier deadline than traditional IRAs! For 2024 taxes, you need to set up and contribute to a SEP IRA by the tax filing deadline (including extensions) in 2025. Don't wait until last minute like I did!