Do you know if the 110% rule applies to state taxes too? I've been using it for federal but never thought about state requirements.

The safe harbor rules vary by state. Many states follow the federal 110% rule, but some have their own requirements. California, for example, has a similar safe harbor rule but with some differences. New York follows the federal rules pretty closely. Check your specific state's tax department website for their safe harbor rules. Generally speaking though, most states have some form of safe harbor protection, and many do follow the federal 110% guideline for higher income taxpayers.

Which tax software did you switch to? I'm getting tired of all the unnecessary warnings in TurboTax too.

$1500 sounds way more reasonable than what I was quoted! Did they provide written documentation of their findings that you could use if you were ever audited?

Yes, they provided a comprehensive memo documenting their research and conclusions for each state. The document included citations to specific statutes, regulations, and rulings that supported their position. They also included a matrix showing taxability by state with color coding for high/medium/low risk areas. This became our "reasonable cause" defense documentation in case of audit, which protects against penalties (though not the underlying tax if you're found to owe it).

Voluntary disclosure agreements (VDAs) can be incredibly helpful if you think you've had past exposure. Most states limit the lookback period to 3-4 years instead of their full statute of limitations, and they'll typically waive penalties. They're relatively straightforward to set up - you can even apply anonymously through a representative in most states until you have certainty about the terms. I'd suggest starting with the states where you have the most sales before they find you through audit or data mining.

Can you still file an extension through tax software if you're not actually planning to use that software to file your final return? My accountant prepares my actual S-corp return but I handle the extension myself.

Yes, you can absolutely use tax software just for the extension even if your accountant prepares the final return. You just need to enter your company info and select Form 7004 for your S corporation. The software will submit the extension electronically and provide confirmation. I do this every year because my accountant charges extra to file the extension, but it only takes me about 10 minutes to do it myself through tax software. Just make sure you have your EIN and basic business information handy when you do it.

This is super important advice! Each state has different rules too. Some automatically grant an extension if you have a federal one, others require their own form, and some have different deadlines altogether. Always check each state where you have nexus.

Thanks for confirming! It was such a headache dealing with that penalty. I ended up having to call each state tax department directly to figure out their specific requirements. New York and California were the most complicated for me, while some other states were pretty straightforward about accepting the federal extension.

Did you claim any tax credits like earned income or child tax credit? Those automatically delay processing until at least mid-February because of the PATH Act.

No tax credits like that. Just a standard return with a W-2 and mortgage interest deduction. Nothing complicated! That's why it's so annoying - my husband's return is actually more complex than mine with business income and he gets his refund in like a week. Meanwhile I'm over here waiting 6+ weeks every year for my simple return. Makes zero sense.

I filed Jan 29 and still waiting lol. So much for the "file early" strategy working for everyone 😂

Thanks for this advice! I just contacted the company and you're exactly right - they have a policy of only issuing 1099-NECs for amounts over $600 per project, and I had several smaller projects that added up to the missing amount. They confirmed I should still report everything. How specifically do I add this to my tax return? Is there a specific line or form for "income not reported on 1099-NEC"?

You'll report all your self-employment income on Schedule C, regardless of whether it was on a 1099 or not. There's not actually a separate line for "income not reported on 1099-NEC" - I was simplifying a bit there. The total income you report on Schedule C should be everything you earned from your business, and the IRS doesn't actually require you to break out what was or wasn't on a 1099 on this form. If you're using tax software, there's usually a section where you enter 1099-NEC information, but there should also be a way to add additional self-employment income. Just make sure your total Schedule C gross receipts equals all the money you received from your business activities.

The basics haven't changed much but the standard deduction amount increases slightly each year. The bigger difference might be that you didn't claim as many business deductions? Also, your income from other sources could affect it. Self-employment taxes are pretty consistent at around 15.3% of net business profit.