Reasonable compensation cases do not establish a universal salary percentage. Courts examine the shareholder's services, comparable compensation, the corporation's income, and the facts behind distributions treated as wages.

Partnership tax items do not always have to follow ownership percentages. Special allocations must be supported by the agreement, capital-account rules, economic effect, or the partners' interests in the partnership.

Schedule K-1 reports an owner's share of pass-through tax items, not simply cash received. Distributions, basis, loss limitations, guaranteed payments, and separately stated items can all create differences.

Cash and accrual methods determine when income and deductions are recognized for federal tax purposes. Once a method is adopted, changing it may require Form 3115 and a Section 481(a) adjustment.

A domestic LLC generally defaults to disregarded-entity treatment with one owner and partnership treatment with two or more owners, unless a valid election or special rule applies.

An LLC receives a default federal tax classification based largely on the number and type of owners unless a valid corporate election is made. The state-law entity and federal tax classification are separate issues.

When your quarterly Form 941 filings don't reconcile with your annual W-2/W-3 totals or your deposits, the IRS notices — and the letters that follow are worth understanding.

By July, you're past the halfway point of the calendar year. The tax return you just filed—or the extension you're working under—covers 2024. But the return you're building right now is 2025 (or 2026, depending on when you're reading this), and the decisions you make between now and December 31 will determine what that return looks like. Year-end tax planning is reactive. Mid-year planning is proactive—and it almost always produces better outcomes because you still have time

Ask most business owners what tax rate they pay and they'll give you their top bracket—37%, 32%, 24%, whatever it is. That number is their marginal rate, and while it matters for decision-making at the margin, it's not the rate they actually pay on all of their income. The effective tax rate—the percentage of total income actually paid in federal taxes—is almost always lower, sometimes significantly so. Understanding the distinction between these two concepts isn't just an ac

When the IRS says you owe more tax and you believe the IRS is wrong, you have options. The right path depends on where you are in the process: examination, Appeals, Notice of Deficiency, Tax Court, or refund litigation. Each path has different deadlines, costs, procedures, and protections. The most important rule is simple: do not ignore the notice. Once a 90-day letter is issued, the timeline moves quickly. The Examination Level: Where Disputes Start Most disputes begin duri

The Qualified Business Income deduction under IRC §199A allows eligible pass-through business owners to deduct up to 20% of qualified business income. OBBBA made the deduction permanent and expanded the phase-in range for higher-income taxpayers beginning in 2026. But for owners above the taxable income threshold, the deduction is not always a simple 20%. Two additional limitations may apply: one based on W-2 wages paid by the business, and one based on the unadjusted basis o

The default advice for most small business owners who want to reduce self-employment taxes is to elect S-Corp status. And for the right situation, that's correct. But the reflexive assumption that an S-Corp is always better than a C-Corp ignores scenarios where the corporate flat tax rate—21% under TCJA and maintained under the OBBBA—produces meaningfully better after-tax outcomes. Understanding when a C-Corp wins requires looking at effective tax rates, retained earnings str

Self-employed business owners who choose a High-Deductible Health Plan (HDHP) gain access to one of the most tax-advantaged savings vehicles in the Internal Revenue Code: the Health Savings Account (HSA). The HSA is not an employer benefit—it's an individual account that you own, control, and take with you regardless of business changes. The combination of three separate tax advantages makes it unique among savings tools, and the ability to invest HSA funds creates a long-ter

In 2015, Congress gave the IRS a new enforcement tool that most taxpayers didn't take seriously until it affected them directly: the authority to request that the State Department revoke or deny the passport of a taxpayer who has seriously delinquent tax debt. The program has been active since 2018 and has resulted in thousands of passport certifications. If you have a large outstanding IRS balance and you're planning to travel internationally—or if you need a passport for an

If you don't file a required federal tax return, the IRS has the legal authority to file one for you. This is called a Substitute for Return (SFR), authorized under IRC §6020(b). The IRS doesn't create an SFR out of goodwill—it creates one using the income information documents (W-2s, 1099s) it has on file for you, without any of your deductions, credits, or favorable filing status. The result is almost always a dramatically inflated tax liability. And that inflated liability

Short-term rental platforms like Airbnb, VRBO, and Hipcamp have made it easy to turn a spare room or vacation property into income. What they haven't made easy is understanding the tax consequences. Short-term rental income doesn't fit neatly into a single tax category—depending on how many days you rent and how much time you spend managing the property, it can be treated as passive rental income, active business income, or even excluded from gross income entirely. Getting th

Small business owners who want to help employees pay for health insurance but cannot afford, or do not want to manage, a traditional group health plan may have two alternatives to consider: the Qualified Small Employer Health Reimbursement Arrangement, or QSEHRA, and the Individual Coverage Health Reimbursement Arrangement, or ICHRA. Both arrangements can allow employers to reimburse eligible employees for individual health insurance premiums and qualified medical expenses on

If your business carries debt—whether a line of credit, equipment loans, commercial real estate financing, or acquisition debt—you may be affected by the Section 163(j) limitation on the business interest expense deduction. Before 2018, interest on legitimate business debt was generally fully deductible. The Tax Cuts and Jobs Act capped that deduction for larger businesses and introduced a formula that limits deductible interest based on a percentage of a metric called Adjust

Not filing a tax return is a more common problem than most people admit. Life gets complicated—a business fails, a personal crisis hits, the numbers feel overwhelming, or the fear of what's owed makes the problem feel easier to ignore than to face. The IRS has a systematic process for addressing non-filers, and it's a process that gets progressively more expensive and intrusive the longer someone waits. Understanding what actually happens—and why voluntary compliance almost a

Cryptocurrency isn't a fringe asset class anymore—small business owners are using it to pay contractors, accept customer payments, hold it as an investment, and make purchases. And the IRS has been unambiguous since 2014: cryptocurrency is property for federal tax purposes, not currency. Every transaction involving crypto has potential tax consequences, including transactions that feel routine. Beginning with certain 2025 digital asset transactions reported in 2026, the IRS i