I feel your pain! I went through something very similar with my 2023 backdoor Roth attempt. The key thing is to act fast and be very specific with your IRA custodian about what went wrong. From what you're describing, it sounds like there was a miscommunication about the type of transaction you wanted. For a backdoor Roth strategy, you should have done a CONVERSION (Traditional IRA to Roth IRA), which would get code J on the 1099-R. A recharacterization (code N) is different - that's when you treat a contribution as if it was made to a different IRA type from the beginning. Call your custodian immediately and explain that you intended to convert your Traditional IRA to a Roth IRA, not take a distribution. If they processed it wrong, they should be able to reverse it and reprocess as a conversion, then issue a corrected 1099-R with code J instead of code 2. If they won't cooperate or claim it's too late, you still have options. You might be able to treat this as a 60-day rollover if you're within that window, or you can file Form 4852 (substitute for incorrect 1099-R) with your tax return and attach an explanation of what should have happened. Don't give up - this is absolutely fixable! The sooner you contact your custodian, the better your chances of getting it resolved cleanly.

This is such a stressful situation, but you're definitely not alone in dealing with 1099-R code confusion! I went through something similar last year and learned that timing is absolutely critical here. The first thing to understand is that distribution code 2 means your custodian treated this as an early withdrawal, which triggers taxes and penalties. This is completely different from what you wanted to achieve with your backdoor Roth strategy. Here's my advice based on what worked for me: 1. **Call your IRA custodian TODAY** - Don't wait. Explain that you intended to do a Roth conversion (moving money from Traditional IRA to Roth IRA), not take a distribution. Be very specific about the terminology - say "conversion," not "recharacterization." 2. **Document everything** - Keep records of all your communications with the custodian, including dates, times, and who you spoke with. 3. **Ask for a corrected 1099-R** - If they processed your request incorrectly, they should be able to reverse the transaction and reprocess it as a conversion, which would result in code J instead of code 2. 4. **Consider Form 4852 as backup** - If your custodian won't cooperate, you can file this form as a substitute for the incorrect 1099-R, but getting a corrected form is much cleaner. The key is acting fast. The longer you wait, the more complicated this becomes. Don't panic though - this mistake is fixable with persistence and the right approach!

Oh my goodness, I'm so glad you posted this! 😫 I've been having the EXACT same issue with my Missouri return and was too embarrassed to ask! Filed through H&R Block on February 10th, got my federal direct deposit two weeks ago, but then got a random paper check from Missouri yesterday even though I definitely selected direct deposit. And my transcript still shows nothing! Reading these responses has been such a relief - I was convinced I'd done something wrong or was about to get audited! Thank you all for sharing your experiences! ❤️

I can relate to this frustration! Filed with TurboTax on February 12th and had a similar experience - federal refund came via direct deposit within 10 days, but my Missouri state refund arrived as a paper check last week despite selecting electronic deposit. When I called Missouri DOR, they explained that their system flags certain returns for "enhanced verification" which automatically switches the disbursement method to paper checks. The representative mentioned this happens more frequently during peak filing season when their fraud detection algorithms are more sensitive. Regarding the transcript issue, I'd recommend checking both your Account Transcript AND your Return Transcript on irs.gov - sometimes one updates before the other. Also, make sure you're looking at the 2023 tax year specifically. The IRS phone lines have been swamped, but if you call right at 7am Eastern, you'll have better luck getting through. Don't panic though - this seems to be a common issue this filing season based on what I'm seeing in various tax forums.

Has anyone had success with fixing this by switching to a different tax software? I'm having the exact same issue with [popular tax software] but wondering if [competitor] handles Form 8995 better?

I had the exact same problem with my S-corp QBI deduction last month! The issue turned out to be that my software wasn't properly handling the interaction between the SSTB phase-out and the taxable income limitation. Here's what I learned after digging deep into this: With $192k in business income, you're likely above the SSTB phase-out threshold ($196,950 for single filers). If your consulting business qualifies as an SSTB (which it probably does), the software should be phasing out your QBI deduction as your income approaches that threshold. The "incomplete calculation" you're seeing might actually be the software correctly applying a phase-out but not showing you the math. Try looking for a detailed Form 8995-A in your forms list instead of the simple 8995 - that's the form used when you're above the income thresholds or have SSTB income. Also, double-check that you've entered a reasonable salary for yourself as an S-corp owner. The IRS expects S-corp owners to pay themselves W-2 wages, and the QBI calculation depends on having actual W-2 wages reported, not just distributions.

Quick tip from experience: If you're on the fence about hobby vs business, document EVERYTHING that shows you're trying to make a profit. Keep receipts, mileage logs if you travel to sell items, take photos of your workspace, save emails with customers, etc. The IRS looks at your "profit motive" above all else. If you get audited and can show you were seriously trying to make money (even if you weren't successful), you're more likely to keep your business classification.

For those confused about hobby vs business reporting, here's the simplest way to think about it: BUSINESS: You're doing something with the primary goal of making money, even if you also enjoy it. You're making decisions to maximize profits. You can deduct ALL legitimate business expenses, even if they exceed your income. HOBBY: You're doing something primarily for fun or personal fulfillment. Making money is secondary. You must report ALL income, but after 2018 tax law changes, you CANNOT deduct ANY expenses.

Does anyone know if there are different rules depending on when someone inherited an IRA? My aunt left me one back in 2019 and I was told different rules applied then.

One important thing to consider that hasn't been mentioned yet is state tax implications. While everyone's focused on federal taxes (which are definitely the main concern), some states have their own rules for inherited IRA distributions. For example, some states don't tax retirement account distributions at all, while others might have different timing rules or exemptions for inherited accounts. Since you're dealing with a $67k inheritance, the state tax piece could be significant depending on where you live. Also, make sure you're working with the IRA custodian to properly retitle the account as an inherited IRA. This needs to be done correctly to preserve the tax-deferred status and avoid any immediate tax consequences. The custodian should be familiar with the process, but it's worth double-checking that they're following the proper procedures. Good luck with everything, and sorry for your loss. Inheriting retirement accounts is never easy, both emotionally and from a tax planning perspective.