Side note but really important - tell your sister NOT to lie again on next year's taxes thinking she can "balance it out." Each tax year is separate and trying to fix fraud with more weird reporting just compounds the problem. I've seen people dig themselves into huge holes this way.

Your sister needs to understand this isn't just about "getting caught" - it's about doing the right thing. I work in tax preparation and see this kind of situation more often than people think. The stress and anxiety of wondering if/when the IRS will notice often ends up being worse than just dealing with the consequences upfront. A few practical points: First, the IRS has sophisticated matching systems that compare reported income and expenses across different sources. If she claimed Uber expenses but has no 1099s from Uber, that's an automatic red flag. Second, even if she got away with it this year, these things have a way of catching up - the IRS can audit returns up to 3 years later (6 years for substantial underreporting). The amended return route really is her best option. Yes, she'll have to pay back the money plus interest, but that's infinitely better than potential fraud penalties of 75% of the underpayment plus possible criminal charges. The car purchase actually makes this more complicated since she'll need to figure out how to pay back the refund. Bottom line: encourage her to consult with a tax professional immediately and file that amended return. The longer she waits, the worse this could get.

Just to add another perspective - I work part-time at a pizza place and see this Code B on my W2 every year. One thing that helped me understand it better is thinking of it this way: when you report your cash tips to your employer during the year, they're supposed to withhold Medicare tax on those tips from your regular paycheck. But sometimes your regular wages aren't high enough to cover all the withholding needed. For example, if you worked a 4-hour shift and earned $40 in wages but reported $200 in tips, your employer can't withhold Medicare tax on all $200 of those tips from just your $40 paycheck. The "uncollected" amount shows up as Code B and you pay it when you file your return. The good news is that most tax software handles this automatically when you enter your W2 info. You shouldn't need to do any manual calculations - just make sure you enter all the information from your W2 accurately and the software will take care of the rest!

This whole thread has been super educational! I'm actually a CPA and see this Code B situation come up with my restaurant industry clients all the time. You all have given great explanations. Just wanted to add one more tip for anyone dealing with this - if you're using tax software like TurboTax, H&R Block, or FreeTaxUSA, they should all handle Code B automatically when you enter your W-2 information. The software will ask you to enter all the Box 12 codes and amounts, and it will calculate the additional Medicare tax owed and add it to your return. If for some reason your software doesn't seem to be picking this up correctly, double-check that you entered the Code B amount in the right field. It should go in Box 12 with code "B" - not in any other box on the W-2. The amount will then flow to Form 1040 Schedule 2 as "Additional Medicare Tax." For future reference, keeping detailed tip records throughout the year (like some folks mentioned with tip tracking apps) is not just helpful for taxes - it's actually required by the IRS if you receive more than $20 in tips per month from any single employer.

Can someone explain in plain English what happens if the assets in a GRAT don't perform well? Like if I put $1 million of stock in a GRAT and it drops to $800k? Do I still have to make the same annuity payments? Does that mess up the whole strategy?

The discussion about potential legislative changes is really important timing-wise. I've been researching this extensively for my own family's planning, and what I'm seeing is that while the Treasury proposals have been consistent, the political reality of getting major tax legislation passed means changes could happen quickly or not at all. One strategy we're considering is establishing multiple shorter-term GRATs now (2-3 years each) rather than waiting. Even if new rules pass requiring 10-year minimums, existing GRATs would likely be grandfathered. Plus, with current low Section 7520 rates, the math still works favorably for transfer tax savings. The key insight from our estate planning attorney is that GRATs work best when you can time them with temporarily depressed asset values or when you have assets with high growth potential. Real estate, private business interests, or even concentrated stock positions can be excellent GRAT candidates if you believe they'll appreciate significantly over the term. Has anyone here actually implemented a rolling GRAT strategy? I'd love to hear about practical experiences with the administrative complexity and whether the tax savings justified the ongoing costs.

Sorry if this is a dumb question, but how much do you have to make before you need to report self-employment income? I made like $350 doing some graphic design work last year. Do I even need to file?

This is exactly the situation I found myself in last year! The $275 self-employment tax is likely correct - it caught me completely off guard too since I was used to W-2 jobs where all that stuff is handled automatically. One thing that really helped me was using Schedule C-EZ (if your business expenses are $5,000 or less) instead of the full Schedule C. It's much simpler and still lets you deduct legitimate business expenses to reduce that net self-employment income. Even small things like software you bought for the freelance work, a portion of your internet bill, or supplies can add up and lower that SE tax. Also keep in mind that you can deduct half of the self-employment tax you pay (so about $137 in your case) as an adjustment to income on your next year's return. It doesn't help this year, but it's something to remember going forward. The whole self-employment tax thing is definitely a learning curve when you're coming from W-2 work!

One thing nobody's mentioned yet - if you're attending this conference primarily for your W-2 job, ask your employer about reimbursement instead of trying to deduct it! Many companies have professional development budgets that employees don't even know about. My company reimburses up to $2500/year for industry conferences and related expenses. Worth asking your manager or HR before paying out of pocket.

Great advice everyone! Just to add one more perspective - make sure you understand the "ordinary and necessary" test for business deductions. The IRS requires that expenses be both ordinary (common in your industry) and necessary (helpful for your business). For a conference in your field, this is usually pretty straightforward to meet. But document HOW the conference relates to your 1099 work specifically. Write down which sessions you attended, what you learned, and how it applies to your consulting work. This creates a clear business purpose trail. Also, if you're networking at the conference, keep notes on business contacts you made. The IRS likes to see that you're actively using the conference for legitimate business purposes, not just treating it as a vacation with some business mixed in. The fact that you're planning ahead shows you're taking this seriously - that's exactly the right approach! 👍