I'm new to this community but went through almost exactly what you're describing last year. I had a $28,000 critical illness payout from my employer plan where I paid premiums through pre-tax payroll deduction, and initially got the same incorrect advice from a different tax preparation service. After reading through all the responses here, I want to add one more resource that really helped me get clarity. I ended up calling the insurance company directly and asking them about the tax treatment. While they can't give tax advice, they were able to confirm that my premiums were indeed paid with pre-tax dollars and that they typically don't issue 1099 forms for critical illness benefits because the taxability depends on the premium payment method. The customer service rep also mentioned that this is one of the most common questions they get during tax season, which suggests a lot of people are getting conflicting advice from tax preparers who don't understand these specialized insurance products. What really convinced me to report it as taxable income was thinking about it from the IRS perspective: if they let everyone claim tax-free benefits on insurance paid with pre-tax dollars, it would essentially be a massive tax loophole. The government isn't going to give you both a tax break on the premiums AND tax-free benefits. I ended up owing about $7,000 in additional taxes, but the peace of mind knowing I reported everything correctly was worth it. Don't let H&R Block pressure you into filing incorrectly - get that second opinion and protect yourself from potential audit issues down the road.

Based on everything I've read in this thread, you're absolutely right to be concerned about H&R Block's advice. As someone who works in employee benefits (though not as a tax professional), I see this exact confusion all the time. The fundamental principle is straightforward: if you received a tax advantage when paying the premiums (through pre-tax payroll deductions), then the IRS expects to collect taxes when you receive the benefits. You can't get the tax benefit twice - once when paying premiums and again when receiving the payout. What's particularly concerning is that H&R Block apparently didn't even ask HOW your premiums were paid, which is literally the most important factor in determining taxability. This suggests they're applying a blanket "insurance benefits are tax-free" rule without understanding the nuances of employer-sponsored policies. I'd strongly recommend following the advice from the tax attorney and experienced preparers in this thread: 1. Get written documentation from H&R Block explaining their position with specific tax code citations 2. Obtain written confirmation from your HR department about the pre-tax treatment of your premiums 3. Get a second opinion from a CPA who specializes in employee benefits taxation With $47,000 at stake, the potential consequences of underreporting are severe. Even if there's a chance H&R Block is right (which seems unlikely based on the legal analysis provided here), the risk of penalties and interest on that amount of unreported income isn't worth taking. Document everything and protect yourself. The IRS holds YOU responsible for accurate reporting, regardless of what advice you received from a tax preparer.

Has anyone used TurboTax to handle this kind of situation? I have a similar issue but I'm not sure if the software will walk me through it properly or if I need to see a professional.

I went through this exact same situation with my daughter last year when her part-time retail job gave her a 1099 for holiday bonuses instead of including them on her W-2. It's frustrating because these employers often don't realize they're making their employees pay extra taxes. After reading through all the great advice here, I'd strongly recommend starting with the taxr.ai approach that several people mentioned. Getting the employer to issue corrected forms is definitely the best outcome if possible. If that doesn't work, Form 8919 with code H is absolutely the way to go rather than filing as self-employed. One thing I learned is that you should keep documentation of her employee status (work schedule, how she receives assignments, whether she uses company equipment, etc.) in case there are ever questions about the classification. The IRS has specific tests for determining employee vs. contractor status, and performance bonuses paid to existing employees almost never qualify as contractor payments. Your stepdaughter shouldn't have to pay the employer's portion of payroll taxes just because they don't understand tax law properly!

This thread has been incredibly helpful! I went through the same confusion when I first started dealing with S-Corp taxation. One additional tip that saved me a lot of headache: make sure you understand the difference between distributions and salary from your S-Corp, as they're handled completely differently on your personal return. Salary from your S-Corp gets reported on your W-2 and goes on your 1040 as regular wages. Distributions, on the other hand, aren't taxable income at all - they're just a return of your investment in the company (as long as they don't exceed your basis). The K-1 income that flows to Schedule E represents your share of the S-Corp's profits, which is completely separate from both your salary and any distributions you received. This was the piece that finally made everything click for me - the K-1 income is what you owe taxes on regardless of whether the company actually distributed that money to you or not. Keep good records of your distributions versus your K-1 income, because mixing these up is a common audit trigger.

As someone who's been through this exact confusion, I can confirm that the process does get clearer with experience! One thing that really helped me understand the flow was to think of it this way: your S-Corp is like a separate "person" that earns income and pays expenses, but since it's a pass-through entity, YOU ultimately owe the taxes on its profits. The K-1 is essentially your S-Corp saying "Hey, here's your share of what I earned this year - you need to pay taxes on this." Schedule E is where you acknowledge that income on your personal return. The IRS needs to see both documents to verify that the income reported by the business matches what you're claiming on your individual return. A helpful analogy: think of it like getting a 1099 from a client. The client reports they paid you (their version of the K-1), and you report that same income on your tax return (your version of Schedule E). It's the same principle, just with more complex forms. One last tip: keep a simple spreadsheet tracking your S-Corp basis year over year. This will be invaluable if you ever have losses or take distributions, and it'll save you hours of reconstruction if you ever get audited.

Warning from personal experience: I tried deducting a design certificate program a few years back and got audited! The IRS determined my courses qualified me for a "new profession" even though I was already working in a related field. Ended up owing back taxes plus penalties. Make sure your courses are truly enhancing EXISTING skills, not qualifying you for something new. The distinction can be really subjective and depends on how you present it. Document everything!

This is really helpful information, everyone! I'm in a similar situation as a marketing professional who recently took some advanced analytics courses. Based on what I'm reading here, it sounds like the key is proving these courses enhance existing skills rather than qualify you for something completely new. @Chloe Anderson - for your UI/UX courses, since you're already in graphic design and have started earning income using these enhanced skills, you seem to have a solid case. The fact that you're already generating $4,200 in freelance income using these new capabilities strengthens your position significantly. One thing I'd add - make sure you can clearly articulate how UI/UX design relates to your existing graphic design work. Maybe document some specific projects where you used both skill sets together? That connection will be important if you ever need to justify the deduction. Also keeping an eye on that "hobby loss rule" mentioned by @CosmicCruiser. Since you're already profitable in your first year with these skills, that's a great sign for the IRS that this is a legitimate business activity rather than a hobby.

I understand how difficult this situation must be for you. The fact that you're asking these questions shows you want to do the right thing, which is commendable. One thing I'd add to the excellent advice already given: consider the timing of any actions you take. If your father is planning to retire in 2 years, that gives you some runway to address this thoughtfully rather than reactively. However, if he's actively committing fraud right now, waiting too long could make things worse. From a practical standpoint, I'd suggest documenting what you know (dates, general descriptions of conversations) in case you need this information later. Don't participate in any of the questionable activities, and be very careful about any financial gifts or transfers he might offer in the meantime. The estate planning attorney approach mentioned earlier is really smart - it gives your dad a face-saving way to transition to legitimate strategies while potentially stopping ongoing fraud. Many successful business owners genuinely don't realize there are perfectly legal ways to significantly reduce estate taxes through proper planning. You're in a tough spot, but addressing this now is much better than dealing with IRS enforcement actions later. Stay strong and prioritize protecting yourself and your family's long-term interests.

I really appreciate seeing so many thoughtful responses here. As someone who works in tax compliance, I want to emphasize a few key points that might help clarify your situation. First, the distinction between tax avoidance (legal) and tax evasion (illegal) often comes down to transparency and intent. Legitimate estate planning involves strategies that are fully disclosed to the IRS - things like properly structured trusts, annual gifting within legal limits, and business succession planning. The red flags in what your father described (offshore arrangements to hide assets, unreported cash transfers, shell companies to conceal income) are textbook evasion tactics. Second, regarding your potential liability as an heir: while you generally aren't responsible for tax fraud you didn't participate in, the IRS can pursue assets that were illegally shielded from taxation. This means you could inherit assets that come with significant tax liens or be required to pay back taxes on previously unreported income. I'd strongly recommend the estate planning attorney approach suggested earlier, but with one addition: make sure any attorney you work with has experience dealing with IRS compliance issues, not just estate planning. They need to understand both sides - how to structure legitimate tax-efficient transfers AND how to address potential past compliance problems. The fact that you're concerned enough to ask these questions puts you in a much better position than families who ignore these issues until the IRS comes knocking. Take action sooner rather than later.