I went through this exact situation when my father passed last year. The insurance companies are likely withholding taxes because they're being overly cautious or have automated systems that don't properly distinguish between different types of payouts. Here's what I learned: The 10% withholding is probably happening because the insurance company is treating this like a retirement account distribution rather than a life insurance death benefit. This is a common error, especially if the policies had any investment components or if there was a delay between death and payout that generated interest. My advice: Contact each insurance company directly and ask them to provide a detailed breakdown showing the death benefit amount versus any interest or earnings. Request corrected 1099 forms if they misclassified the payout. Most will cooperate once you point out the error. If they won't budge, you'll definitely get the money back when you file your taxes. Just make sure to report the withholding on your return - the IRS will credit you for taxes that shouldn't have been withheld in the first place. I ended up getting back about $8,500 in my refund from similar overwithholding.

I'm dealing with a very similar situation right now with my grandmother's life insurance policies. Two smaller policies withheld taxes while the larger one didn't, and I was completely confused about why. After reading through all these responses, it sounds like the insurance companies are making errors in how they classify these payouts. I'm definitely going to contact them directly with the death certificate and policy documents to request corrected 1099 forms. One question I have though - if there was interest that accrued between the date of death and payout, how do I figure out what portion of the withholding was legitimate (for the interest) versus what should be refunded (for the death benefit portion)? The insurance statements aren't very clear about breaking this down. Also, has anyone had success getting the insurance companies to actually admit they made an error and issue corrected forms? Or do they usually just tell you to handle it on your tax return?

Has anyone actually gone through the process of withdrawing excess contributions from a SEP-IRA? I'm in a similar situation (contributed about $9k too much) and wondering how complicated the process is. Do I need to specify which investments to sell if the money is already invested? And do I need to calculate the earnings myself or does the brokerage handle that?

I went through this exact same situation two years ago and can share some practical steps that worked for me. First, don't panic - this is more common than you think and is fixable. Here's what I learned: You're correct that you can't make employer contributions to both a SEP-IRA and Solo 401k that exceed the 25% limit in total. However, your $22,500 employee contribution to the Solo 401k is completely separate from this limit and is fine. For the SEP-IRA excess withdrawal, contact your provider immediately. Most major brokerages (Fidelity, Schwab, Vanguard) have dedicated forms for this. They'll calculate any earnings on the excess amount and remove both the excess contribution and earnings. You'll get a 1099-R next year, but it won't be taxable income since it's coded as an excess contribution return. One tip: if your investments have lost value since you made the contribution, you might actually get back less than you contributed, which reduces the amount you owe taxes on. The key is to do this before your tax filing deadline (including extensions) to avoid the 6% annual penalty. Also double-check your net self-employment income calculation - make sure you're deducting half of your self-employment tax before calculating the 25% limit. This often reduces the excess amount more than people expect.

This is exactly the type of complex partnership liquidation issue that trips up many practitioners. You're absolutely right that Partner C's capital account should zero out upon complete liquidation. The key is understanding that when a partner with a negative capital account receives a liquidating distribution, they're essentially receiving more than their "share" of partnership assets. The $33,000 distribution plus the forgiveness of their $38,000 negative capital account results in a $71,000 economic benefit, which is taxable gain. On the K-1 Section L, you'll show: (1) the $33,000 cash distribution as a negative adjustment, and (2) a positive $71,000 adjustment labeled something like "gain recognition on liquidation of negative capital account." This brings the ending capital account to zero, which is correct for a fully liquidated partner. Don't forget to check if the partnership has any "hot assets" under Section 751 that would cause part of this gain to be ordinary income rather than capital gain. Also verify your partnership agreement doesn't have any special provisions for deficit restoration that might affect this treatment.

I've been preparing partnership returns for over 15 years, and negative capital account liquidations are definitely one of the trickier areas. Your analysis is spot on - Partner C should recognize $71,000 of gain and their capital account should zero out. One additional consideration that hasn't been mentioned yet is the timing of when to report this. Make sure you're treating this as a liquidating distribution in the year it actually occurred, not spread over multiple years. The entire gain recognition happens in the year of liquidation, even if there were installment payments or other complications. Also, double-check that Partner C's original capital account calculation was correct. Sometimes negative capital accounts result from errors in prior year allocations of income, loss, or distributions. If there were mistakes in earlier years, you might need to consider amended returns before finalizing the liquidation treatment. The Section L entries you're planning are exactly right - negative adjustment for the cash received, positive adjustment for the gain recognition to zero out the account. Just make sure your gain calculation considers the partner's outside basis as well, since that affects the ultimate tax consequences to Partner C personally.

Great thread with lots of helpful info! I wanted to add one important point about record-keeping that might help others in similar situations. Even if you've lost original receipts, the IRS accepts "reconstructed records" as long as they're reasonable and based on available evidence. I learned this when preparing for my home sale last year. You can use: - Bank statements showing payments to contractors or home improvement stores - Credit card statements with clear descriptions - Canceled checks made out to contractors - Permits pulled for work (these are public records) - Before/after photos with written explanations - Contractor invoices or estimates (even old ones) The key is being able to demonstrate that the improvements actually happened and provide a reasonable estimate of costs. I was able to reconstruct about $35,000 in improvements this way, which made a huge difference in my capital gains calculation. Also, don't forget about smaller improvements like new appliances, fixtures, or even landscaping that adds value - these all count toward your adjusted basis if you have documentation.

One thing I haven't seen mentioned yet is the importance of documenting the selling expenses when you calculate your capital gains. These can significantly reduce your taxable gain and include: - Real estate agent commissions (usually 5-6% of sale price) - Title insurance and escrow fees - Attorney fees - Transfer taxes - Home inspection fees paid by seller - Staging costs - Marketing expenses - Any repairs required by the buyer as part of the sale These selling expenses are subtracted from your sale price along with your adjusted basis to determine your actual capital gain. For a $400,000 home sale, you might have $25,000+ in selling expenses, which is a substantial reduction in your taxable gain. Also, @AstroAlpha, regarding your mother's inheritance situation - make sure she gets a proper appraisal of the property's fair market value as of the date of death. This becomes her new basis, and having professional documentation will be crucial if the IRS ever questions the stepped-up basis amount. Don't rely on online estimates like Zillow - get a real appraisal from a licensed appraiser.

This thread has been incredibly helpful - thank you all for sharing your real experiences! I'm in a similar position with a property sale and have been getting pitched on DSTs left and right. What really stands out to me from reading through everyone's comments is that the legitimate DST arrangements seem to require giving up immediate access to most of your proceeds (like Maya's 30% upfront structure), while the sketchy ones promise you can have your cake and eat it too (90%+ upfront with full tax deferral). I think I'm going to follow Emma's advice and run a proper financial analysis including all fees before getting swept up in the tax deferral excitement. The 3.5% upfront fee that Ava mentioned would cost me over $50K on my transaction - that's a lot of capital gains tax I could pay instead! Has anyone here worked with a fee-only financial planner (not someone selling DSTs) to evaluate whether these arrangements actually make sense? I'm thinking an independent analysis might be worth the cost before I commit to anything.

This entire discussion has been eye-opening! As someone who works in tax preparation, I see clients getting pitched on DSTs constantly, and the sales tactics are often quite aggressive. What concerns me most is that many promoters are targeting people who aren't sophisticated enough to understand the risks. A few red flags I tell my clients to watch for: 1) Any promoter who guarantees the arrangement will never be challenged by the IRS, 2) Promises of getting 80%+ of proceeds upfront while deferring all taxes, 3) High-pressure tactics claiming "this opportunity won't last," and 4) Reluctance to provide detailed documentation for independent review. The legitimate DST arrangements I've seen typically involve substantial genuine deferrals of proceeds (not just token amounts), have real economic substance beyond tax avoidance, and are structured by attorneys who specialize specifically in this area - not general tax preparers or financial advisors trying to earn commissions. If you're considering this route, I'd strongly echo the advice about getting multiple independent opinions. The IRS has significantly increased enforcement in this area, and the penalties for getting it wrong can be severe. Sometimes the most expensive advice is the "free" consultation from someone trying to sell you something.