Has anyone considered the timing here? Since the wife started the FSA in July, couldn't they argue that the HSA was fine for January-June, and then became ineligible only from July onward? That way they'd only need to withdraw half the year's HSA contributions instead of all of it.

Just be really careful about the timing of any HSA withdrawals if you go that route! I learned the hard way that excess contributions need to be withdrawn by the tax filing deadline (including extensions) to avoid the 6% excise tax penalty that applies each year the excess remains in the account. Also, since you mentioned you've already contributed $8,300 for the full year, make sure your payroll department stops any ongoing HSA contributions immediately while you sort this out. You don't want to keep adding to the problem while you're trying to fix it. One more thing - document everything! Keep records of when your wife's FSA started, any communications with HR about potential changes, and if you do need to make HSA withdrawals, keep all the paperwork from your HSA provider. You'll need this documentation for your tax return.

Just to clarify something I'm seeing in other comments - the 1099-NEC filing threshold is still $600 for 2025 (for 2024 payments). The $800 threshold rumor was from a proposed change that didn't get implemented. Always verify tax changes on irs.gov rather than relying on online forums.

I went through this exact same situation last year! You absolutely can claim the $6,500 contractor expense on your Schedule C even without receiving a 1099 from them. As others mentioned, you report it on line 11 "Contract labor." The key thing is having good documentation - which it sounds like you do with your business account records. Keep copies of any emails, invoices, contracts, or work deliverables that show what the payments were for. Bank statements showing the transfers are also great backup documentation. One thing I learned the hard way is to always get a signed contract upfront that clearly states they're an independent contractor, not an employee. This helps protect you if there are ever questions about worker classification. For future projects, definitely get W-9 forms before starting any work - it makes the 1099 process so much easier! Don't stress too much about this. It's a common situation for small business owners, and as long as you have records showing legitimate business expenses, you're in good shape.

Dont forget about the difference between qualified and disqualified dispositions for ESPP! If u hold the stock for at least 1 yr from purchase date AND 2 yrs from offering date, its a qualified disposition and part of your gain gets taxed as long term cap gains instead of ordinary income. could be BIG tax savings!!

Great question! Yes, you can absolutely use tax loss harvesting from your regular investments to offset ESPP capital gains - they're treated the same way by the IRS for offsetting purposes. Just to clarify the ESPP tax treatment since there seems to be some confusion in other comments: The 15% discount you received is indeed treated as ordinary income and should appear on your W-2. Your cost basis for capital gains purposes is the discounted price you actually paid ($85 in Emma's example), so you only pay capital gains tax on appreciation above that amount. One thing to watch out for - make sure you understand whether you had a qualified or disqualified disposition. Since you mentioned selling after about 3 years, you likely met the holding period requirements (1 year from purchase AND 2 years from grant date), which could make part of your gain eligible for more favorable long-term capital gains treatment. Also be careful about wash sale rules if you're still participating in the ESPP program - continuing to buy company stock through payroll deductions while selling at a loss could potentially disallow those losses. You might want to double-check your 1099-B and W-2 to make sure the tax reporting aligns with your actual transactions before finalizing your tax loss harvesting strategy.

Has anyone used specific tax software that handles ESPP sales and wash rules correctly? I tried TurboTax last year and it completely messed up my ESPP reporting.

Great thread - this is exactly the kind of ESPP situation that trips people up! Just want to add one important point that hasn't been fully addressed: when you left your job in March, your company likely processed what's called an "accelerated vesting" for your ESPP shares, which is why they all became available to sell even if they hadn't met the normal holding periods. This is pretty standard when employment ends. The key thing to remember is that since you're no longer employed there, you won't have any future ESPP purchases that could trigger wash sales. Your main concern should be any RSU vestings or option exercises you might still have scheduled, or if you're planning to buy the stock on the open market. Also, make sure you get your final W-2 from your former employer - they should report any ESPP discount as ordinary income if you end up making disqualifying dispositions, and you'll need that for accurate tax reporting.

I went through this exact situation two years ago and it's absolutely maddening. You're right that it feels unfair - you did everything correctly once you received the corrected information. Here's what worked for me: When filing Form 843, be very specific about the timeline. Include copies of both W2s with dates received, your original return filing date, and your amended return filing date. The IRS wants to see that you acted promptly once you had the correct information. Also, don't give up on the employer angle. I sent a certified letter to HR demanding they provide documentation of their error and the correction timeline. They initially ignored me, but when I mentioned potential legal action for their negligence causing me financial harm, they suddenly became very cooperative and provided a formal letter acknowledging their mistake. The key phrase to use in your Form 843 is "reasonable cause due to circumstances beyond taxpayer's control." The IRS has specific guidelines that employer reporting errors fall under this category. Good luck - this situation is frustrating but definitely winnable with the right documentation.

I'm dealing with a very similar situation right now - got a corrected W2 in September that added $3,200 in income, and now I'm facing penalties from both federal and state. It's incredibly frustrating when you're being penalized for someone else's mistake. One thing I discovered that might help others in this thread: if your former employer is being unresponsive, you can also file a complaint with your state's Department of Labor. Many states have regulations requiring employers to provide accurate and timely tax documents, and they can sometimes pressure the employer to cooperate or provide the documentation you need for your penalty abatement request. Also, when you file Form 843, make sure to include a timeline showing exactly when you received each document and when you took action. The IRS really wants to see that you acted in good faith and as quickly as possible once you had the correct information. I included screenshots of my email timestamps and certified mail receipts to prove when I received the corrected W2. Keep fighting this - you shouldn't have to pay penalties for your employer's error!