I noticed nobody mentioned state taxes. Depending on your state, you might need to add the HSA distribution to your state taxable income too. Some states like California don't recognize HSAs at all, which makes it even more complicated. FreeTaxUSA should handle this automatically, but it's good to be aware.

I went through this exact same situation a couple years ago and want to add something that might help save you some money. Before you finalize everything in FreeTaxUSA, double-check if any portion of your HSA withdrawal might qualify for penalty exceptions under IRS Publication 969. There are several situations where the 20% penalty can be waived - things like disability, unemployment for more than 12 weeks, certain higher education expenses, or first-time home purchase (up to $10,000). Even if the expenses weren't medical, you might still avoid the penalty if you meet one of these other criteria. When you're in the HSA section of FreeTaxUSA, there should be questions about whether you qualify for any penalty exceptions. Don't just assume you'll pay the full 20% penalty without checking these options first. I saved myself about $600 by discovering I qualified for the unemployment exception.

Has anyone had experience with e-filing a deceased taxpayer's return as a Personal Representative? I'm trying to avoid paper filing if possible, but I'm not sure if the major tax software programs properly handle this situation.

I'm currently going through this same situation with my father's estate. One thing I want to emphasize that hasn't been fully covered - keep detailed records of EVERYTHING you do as Personal Representative. The IRS may request documentation later, and having organized files will save you major headaches. Also, consider getting an EIN (Employer Identification Number) for the estate if there are any ongoing income-generating assets or if you expect the estate to remain open for an extended period. This separates estate income from the final 1040 and helps with record-keeping. For the signature issue specifically, I found it helpful to practice writing "John Doe, Personal Representative for [Deceased's Name], Estate" a few times before signing the actual return. The IRS wants clarity about who is signing and in what capacity.

I made this exact mistake my first two years in business and it ended up triggering a letter from the IRS. They have reports from payment processors about how much you processed, so if there's a big discrepancy they'll notice. Better to do it right and avoid the headache!

This is such a helpful thread! I've been making the same mistake with my freelance graphic design business. I use Stripe and have been only reporting the net amounts that hit my bank account. Reading through all these responses, it's clear I need to start reporting the gross amounts on line 1 and then deducting the Stripe fees separately. I'm actually relieved to learn that even though I've been doing it wrong, my net taxable income probably hasn't been too far off since I wasn't claiming the processing fee deductions either. Going to dig up my Stripe annual statements and see if I can figure out the correct numbers for this year's filing. Thanks everyone for sharing your experiences - makes me feel less alone in being confused about this stuff!

I just went through this exact situation last month and can confirm what others have said - you absolutely need to file an amendment for your wife's separate return to avoid future headaches. Here's the key thing that saved me time: when filing your wife's "zero-out" amendment, make sure to include a copy of your joint amended return in the same envelope. The IRS processors can then see both documents together and understand the full picture immediately. Also, don't worry too much about the negative $2,600 showing on her return - that's probably her expected refund from the separate filing. Once both amendments are processed, any refund amounts will be recalculated based on your joint return. The IRS will either adjust your joint refund or send a separate notice explaining any changes. One tip: call the IRS about 6-8 weeks after mailing both amendments to confirm they were received and linked properly in their system. This saved me from a potential CP2000 notice down the road.

I went through this exact same nightmare two years ago! The key thing that nobody mentions is that you need to be very specific about the timing and order of your amendments. Here's what worked for me: First, make sure your joint amended return (1040-X) is completely accurate and includes ALL income, deductions, and payments from both of your original separate returns. Then your wife needs to file her own 1040-X that essentially "cancels" her separate return by entering zeros for income and deductions. The critical part is in Part III of her amendment - she needs to write something like: "Taxpayer is now filing jointly with spouse [Your Name], SSN [Your SSN]. All income and deductions from this separate return are now included on joint return filed by spouse. This amendment cancels the separate return." Send both amendments in the same envelope with a cover letter explaining the situation. This helps the IRS processors understand they're related. Also, keep copies of everything and track the certified mail - amendments can take 16-20 weeks to process, which is agonizing when you're worried about penalties. The negative amount showing is likely just her expected refund calculation, which will be resolved once both amendments are processed and the IRS reconciles everything on your joint return.

One thing nobody has mentioned yet - if you sell on Etsy, they actually handle collecting and remitting sales tax for you in most states now through their marketplace facilitator status. You still need to handle it yourself for some states, but it simplifies things a lot for beginners.

Great question Omar! As someone who just went through this same confusion when starting my online business, I can share what I learned. You're absolutely right that it's overwhelming at first. The key thing to understand is that you have flexibility in HOW you handle sales tax, but you're still responsible for paying the correct amount to the government regardless of your method. I initially tried the absorption method (building tax into prices) because I was worried about cart abandonment too. But I quickly realized a few issues: 1) It gets really complicated when selling to multiple states with different tax rates, 2) Your profit margins take a hit, and 3) You need very detailed record-keeping to back out the tax amounts properly. I ended up switching to collecting tax at checkout after about 6 months. Yes, some customers might be put off by seeing the additional tax, but most people expect it and it's much cleaner from an accounting perspective. Plus, you're not essentially giving customers a discount equal to the tax amount. For nexus, you're probably safe starting with just your home state until you hit those economic thresholds (usually $100k+ in sales to a state). Focus on getting your home state registration sorted first - that's where most of your early sales will likely be anyway. The learning curve is steep but you'll figure it out! Consider starting simple with tax collection at checkout and expanding your knowledge as your business grows.