Dont forget to check if you paid PMI (private mortgage insurance) as well. That used to be deductible too but I think that expired? Anyone know if Congress renewed that deduction for this year?

I was in same boat last year! Here's one thing nobody mentioned yet - keeping track of home office expenses if you work from home. That's been a game changer for me tax-wise since my mortgage interest alone wasn't enough to itemize.

Has anyone had experience dealing with functional currency elections under Section 985 in connection with this issue? Wondering if making that election would simplify the filing process for future years even though it wouldn't help with the past unfiled returns.

I've dealt with this exact situation multiple times with foreign clients who had unfiled 1120F returns. The M-1 adjustment approach is definitely the way to go for these currency translation differences. One thing I'd add is to be very careful about your exchange rate sources and document them thoroughly. I always use the Federal Reserve's daily exchange rates and create a detailed memo explaining the methodology - which rates were used for which items and why. This becomes crucial if you're ever questioned during an exam. Also, since you're dealing with multiple years of unfiled returns, consider whether you need to address any potential penalties under the reasonable cause provisions. The IRS tends to be more understanding when there's a legitimate business reason for the delay and you're making a good faith effort to comply correctly.

One thing nobody mentioned - did you check if you have any other Traditional IRA money from previous years? The Pro-Rata rule could be kicking in. If you had, say, a rollover IRA or any other traditional IRA money beyond what you contributed for the backdoor, you can't just convert the non-deductible portion tax-free. The conversion gets taxed proportionally. FreeTaxUSA might actually be calculating correctly if you have other IRA assets!

I went through this exact same frustration last year! Here's what finally worked for me with FreeTaxUSA: The key is making sure you complete these steps in order: 1. Enter your Traditional IRA contribution first and explicitly mark it as NON-DEDUCTIBLE (this is crucial) 2. Enter your 1099-R information for the conversion 3. Don't panic when your refund drops initially - this is normal 4. Complete your ENTIRE return before checking the final numbers The software doesn't update the backdoor Roth calculation until you reach the review stage. I know it's counterintuitive, but Form 8606 gets generated at the very end of the process. Also double-check that you don't have any other Traditional IRA balances from previous years (like old 401k rollovers) because the pro-rata rule would make part of your conversion taxable even if you used post-tax dollars. If you're still having issues after trying this sequence, you can always use the "Forms" view in FreeTaxUSA to manually review Form 8606 and make sure line 14 shows your non-deductible contribution amount. That's what prevents double taxation. Hang in there - the software does work correctly for backdoor Roths, it's just not very user-friendly about showing the calculations in real-time!

Has anyone used TurboTax for this dual-status election situation? Their support chat keeps giving me contradictory answers and I'm not sure if their software can handle this correctly.

This is exactly the kind of complex tax situation that mainstream software struggles with! I went through something very similar when I got my green card mid-year in 2022. The dual-status election is definitely legitimate and designed for cases like yours, but you're right to be cautious about the worldwide income reporting requirement. One thing I learned the hard way is that you need to be extra careful about foreign bank account reporting (FBAR) if you still have accounts overseas - even if they're being closed out. Also, make sure you understand the implications for future years. Once you make this election, you're committing to being treated as a full-year resident, which can affect things like the foreign earned income exclusion if you travel back to your home country for work in future tax years. I'd strongly recommend getting at least a consultation with a CPA who specializes in international taxation before filing, even if you use software to prepare the return. The peace of mind is worth it for something this complex, especially in your first year as residents.

Just to add another perspective - I used to work in payroll and saw this situation a lot. The employer is playing with fire here. Not only could they face tax fraud charges, but in North Carolina specifically, they could also be violating state labor laws. If your friend is injured on the job, they'd have no workers' comp protection. They're not building up unemployment benefits either. And the employer is likely pocketing the 7.65% FICA contribution they should be paying on your friend's behalf. Your friend should also know that if they report this income now (which they absolutely should), they can request something called Section 3509 relief, which could reduce their tax liability since the employer failed in their obligations. But they need to clearly show they were misclassified as an independent contractor rather than an employee.

Something nobody's mentioned yet - if your friend decides to start reporting this income now (which they should), they need to be prepared for potential fallout with their employer. Some employers get really defensive when workers start properly reporting income because it can trigger investigations. I've seen cases where the employee files taxes properly, then the IRS contacts the employer about missing payroll taxes, and suddenly the employee faces retaliation or even gets fired. It sucks, but it happens.