Has anyone considered the timing difference when the advance payment is received in a different tax year than when it's reported on Form 5884-A? One of my partnerships received the advance in December 2021 but we're claiming the credit on the 2022 return (based on 2022 qualified wages).

I've been dealing with similar ERTC advance payment issues for several partnership clients. Based on my experience and consultations with other tax professionals, the correct approach is definitely option 2 - treat it as a reduction of salary expense, not as other income. The logic is straightforward: the ERTC is fundamentally a credit against employment taxes you've already paid on wages. When you receive an advance payment, you're getting those funds early, but it doesn't change the underlying nature of the transaction. The credit should reduce your wage deduction, which effectively increases your taxable income by the amount of wages that are no longer deductible. Here's my recommended approach: 1. Report the credit on Form 5884-A (flows to Schedule K, line 15) 2. Reduce wage expense by the credit amount on your tax return 3. Make an M-1 adjustment for the book-tax difference in wage expense One thing to watch out for - make sure you're only reducing wages that are eligible for the credit. If your client paid $500k in wages but only $320k qualified for ERTC, only reduce the deductible wage expense by the $320k credit amount. This treatment ensures you're not double-taxing the partnership on funds that represent a return of previously paid employment taxes.

Something nobody's mentioned yet - make sure your side hustle actually qualifies as self-employment income! If you're just doing a one-off project and getting a 1099-NEC, but don't have an actual ongoing business with profit motive, the IRS might challenge your Solo 401k setup. My tax guy told me that you need to show that you're truly in business - having multiple clients, keeping good records, separate business bank account, etc. Made that mistake my first year of freelancing and had to do some backtracking.

One thing to keep in mind is the timing of when you can actually make these contributions. For Solo 401k plans, you typically need to establish the plan by December 31st of the tax year, but you can make contributions up until your tax filing deadline (including extensions). So if you're planning to do the mega backdoor Roth strategy for 2025, you'll want to get your Solo 401k set up before the end of this year. Don't wait until you actually receive all your 1099 income - you can establish the plan based on projected earnings and then make the actual contributions later. Also, remember that with after-tax contributions, you'll want to do the Roth conversion as soon as possible after making the contribution to minimize any potential growth that would be taxable. Some providers allow you to automate this process, which makes the mega backdoor strategy much more manageable throughout the year.

The rollover option @Yuki Tanaka mentioned is crucial - if you took that pension distribution within the last 60 days, you can still roll it into an IRA and it would be treated as if the distribution never happened for tax purposes. This would bring your AGI back down significantly and potentially make you eligible for EITC again. Even if the 60-day window has passed, there are sometimes hardship exceptions available. Given that you mentioned needing the money for home repairs, it might be worth exploring whether any exceptions apply to your situation. If rollover isn't possible, definitely look into maximizing traditional IRA contributions for both you and your husband to reduce AGI. Also consider whether the home repairs qualify for any energy efficiency credits or other tax benefits that could help offset the higher tax burden from the pension distribution.

This thread has been incredibly helpful! I've been dealing with a similar situation with my late father's pension that I inherited. The distinction between earned vs unearned income for EITC purposes has always confused me. What I learned from my tax preparer is that inherited pensions/retirement accounts have even more complexity - they don't count as earned income either, but the required minimum distributions can really mess with your AGI calculations for various credits and deductions. The rollover advice mentioned here is gold - I wish I had known about that 60-day window when I first received the distribution. For anyone reading this thread, definitely explore that option first before just accepting the tax hit. Even if you've already spent the money, you might be able to find other funds to complete the rollover and avoid the immediate tax consequences. Also worth noting that some states have their own EITC programs with different income thresholds, so even if you don't qualify for the federal credit, you might still be eligible for state benefits depending on where you live.

I think your tax pro might be confusing the rules for SIMPLE IRAs with Roth IRAs. With SIMPLE IRAs, there actually are some limitations when you have multiple retirement plans. But for your specific situation with a Solo 401k and Roth IRA, they're completely separate contribution limits as others have said. The Solo 401k falls under the 401k annual limits ($23,000 for 2025) and the Roth IRA has its own limit ($7,000 for 2025 if under 50). The only things that would prevent you from contributing to a Roth IRA would be: 1. Having income above the eligibility threshold (which you're nowhere near) 2. Not having enough earned income to cover your contributions 3. Being over 73 with no earned income (new RMD age

I wonder if your tax professional is thinking about the "overall contribution limit" which is $69,000 for 2025 across qualified plans. But that's mostly relevant for people with very high incomes who max out both employee and employer contributions. With your income level, there's no way you'd hit that limit. You should definitely be able to contribute to both your Roth Solo 401k and your Roth IRA as long as you have sufficient earned income to cover both. Just make sure you're tracking your business profit carefully, since your Solo 401k contributions can't exceed your actual business profit (after deducting the employer portion of self-employment tax).

Has anyone looked into whether these foreign pension contributions can be excluded from income under the Foreign Earned Income Exclusion? I'm trying to figure out if I need to add back in my Colombian pension contributions when calculating my FEIE amount.

I went through this exact same situation with my Colombian AFP account last year. After consulting with a tax professional who specializes in expat taxes, I can confirm that you absolutely need to report it on both FBAR and Form 8938. The key points that apply to your Porvenir account: 1. **FBAR reporting is required** - Even though it's mandatory and you can't access it until retirement, you still have a beneficial interest in the account. The private management by AFP companies means it doesn't qualify for any government pension exemptions. 2. **Form 8938 reporting is also required** - Since your account exceeds the $10,000 threshold and you're filing as single (assuming from your post), you'll need to include it on Form 8938 as well. 3. **Valuation can be tricky** - Make sure to convert the peso value to USD using the exchange rate on December 31st of the tax year. Your AFP should provide year-end statements that show the account balance. 4. **Don't forget about employer contributions** - If your employer is making matching contributions to your AFP account, those count toward your total account value for reporting purposes. The penalties for non-compliance are severe, so it's definitely better to over-report. I learned this the hard way after initially thinking my account might be exempt due to the retirement restrictions.