Isn't estimating risky though? What if the IRS notices a discrepancy between what you report and what the brokerage reports on the 5498?

The year-end IRA value on Form 5498 isn't actually used to calculate your tax liability - it's informational. The conversion amount on your 1099-R is what actually matters for tax purposes. The IRS primarily wants the December 31st value for future reference and to track contribution limits. Small discrepancies here won't trigger an audit or penalty as long as you've correctly reported the actual conversion amount from the 1099-R.

Thx for this suggestion! I'll try calling again tomorrow morning. Does anyone know if there's a specific department I should ask for? Last time I got lost in the phone menu.

@ApolloJackson Try asking for "Retirement Services" or "IRA Department" when you call. Most brokerages have a dedicated team for retirement account questions. If you get stuck in the phone tree again, you can also try saying "IRA" or "retirement" when prompted, or sometimes just pressing "0" repeatedly will get you to a human operator who can transfer you to the right department.

That's a good point I hadn't considered! Is there any easy way to track this throughout the year so I'm not surprised when tax time comes? I honestly don't check my account that often.

Most online banks have a year-to-date interest summary in your account dashboard or statements. I'd recommend checking your December statement which will show the total interest earned for the calendar year. You can also set a reminder to check your account quarterly just to keep an eye on things. Some banks even let you set up email alerts when interest is deposited. The main thing is just to be aware that the rate can change, so your initial calculations might need adjusting as the year goes on.

Wait really? I thought all investment income got that special tax treatment. So my HYSA interest is basically taxed just like my regular job income? That kinda sucks.

Yes, unfortunately that's correct. Interest income from savings accounts (including HYSAs), CDs, and bonds is taxed as ordinary income at your regular tax rate, not the preferential capital gains rates. The lower capital gains rates only apply to profits from selling investments like stocks, mutual funds, or real estate that you've held for more than a year. So if you're in the 22% tax bracket, your HYSA interest gets taxed at 22%, while long-term capital gains would only be taxed at 0%, 15%, or 20% depending on your income level. It's definitely something to keep in mind when comparing different investment options!

I did exactly this for my plumbing business. Best decision ever. No more tracking every trip or trying to remember which miles were business vs personal. Tax filing is so much simpler. But make sure you ONLY use it for business - even one personal trip can complicate things. The downside is obviously having two vehicles (insurance, registration, etc). But the peace of mind at tax time is worth it to me. Plus you can put your business logo on it for some free advertising.

I'm curious how many hours you need to qualify as "material participation"? Is there a specific number the IRS looks for? I only spend maybe 5-6 hours a week on my online business.

There's no absolute minimum hour requirement, but one test for material participation is 500 hours per year (roughly 10 hours weekly). However, that's just one of seven possible tests. You can also qualify if your participation was "substantially all" the participation in the activity (meaning you did most of the work), or if you participated more than 100 hours and that was as much as anyone else. For most side businesses where you're the only person involved, you're likely meeting the material participation standard even at 5-6 hours weekly.

What about if you have losses for several years? I've been running my art business for 3 years and haven't turned a profit yet. Tax preparer said IRS might reclassify it as a hobby?

That's a good point I hadn't considered. My company will reimburse up to $1000 annually for professional development, but I haven't used any of it yet this year. Do you think it's better to use that for the conference fee and then deduct the travel costs through my 1099 business? Or would that look strange?

Definitely use your company's $1000 allowance first! That's free money you'd be leaving on the table otherwise. And no, it won't look strange to have part covered by your employer and part deducted through your 1099 business - that's actually cleaner from a documentation perspective. Apply the company reimbursement to the conference registration fee since that's the most straightforward expense, then carefully allocate your travel costs (flight, hotel, meals) between your W-2 and 1099 work based on how you spend your time at the conference. Just make sure you document which sessions or activities relate to your self-employment work to support the allocation if ever questioned.

Per diem only works for meals though, right? You still need actual receipts for hotel and airfare?

Exactly right! Per diem is only for meals and incidental expenses. You absolutely need actual receipts for major expenses like hotel, airfare, conference registration, and transportation. The per diem route is great because meals can add up quickly and are a pain to track individually, especially when you're grabbing coffee between sessions or eating at the hotel restaurant. Just make sure to use the correct per diem rate for the city where your conference is held - rates vary significantly between locations.