I'd actually been handling this wrong on my returns for years until my return was audited in 2023. The IRS was very clear: each tier maintains its own character. My CPA had to prepare a detailed analysis for each entity where I claimed material participation. For partnerships where I was just a limited investor (even though they were held by my materially-participating HoldCo), the income remained passive. The IRS agent specifically referenced Reg 1.469-2(f) and said HoldCo's active management doesn't "cleanse" the passive character of the income from lower tiers.

This is exactly the type of complex flow-through situation that trips up many taxpayers. The consensus here is correct - your material participation in HoldCo doesn't convert the passive income from the underlying entities where you're a limited partner. I'd recommend keeping detailed records of your participation hours for each entity separately, since the IRS will look at material participation on an activity-by-activity basis. Also consider whether you might benefit from grouping elections under Reg 1.469-4 if you have multiple similar activities, but this requires careful planning and proper elections. One thing to watch out for: make sure your K-1s from HoldCo properly reflect the passive/nonpassive character of the income as it flows through. Sometimes holding entities don't correctly maintain the character codes, which can create issues if you're ever audited.

I'm confused about something else - if these reimbursements are considered self-employment income on a 1099-NEC, can I deduct the health insurance premiums as a self-employed health insurance deduction? Seems like if they're going to tax me on the money they gave me for insurance, I should at least get to deduct the insurance costs?

This is a frustrating situation that unfortunately happens more often than it should with small employers. The key issue here is that your employer likely doesn't have a formal Health Reimbursement Arrangement (HRA) in place, which is required for these reimbursements to be tax-free. Since you received a 1099-NEC, you'll need to report this as income on your tax return. However, there are a few things to consider: 1. You may be able to deduct the actual health insurance premiums you paid as a self-employed health insurance deduction (since this is being treated as self-employment income) 2. You might qualify for the premium tax credit if you purchased marketplace insurance 3. You'll unfortunately owe self-employment taxes (15.3%) on this amount in addition to regular income tax For your 2024 taxes, you can file an amended return (Form 1040-X) to include this income. Going forward, I'd strongly recommend talking to your employer about setting up a proper HRA or QSEHRA for future reimbursements to avoid this tax mess. The late timing of receiving the 1099-NEC in June is also concerning - they should have issued it by January 31st. Consider consulting with a tax professional to make sure you're handling this correctly and maximizing any available deductions or credits.

Does anyone know if I can still do this recharacterization thing for my 2024 contribution? I contributed to a Roth earlier this year but just realized my income will be too high.

Just wanted to add another perspective on this situation. I had a very similar mess with my 2023 Roth contribution and recharacterization timing, and what really helped me was understanding that the IRS treats the recharacterization as if you had made the correct choice from the beginning. The key insight that wasn't immediately obvious to me: when you recharacterize in 2024 for a 2023 contribution, you're not making a new 2024 contribution - you're retroactively changing what type of contribution you made in 2023. This is why your 2024 Roth contribution is completely separate and valid. Make sure when you're entering the 1099-R information in your tax software that you're categorizing it correctly. The recharacterization 1099-R should be coded as "N" and the conversion should be coded as "2". If your software is still showing over-contribution after entering these correctly, you may need to manually override the calculation or seek help from a tax professional who understands backdoor Roth conversions. Also double-check that your custodian reported everything with the correct tax year designations on the 1099-Rs. Sometimes they get confused about which year a recharacterized contribution should be attributed to.

I'm in a similar situation - filed 11 days ago and still waiting for my verification letter. The uncertainty is definitely stressful when you're expecting your refund! From everything I've read here, it sounds like 10-14 business days is the normal timeframe, but mail delays can definitely push it longer. I've been checking my mailbox obsessively too. One thing that's helped ease my anxiety is remembering that this verification process is actually a good thing - it means the IRS is working to protect us from identity theft and fraud. Even though it's frustrating to wait, it's better than having someone else file a fraudulent return in our name. I'm going to take the advice from others here and wait the full 14 business days before requesting a resend. And definitely signing up for USPS Informed Delivery so I can at least see what's coming in the mail each day instead of just wondering. Thanks to everyone who shared their experiences and timelines - it really helps to know we're not alone in this process!

I'm dealing with this exact same situation right now! Filed my return 9 days ago and got flagged for verification. The waiting is definitely nerve-wracking, especially when you're counting on that refund. From reading everyone's experiences here, it sounds like the 10-14 business day timeframe is pretty standard, though mail delays can definitely extend it. I've been checking my mailbox every day hoping to see that IRS envelope! One thing I'm going to do based on the suggestions here is set up USPS Informed Delivery so I can at least see what's coming each day instead of just wondering. And I'll definitely wait the full 14 days before requesting a resend since the system won't process it earlier anyway. It's actually somewhat comforting to know this is such a common experience and that so many people have successfully gotten through the verification process. The anxiety of not knowing what's happening with your return is real, but it sounds like patience is really the key here. Thanks to everyone for sharing their timelines and experiences - it really helps to know we're all in this together!

Has anyone run into issues with cost basis reporting on UTMA accounts? My son's 1099-B has some transactions marked as "basis not reported to IRS" and I'm not sure if I should be calculating the basis myself or if TurboTax handles this differently when using Form 8814.

I went through this exact same situation last year with my two kids' UTMA accounts. You're absolutely correct to be concerned about double taxation - it's a common pitfall that TurboTax doesn't automatically prevent. Here's what you need to do: Delete the UTMA 1099-Bs from your main tax return since you'll be reporting that income through Form 8814. When you complete Form 8814, TurboTax will ask you to enter the investment income information separately, and that's where you'll input the details from those UTMA 1099-Bs. One important thing to verify first - make sure your kids are still eligible for Form 8814. They need to be under 18 (or under 24 if full-time students), and their investment income must be under $11,000. If they had any capital gains over $2,200, be aware that portion will be taxed at your higher tax rate due to the kiddie tax rules. I'd also recommend double-checking the cost basis information on those 1099-Bs. UTMA accounts sometimes have transactions where the basis isn't reported to the IRS, and you'll need to have that information ready when completing Form 8814. The good news is that using Form 8814 often results in lower overall taxes compared to filing separate returns for the kids, especially if your children's investment income is modest. Just make sure you don't accidentally report the same income twice!