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Has anyone here ever actually been audited on home improvement basis calculations? I've been adding stuff to my basis for years and wonder if the IRS really checks this stuff or if I'm being too careful?
My parents got audited specifically on this after they sold their house for a huge profit in 2023. The IRS questioned almost half of the improvements they claimed and they ended up owing an extra $32k because they couldn't prove some of the work they'd done over 20 years. Now I save everything digitally including before/after pics.
This is really valuable information about the audit risk! I'm curious about the documentation requirements - when you say your parents couldn't prove some of the work, was it because they didn't have receipts, or were there other documentation issues? I'm trying to figure out the best way to organize everything from day one. Also, did they have any luck with getting credit for improvements where they had receipts but maybe not before/after photos? I'm wondering if contractor invoices alone are sufficient or if visual documentation is really necessary for every project.
Let me walk you through what's actually happening here, as I've researched this extensively: 1. TurboTax partnered with a new payment processor this tax season 2. Their system has a glitch affecting certain refunds marked for direct deposit 3. When the glitch occurs, it automatically defaults to paper checks 4. These checks are being batch-processed with identical check numbers 5. This violates standard banking protocols, triggering automatic holds I've seen multiple reports of this exact issue with the 100001 check number. While the money is legitimate, TurboTax is being deliberately vague about the cause. Their customer service has been instructed to blame "IRS issues" rather than admit their system failure. Document everything, deposit the check, and consider filing a complaint with the CFPB. This seems to be affecting thousands of customers nationwide.
This is absolutely infuriating! I'm going through the exact same thing right now. Filed on Feb 15th, selected direct deposit like I do every year, and got this ridiculous paper check with check number 100001 yesterday. My bank immediately flagged it as suspicious and put a 10-day hold on it! What really gets me is that TurboTax is acting like this is totally normal. When I called them, the rep had the audacity to tell me that "sometimes the system defaults to paper checks for security reasons" - but couldn't explain why my banking info that worked fine for the past 5 years suddenly became a "security risk." The worst part? I specifically needed that refund by this week for my daughter's college tuition payment. Now I'm stuck waiting another week and a half while TurboTax sits on their hands pretending this isn't their fault. I've already started my complaint with the CFPB and I'm definitely switching to a different tax service next year. This is completely unacceptable! Thanks for posting this - at least now I know I'm not going crazy and this is happening to tons of people. We need to keep making noise about this until they fix it!
Just got mine yesterday! Took exactly 15 business days after verification. hang in there!
Another option to consider is opening a SEP IRA instead of a Solo 401k. With a SEP, you can contribute up to 25% of your net self-employment income (slightly higher than the Solo 401k employer contribution rate). The setup is way simpler, and many brokerages offer them with no fees. The downside is you can't do the mega backdoor Roth strategy with a SEP IRA, but if your main goal is just to shelter some of your 1099 income from taxes, it might be the simplest solution. I've been using one for my freelance work for years and it takes me like 5 minutes a year to manage.
Thanks for suggesting the SEP IRA option. I'm curious though - since my main goal is to take advantage of the mega backdoor Roth strategy, would you still recommend going with the Solo 401k despite the additional complexity? Also, are there any specific providers you'd recommend that definitely support after-tax contributions and in-plan Roth conversions?
If your specific goal is to implement the mega backdoor Roth strategy, then yes, you'll definitely need to go with the Solo 401k despite the extra paperwork. The ability to make after-tax contributions and do in-plan Roth conversions is simply not available with a SEP IRA. For providers that support these features, I'd recommend checking out Schwab, E*TRADE, and Fidelity's Solo 401k options. Not all providers support after-tax contributions or in-plan conversions, so you'll want to specifically ask about those features when setting up your account. Vanguard, surprisingly, doesn't offer these features for their Solo 401k plans despite being popular for retirement accounts.
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.
That's really good to know! I definitely have an established side business that I've been running for a couple years, with multiple clients and proper bookkeeping. I just haven't set up a retirement account for it yet. Is there any specific documentation I should keep to prove the business is legitimate in case of an audit?
Great question! Keep detailed records of everything - client contracts, invoices, payment receipts, business expenses, marketing materials, and correspondence showing you're actively seeking new clients. A separate business bank account is crucial, and document any business licenses or permits you have. Also maintain a business calendar showing time spent on business activities, and keep records of any professional development or training related to your side business. The IRS wants to see that you're operating with a profit motive and treating it like a real business, not just occasional income. Having solid documentation like this will make setting up your Solo 401k much smoother and give you confidence if questions ever arise about the legitimacy of your business.
Omar Farouk
Same boat, sitting here with 5 different letters trying to piece together this puzzle like im playing sherlock holmes or sumthing
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Bruno Simmons
A "verification of non-filing" letter means someone (likely a lender, school, or government agency) requested proof from the IRS that you didn't file a tax return for 2022. The IRS is basically saying "we have no record of this person filing for 2022" which could mean either you didn't file, or your return is still processing and not in their system yet. If you DID file your 2022 taxes, you should call that 800 number ASAP with your filing records to get this sorted out. This isn't something to ignore if you actually filed!
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