Has anyone else noticed that Morgan Stanley seems to mess this up a lot? I had the same issue when I became a resident, and it took them forever to update their systems. Their customer service was useless when I tried to get help too. Anyone have any luck getting them to fix this?

I'm dealing with a very similar situation right now! I received both forms from E*Trade for the same reason - they had me classified as a non-resident for the first part of 2024 even though I've been a US resident the whole year. What really helped me was calling the IRS directly to confirm the reporting approach. The agent I spoke with explained that this is actually pretty common when brokerage firms don't update residency status quickly enough in their systems. She confirmed that as a US resident, I should report the dividend income from both forms as regular dividend income, but enter them separately to ensure all withholding is properly credited. The key thing she emphasized was making sure I claim ALL the federal tax withholding from both forms - don't miss any of it because that's money you've already paid to the IRS. In my case, the 1042-S withholding was actually higher than normal dividend withholding rates, so I ended up getting a bigger refund than expected. For FreeTaxUSA specifically, I found the 1042-S entry under "Federal" → "Income" → "Less Common Income" → "Other Income Not Reported on Form 1099" and then there's a specific dropdown option for 1042-S. Make sure to enter the withholding amount in the federal tax withheld section when prompted.

This happened to me and it turned out to be my student loan payment! The servicer had changed and it was listed as "DEPT ED/TAX" on my statement which I totally misread as a tax charge. Check if you have any student loans in repayment - the labels can be super confusing.

Isabella, I feel for you - this exact situation happened to me two years ago and I was terrified! In my case, it turned out to be an offset for unpaid back taxes from 2019 that I had completely forgotten about. The IRS had applied my expected refund to that old debt and then withdrawn the difference from my account. What saved me was logging into my IRS online account immediately - you can create one at irs.gov with your Social Security number and some identity verification. Once you're in, look at your "Account Transcript" which will show ALL recent activity including any offsets, adjustments, or automatic withdrawals. The transcript will also show if there are any notices that were supposed to be mailed to you. Sometimes these get lost or sent to old addresses. If you see notices listed there that you never received, you can actually view and download them directly from your online account. Don't panic about the rent money just yet - if this was an IRS error, they do reverse transactions, though it can take a few weeks. But getting into that online account should give you answers within minutes rather than waiting hours on the phone. Good luck!

Whatever you do DONT AMEND until your first refund comes through! Made that mistake last year and ended up waiting 9 months for processing

idk if this helps but my bank literally sent my 1099-INT in february last year too. ended up just waiting for the refund then amended. paid like $150 extra in taxes but worth not dealing with the headache tbh

I'm dealing with something very similar right now and this thread has been incredibly helpful! My tenant is 2 months behind on rent but just handed me some kind of "promissory note" from his "private trust" claiming it will cover all past and future rent payments. He also mentioned he's filing tax forms to "discharge the debt" which now makes perfect sense after reading about these redemption theory scams. What's really concerning me is that he's been asking for my business EIN number saying he needs it to "properly process the trust payment." After reading all these responses, I'm realizing this is probably part of the scheme to file fraudulent tax forms using my information. I'm going to follow the advice here - document everything, report to the IRS with Form 3949-A, and send certified mail notice that I'm aware of the fraudulent activity. It's scary how sophisticated these scams have become, but at least now I know I'm not alone in dealing with this and there are clear steps to take. Thank you especially to those who shared the resources like taxr.ai for understanding the tax implications and claimyr for actually getting through to the IRS. Having concrete tools to handle this situation makes it feel much less overwhelming. For any other landlords reading this - don't ignore weird paperwork or trust documents from tenants. These schemes rely on our confusion and inaction to succeed.

I'm a tax professional and I want to emphasize how serious this situation is. What your tenant is doing with the 1099-A form is absolutely fraudulent - this form is specifically for reporting acquisition or abandonment of secured property by lenders, not for tenants to create fictional lending relationships with their landlords. The fact that he's listing you as the "borrower" when you've never borrowed anything from him is a clear misuse of IRS forms. This appears to be part of what's known in tax circles as a "frivolous tax position" - using official forms incorrectly to support false claims about debts, trusts, or other financial arrangements that don't actually exist. From a professional standpoint, I strongly recommend: 1) Immediately file Form 3949-A with the IRS to report suspected abusive tax avoidance 2) Keep detailed records of all rent payments (or lack thereof) to demonstrate the actual landlord-tenant relationship 3) Contact the tax preparation service that filed this form - legitimate preparers should have controls to prevent obviously fraudulent filings 4) Consider consulting with a tax attorney if the tenant continues submitting fraudulent forms Don't underestimate how these schemes can escalate. I've seen cases where tenants file multiple fraudulent forms creating complex webs of false documentation that can take significant time and money to untangle. The sooner you report this and establish a clear record that you're not participating in any scheme, the better protected you'll be. The IRS takes these frivolous filing schemes very seriously and has specific procedures for handling them. You're not just protecting yourself - you're helping combat tax fraud that costs all taxpayers.

I appreciate everyone sharing their experiences and expertise here. As someone new to business taxation, this thread has been incredibly educational. What strikes me most is how the seemingly "clever" tax strategies often end up being more expensive and risky than just paying taxes legitimately. Between audit risks, penalties, legal fees, and the stress of dealing with IRS scrutiny, it seems like the legitimate approaches mentioned here (retirement contributions, proper business deductions, Section 199A deduction) are not only safer but probably more effective in the long run. I'm curious - for those who have successfully implemented legitimate tax strategies, what would you say is the most important first step for a new business owner? Should I focus on finding a good CPA first, or start by learning the basics myself through resources like the ones mentioned in this thread? The horror stories about audits and penalties are definitely making me want to be extra cautious from the start.

This is exactly the kind of comprehensive discussion that new business owners need to see. The progression from "creative" tax schemes to legitimate strategies really illustrates why proper planning is so important. I've been running my small consulting business for about two years now, and I made some of the classic mistakes early on - not tracking expenses properly, missing legitimate deductions, and almost falling for some questionable advice I found online. What saved me was finding a CPA who specialized in service businesses and taking the time to understand the basics myself. One thing I'd add to the excellent advice already given: start keeping meticulous records from day one. I use QuickBooks now, but even a simple spreadsheet tracking income, expenses, and mileage makes tax time so much easier and ensures you don't miss legitimate deductions. The Section 199A qualified business income deduction alone saved me thousands last year - that's a legitimate 20% deduction on business income that many small business owners don't even know exists. Combined with maximizing my SEP-IRA contributions, I was able to significantly reduce my tax burden without any of the risks associated with aggressive schemes. To the original poster - the fact that you're asking these questions and doing research shows you're on the right track. Just channel that planning energy into legitimate strategies and you'll be much better off in the long run.