Thanks for this! I didn't even think about the vehicle registration aspect. Do you know if there's a specific timeframe I need to update those within? And for the moving expenses, does it matter that my company reimbursed part of my moving costs?

Most states require you to update your vehicle registration and license within 30-90 days of establishing residency. Colorado specifically requires it within 90 days of becoming a resident, and they're pretty strict about enforcing it. For moving expenses, if your employer reimbursed you, those reimbursed expenses wouldn't be deductible since you didn't actually incur the cost. However, any unreimbursed moving expenses might qualify for the Colorado deduction. Keep all documentation showing what you paid personally versus what was reimbursed, and definitely mention this to your tax preparer or input it carefully if you're using tax software.

Did you use a tax professional or were you able to figure it out yourself with tax software? I'm trying to decide if my situation is complicated enough to justify hiring someone.

1 Good point - I double-checked and I did use the corrected amount on my Schedule C. Should I specify which line on my tax return shows this income to make it easier for them to see I reported it correctly?

3 Absolutely! Being specific helps the IRS reviewer quickly verify your claim. Mention the exact form, line number, and amount where you reported the income. For example: "This income was correctly reported on my 2024 Form 1040, Schedule C, Line 1, in the amount of $X,XXX as shown on the CORRECTED 1099-NEC." Also, if the corrected 1099-NEC shows a different amount than the original, clearly point out which amount you reported and why. Sometimes corrections involve more than just checking a box - they might change the income amount too. The clearer and more specific you are, the faster they can resolve your case.

6 What's the best way to document everything? Should I be keeping a log of phone calls too, or just saving copies of written correspondence?

Can you claim reasonable cause to avoid penalties? My mom got really sick last year and I completely forgot to file my 2022 taxes until recently.

Yes, the IRS does accept reasonable cause explanations for waiving penalties in certain circumstances, and a serious illness in the family can definitely qualify. You'll need to attach a signed statement explaining the situation when you file your late return. Be specific about the timeline of your mother's illness and how it prevented you from filing on time. Make sure to gather any supporting documentation you can, like medical records or doctor's notes. The more documentation you have, the stronger your case will be. Just be aware that the IRS reviews these on a case-by-case basis, so there's no guarantee, but they do often show leniency in genuine hardship situations.

Paper filing is STILL a nightmare. Sent my 2022 return by mail in January and it took almost 4 months to process. Definitely e-file if you possibly can. The IRS backlog for paper returns is insane.

That's a really good point I hadn't considered! I'll give Fidelity a call to understand why they chose code 1. My initial contribution was in December and the conversion was in January, so maybe that's why they used different codes. Did Schwab end up correcting your 1099-R or did you just file with the original code?

No, Schwab didn't correct my 1099-R because they said it was actually coded correctly for my specific circumstances. They explained that code 2 is typically used when the conversion happens in the same tax year as the contribution, but code 1 can be appropriate when they span different tax years. I filed with the original code 1 and made sure my Form 8606 was filled out correctly. It's been two years since then and I haven't had any issues with the IRS questioning it or receiving any penalty notices.

I actually did get a notice from the IRS about this exact issue three years ago! But it was easily resolved by responding with a copy of my completed Form 8606 which showed it was a proper conversion. They dropped it immediately after seeing the 8606.

Thanks for sharing that experience. Good to know that even if they do question it, having the properly completed 8606 form resolves the issue quickly. Makes me feel better about not obsessing over the distribution codes all these years!

How far back did you have to amend? I think I may have made a similar mistake with some processing equipment for my small manufacturing business. Did you get hit with penalties?

I had to amend 2 years of returns. Fortunately, I caught it myself rather than having it discovered in an audit, so the IRS didn't hit me with accuracy-related penalties. I just had to pay the tax difference plus interest. For manufacturing equipment, you'll want to check if it falls under MACRS GDS (which generally allows 200% declining balance) or if it's in a specific category that requires 150%. The tables in Publication 946 break this down by property class. If you've been using the wrong method, it's definitely better to correct it voluntarily than have it found in an audit.

I've had good results with Drake Tax Software. It's more geared toward professionals but has much better handling of depreciation schedules, including proper guidance on method selection. TaxAct Business is also pretty good at walking you through the correct options for each asset class.

Thanks for the suggestions! I'll definitely check out both Drake and TaxAct. Getting really tired of TurboTax's limitations with more complex business situations. Sounds like these might be better for someone with rental properties and equipment depreciation.