And don't forget the opportunity cost! I took a 401k loan in 2020 right before the market took off. Missed out on like 30% gains because that money wasn't invested. The "interest" I paid myself was nothing compared to what I would have earned leaving it alone. Still kicking myself over that one.

That's an excellent point about the timing risk. No one can predict market movements, but removing a chunk of money means you could miss out on significant growth during bull markets. Many financial advisors recommend considering other sources of funds before tapping retirement accounts for exactly this reason. Once you miss a growth period in the market, there's no way to go back and capture those gains later.

I had the opposite experience! Taking a 401k loan to pay off high-interest credit card debt actually reduced my stress significantly. Yes, my 401k balance was lower, but seeing those credit cards at zero balance was worth it. And knowing I was paying the interest to myself instead of Visa made each payment feel like I was moving forward, not just treading water.

Is there a time limit on recharacterization though? I thought the deadline was the tax filing deadline plus extensions for the year of the contribution (so for 2022 contributions, it would have been Oct 2023 at the latest).

You're absolutely right about the recharacterization deadline. The deadline is the tax filing deadline including extensions for the year the contribution was made. For 2022 contributions, that would have been October 16, 2023 (if an extension was filed). Since that deadline has passed for 2022 contributions, recharacterization is no longer an option in this case. At this point, the only options are to remove the excess contribution (plus earnings) or apply it to a future year if eligible. This is why catching these issues early is so important - it provides more flexibility in how to correct them.

That's actually a smart approach if they're eligible for 2023! Would they need to specifically notify their IRA custodian about carrying forward the contribution, or just report it that way on their tax forms?

Does this mean I should keep all these tax forms forever? My file cabinet is already stuffed with old paperwork.

You don't need to keep the Form 1040-V itself permanently, but you should keep your actual tax returns and supporting documents for at least 3 years after filing. That's the general time period the IRS has to audit your return. For tax payments, keep proof (like canceled checks or electronic payment confirmations) for at least 7 years. If you're not sure whether you need a document, it's better to err on the side of keeping it rather than throwing it away and needing it later.

Check if you claimed Earned Income Credit or Additional Child Tax Credit. Those automatically delay processing until at least Feb 15. Also, paper returns are taking 6-8 weeks minimum this year.

Wow $4k is a lot! Do you know what specific deductions they were missing? I'm now second-guessing myself about how thorough I've been with my rental property deductions.

The biggest miss was around home office deductions related to managing their rentals. They had never claimed any home office space despite doing all the management work from home. The accountant also found some vehicle expenses they hadn't claimed properly and reclassified some repairs they had made as capital improvements that could be depreciated differently. Another thing was timing of income and expenses between tax years. The accountant showed them how to legally shift some income and expenses between years to minimize their overall tax burden. It's all completely legitimate, just strategic in a way they hadn't considered with TurboTax.

If I have the carried over loss from last year AND new losses this year, do I have to use the old losses first? Or can I choose which losses to apply? I'm trying to maximize my deduction over multiple years.

You don't get to choose - the IRS rules require you to use carryover losses first before applying new losses. The process works in this specific order: First, apply your carryover losses against any capital gains you have in the current year. If you still have carryover losses remaining and no more gains to offset, then you can use up to $3,000 of those carryover losses against ordinary income. Only if you've used up all your carryover losses and still haven't hit the $3,000 limit would you then start applying your new losses from the current year. For example, if you carried over $1,200 from last year and have $2,500 in new losses this year with no gains, you would use the $1,200 carryover first, then $1,800 of your new losses to reach the $3,000 limit. The remaining $700 of new losses would carry forward to next year.

Wash sales complicate things but your 1099-B should have the adjusted basis already calculated. You'll need to check Box B on Form 8949 (if basis was reported to IRS) and then enter the information exactly as shown on your 1099-B. The loss that was disallowed due to the wash sale is already factored into the adjusted basis amount. When using tax software, make sure you indicate that this transaction involved a wash sale if it asks. Most modern brokerages track this for you now, but it's good to double-check the amounts match what's on your 1099-B.

Thanks for explaining! That helps a lot. I was overthinking it - so I just need to copy what's on the 1099-B and the wash sale adjustment is already built into those numbers. My broker did mark it as a wash sale so I'll make sure to check that box in my tax software.