16 Did you have to pay a lot in penalties? That's what I'm worried about for OP. Sometimes it's better not to poke the bear if they're not already looking for you...

5 I actually didn't end up owing any penalties because I was due small refunds for most of those years. Since the IRS typically only assesses failure-to-file penalties on unpaid taxes, there weren't penalties to pay in my case. Even if I had owed, the peace of mind would have been worth it. The "don't poke the bear" approach is really risky. The IRS has been increasing enforcement efforts, and with more funding recently, they're expanding audits and investigations. It's much better to voluntarily come into compliance than to be caught later. When you initiate filing yourself, they tend to be more accommodating than if they have to track you down.

12 I used FreeTaxUSA for my back taxes from 2018-2020. They charge like $15 per previous year return (way cheaper than TurboTax). It's pretty straightforward if you have your documents. The only catch is you have to print and mail previous year returns - you can't e-file them.

Do you need a separate bank account too? Or can you just use your personal account as long as you keep good records?

You don't absolutely need a separate bank account from a legal standpoint if you're a sole proprietor, but I highly recommend it. Having a dedicated business account makes it so much easier to track income and expenses cleanly, and it looks more professional when clients pay you. If you ever get audited, having separate accounts makes it much easier to prove which transactions were business-related. It's also helpful for calculating your actual profit each month. Most banks offer free or low-cost business checking accounts for small businesses, so there's really no downside to setting one up.

I've used it for 2 years for my web development side gig. Honestly it's been worth every penny. It automatically categorizes expenses, tracks mileage if you need that, and separates business from personal transactions. The best part is at tax time - it generates all the reports you need and transfers everything to TurboTax if you use that.

Thanks, that's really helpful. Definitely going to be more organized next time! Do you think I should include a note on my tax return explaining the situation, or just file the T2125 with income only and no expenses?

Just file the T2125 with your income only and no expenses. There's no need to include a special note or explanation - thousands of people file with small amounts of self-employment income and no expenses claimed. Keep it simple. If you're using tax software, it will walk you through the T2125 form and you can simply enter your income and skip or enter zeros for the expense sections. The CRA system handles this situation routinely so it won't raise any red flags.

Quebec has the same basic requirements - you need to report all income and have documentation for expenses you want to deduct. But you'll need to complete both the federal T2125 AND the Quebec TP-80 form for business income. The forms are similar but Quebec's can be more detailed in some sections.

Is there any way to know in advance if your forms will be delayed until March? I have a couple of REITs but my brokerage never warns me about potential delays.

Most brokerages actually do provide this information, but it's often buried in their tax center or notification settings. Look for something like "Tax Document Delivery Schedule" in your account. Generally, if you own any REITs, MLPs, certain types of ETFs that hold physical commodities, or foreign securities, you should expect the March deadline. You can also usually opt-in for notifications that will alert you when your specific forms become available. That way you don't have to keep checking back.

True, but be careful with this. I tried it last year with TurboTax and H&R Block, and both imported different numbers from Fidelity! After the final forms came, I had to redo everything because the imported data was incomplete.

That's a really good point about the different forms. My LLC is set up as a disregarded entity, so I'll need the Form 4868. I didn't realize the W-7 has to be attached to a tax return - does that mean I need to complete a full tax return even though I'm filing for an extension?

Yes, that's one of the trickier parts of this process. You'll need to complete your tax return (Form 1040-NR in your case as a foreign person with a disregarded entity LLC), attach the W-7 application, and then submit them together. The extension (Form 4868) gives you more time to file the return, but you'll still need to prepare the return to get your ITIN. It seems contradictory, but what many people do is prepare the full return, attach it to the W-7, and submit both while also filing the extension to avoid penalties. When your ITIN is assigned, the IRS will process the already-submitted return.

The EFTPS system requires an EIN though, which they might not have either as a foreign person. I think mailing a check or money order with Form 4868 is the safest option in this situation.