Thanks for that explanation! Quick question - does this same circular calculation issue apply to both SEP IRAs and Solo 401ks? I'm trying to decide which one to open this year.

Yes, the circular calculation applies to both SEP IRAs and Solo 401k employer contributions. For both plans, the employer contribution limit is 25% of your net self-employment earnings, but the actual calculation works out to roughly 20% of your net profit. The big difference is that with a Solo 401k, you can also make employee contributions up to $22,500 for 2023 ($23,000 for 2024) that aren't affected by this calculation. That's why Solo 401ks often allow for higher total contributions, especially for people with moderate self-employment income.

I just checked and found the updated version. They didn't actually change the calculation, but they did add a clearer explanation of why line 17 uses that specific percentage. It's still the same formula, just better explained in the instructions section.

thx for checking! typical irs to keep the confusing calculation but just explain it better lol. at least now people might understand whats happening with that weird percentage. gonna look for the new version again.

Thank you for sharing this specific IRM reference! This is exactly the kind of information I was hoping for. Did you handle this over the phone or did you need to submit something in writing with documentation?

I started over the phone by speaking with an IRS representative and explaining my situation, citing the specific IRM section. The agent advised me to follow up with a written request using Form 843. I attached documentation showing they had my foreign address on file (copies of previous correspondence I'd sent them with my updated address) and a timeline showing when I discovered the payments. I also included a short, clear letter explaining exactly why this qualified as an administrative error under IRM 20.2.7.7 and referencing the Taxpayer Bill of Rights. The whole process took about 8 weeks from submission to receiving confirmation that the interest was abated. Keep your explanation factual and concise - the clearer you make it for them, the more likely you are to succeed.

That's a good point! The IRS does expect you to check your online account. But I think OP has a stronger case since they moved internationally and explicitly mention they weren't regularly checking US accounts. That's different from someone living in the US who just didn't log in.

That's an interesting option I hadn't considered! Do you know if there are any limits to how much I could contribute to a 529 annually? And would withdrawals from a 529 affect their financial aid differently than if we just paid tuition directly?

You can contribute up to the gift tax annual exclusion ($18,000 in 2025) per beneficiary without filing a gift tax return. You can even "superfund" a 529 with five years of contributions at once ($90,000 per beneficiary), though you'd need to file a gift tax return to elect this treatment. For financial aid impact, it's complicated. Direct tuition payments won't affect their FAFSA for the current year. But 529 distributions from accounts owned by anyone other than the parents or student are treated as student income on subsequent FAFSA forms, which can reduce aid eligibility by up to 50% of the distribution amount. This is why many advisors recommend using non-parent 529 funds for later years of college after the final FAFSA is filed.

This is great advice. My uncle helped me with some college expenses, but his biggest gift was actually helping with the down payment on my first house when I was 29. That made a much bigger difference in my financial trajectory than his contributions to my tuition.

This seems extreme. Wouldn't it be better to just have an honest conversation first before going all spy mode on your business partner? Maybe there are legitimate explanations for the expenses OP is questioning.

An honest conversation is absolutely worth trying, but documentation isn't being a spy - it's being prudent. If there are legitimate explanations, great! No harm done. But if there's actual fraud happening, a conversation won't protect you legally when the IRS comes knocking. You don't need to be secretive about it. You can directly say, "I've noticed these specific issues that concern me, and I'd like to understand them before signing our tax documents." Then document the explanation. Partnerships require trust, but they also require verification, especially when it comes to tax compliance where both parties share liability.

I definitely considered that possibility, which is why I've been hesitant to make accusations. I do have a basic understanding of business accounting - I handle about half of our bookkeeping normally. What concerns me isn't creative accounting or aggressive deductions - it's things like expenses with altered receipts (literally different ink and handwriting changing amounts) and several cash payments to "contractors" that I've never heard of with no corresponding work I can identify. I'm planning to talk to an independent CPA this week before confronting my partner again. I genuinely hope there are explanations I'm missing, but some of this stuff seems really blatant.

@OP altered receipts is a HUGE red flag. That's not aggressive tax strategy, that's straight-up fraud. Document everything before approaching your partner - you might need it later. If I were you I'd be looking for a lawyer not just a CPA.

Thanks for this specific info! I'm pretty sure we claimed the American Opportunity Credit last year. Do you know if TurboTax has a specific section for Form 8863 recapture, or do I need to look for Schedule 2?

TurboTax definitely has a section for the Form 8863 recapture. When you enter your education information, there should be a question asking if you received any refunds of expenses you claimed in previous years. Answer yes to that, and it will walk you through the recapture calculation. If for some reason you can't find it in the education section, you can also search "recapture" or "education refund" in the TurboTax search bar, and it should take you right to it. The software will automatically fill out the necessary forms once you enter the information.

Yes, it does apply to Pell Grants too! The key thing is that if you allocated the original Pell Grant to living expenses (which makes it taxable but allows you to claim tuition credits), and then later got tuition refunded, you may need to recalculate. Basically, any refund of qualified education expenses that you previously claimed for a credit needs to be accounted for.