Is a Private Letter Ruling actually worth the cost though? I've heard they take forever to get (like 6-9 months) and by then your investment opportunity might be gone. Have you actually done one yourself for an IRA transaction?

You're absolutely right about the timeframe - they typically take 6-9 months, which makes them impractical for many time-sensitive investments. I haven't personally done one, but a business partner did for a significant real estate investment he was considering through his self-directed IRA. For smaller investments, the cost usually doesn't make sense. But if you're considering a large transaction with millions at stake, or a recurring investment strategy you plan to use multiple times, it can be worth the peace of mind. In my partner's case, the PLR actually saved him from making what would have been deemed a prohibited transaction, potentially saving him hundreds of thousands in taxes and penalties.

A Roth conversion ladder won't help after a prohibited transaction has already occurred. Once the prohibited transaction happens, the IRA is immediately considered distributed as of January 1 of that year. It's no longer an IRA that can be converted to a Roth. You could potentially use the distributed funds to contribute to a new Roth IRA (subject to income limits and annual contribution caps), but you'd still owe taxes and penalties on the full distribution from the disqualified IRA first.

That's good advice. Any idea how much they typically want as a down payment for those payment plans? He literally has almost nothing saved up right now.

Nevada can be pretty flexible with the initial payment compared to some other states. For tax debts under $10,000 (which fits your brother's situation), they sometimes accept as little as 10% down to start a payment plan. So potentially around $780 in his case, but they may go lower based on documented financial hardship. They'll look at his current income and essential expenses to determine what monthly payment he can afford. The most important thing is that he contacts them himself before they escalate to more serious collection actions. When people proactively reach out to set up payments, tax authorities are usually more willing to work with them on favorable terms.

Adding to this - he should update his address with both the state tax agency AND the postal service. I had a similar situation and found out the state had been sending notices for months but they were going to my old address despite my filing a change of address. Such a headache.

Do those suspended losses get adjusted for inflation over time? Seems unfair if you have to wait years to claim them and they're worth less by then.

No, unfortunately suspended passive losses don't get adjusted for inflation. They remain at their original dollar value regardless of how many years you carry them forward. It's definitely not ideal from a time-value-of-money perspective, which is why many investors try to create strategies to use them sooner rather than later.

I've had clients qualify as real estate professionals, but it's a high bar to clear. You need to spend 750+ hours per year in real estate activities (that's about 15 hours a week minimum) AND more time on real estate than any other professional activity. With your W2 jobs, that's nearly impossible unless one of you transitions to part-time employment or leaves your job entirely to focus on real estate. The IRS scrutinizes these claims carefully, so you need meticulous documentation of time spent.

Does your tax software have a specific place to add notes like this? I use TurboTax and I'm not sure where I would include this kind of explanation.

In TurboTax, when you're entering your Schedule C information, there's a section for "Description of Business." You can include your note there, but the better place is in the "Additional Information" section that appears after you enter all your income and expenses. You'll find a text box where you can add notes or explanations for the IRS. If you can't find it, another option is to create a simple one-page statement titled "Explanation of Duplicate Income Reporting" that lists your 1099-K and 1099-MISC forms and explains they represent the same income. You can attach this as a PDF if filing electronically or as a physical page if mailing your return.

I used H&R Block last year for a similar situation. When you're entering your Schedule C info, there's a section called "General Information" where you can add notes in the description field. I put something like "Note: Income reported on 1099-K from Stripe and also on 1099-MISC from clients. Total actual income is $XXXX." Never heard anything from the IRS about it. Just make sure you keep copies of all your 1099 forms in case they do have questions later.

14 Is income averaging still available? I thought that was eliminated years ago except for very specific situations like fishing income and farmers?

22 You're right that general income averaging was eliminated years ago. There is a special provision for lump-sum distributions from qualified retirement plans called the "10-year tax option" but it only applies in very limited circumstances - typically for people born before 1936, so it wouldn't apply to most beneficiaries today. For inherited retirement accounts, the current rules generally require beneficiaries to withdraw the entire balance within 10 years (with exceptions for certain eligible designated beneficiaries). So while you can't technically average the income across multiple tax years, you might be able to strategically withdraw amounts each year to minimize the tax impact if you haven't taken the full distribution yet.

17 Would it help to increase withholding on the regular W-2 job to offset the tax hit from the distribution? I'm about to get an inherited IRA and trying to avoid owing a ton next year.