22 Has anyone used Form 5329 to report and pay the 6% excise tax on excess contributions? I'm wondering if it's better to just pay the penalty for a year rather than going through the hassle of removal if the amount is relatively small.

I went through almost this exact situation two years ago! For the 2022 contribution, you're unfortunately stuck with the return of excess contributions route since the recharacterization deadline has passed. The 6% excise tax will apply for each year it stayed in there, but getting it out now prevents future penalties. For 2023, if you're still within the deadline (including extensions), definitely go with the recharacterization to Traditional IRA followed by the backdoor Roth conversion. Just make sure you understand the pro-rata rule implications if you have other traditional IRA balances. One tip that helped me - when dealing with your custodian, be very specific about what you're requesting. Say "I need to remove excess contributions and earnings for tax year 2022" rather than just asking about "fixing" contributions. The customer service reps are usually better equipped to help when you use the exact terminology. Also, don't be afraid to ask for a supervisor if the first person you talk to seems unsure about the process.

Don't forget that if you're due a refund from any of the years you didn't file, you only have 3 years from the original due date to claim it. After that, the money is gone forever. But if you OWE money, there's no time limit for the IRS to collect! Not fair but that's how it works.

I went through this exact same situation about two years ago - four years of unfiled returns with gig work income mixed in. The anxiety was eating me alive until I finally bit the bullet and dealt with it. Here's what I learned: The IRS actually wants to work with you more than you think. I ended up qualifying for First Time Penalty Abatement which wiped out a huge chunk of the penalties. The key is being proactive about fixing it rather than continuing to avoid it. For your income level and situation, you'll likely owe some back taxes but it won't be catastrophic. The failure-to-file penalties are the killer (5% per month up to 25%), but once you get those abated, you're mostly looking at the actual tax owed plus interest. My biggest regret was waiting so long to address it. Every month you wait, more interest accrues. I'd definitely recommend getting professional help - an Enrolled Agent was worth every penny for me. They knew exactly which forms to file and how to minimize the damage. You've got this! It's scary but totally manageable once you start the process.

Going back to the original question - another angle to consider is whether the Section 179 assets themselves might be transferable in some way. When we converted, our tax attorney looked at restructuring some asset ownership before the conversion. Might be worth exploring if any of the assets generating that carryover could be moved to a separate entity that remains a C-Corp, while the main business converts to S status. It's complex and has its own set of issues, but sometimes these hybrid approaches can preserve some benefits.

Something nobody has mentioned - check if your state has different rules about carryovers when converting from C to S. Some states don't fully conform to federal treatment of S-Corps and may allow carryover of certain attributes that the federal rules prohibit. For example, California has its own set of rules for S corporations that sometimes differ from federal treatment. Might be worth exploring if your state gives you more flexibility than the federal rules.

still waiting on mine from 2 weeks ago smh. IRS is playing games fr 🤡

Check if your mailbox is locked or if there's any forwarding issues with your address. Sometimes refund checks get returned to IRS if there's a delivery problem. Also double check the mailing address on your return matches exactly what's on file with USPS. Hope you get it soon!

One thing to consider that nobody's mentioned yet - even if you're treating it as hobby income for federal purposes, collecting and remitting sales tax creates a paper trail. Make sure your hobby vs. business classification is consistent across all your documentation. I've seen people get flagged for audit when they file sales tax as a business but report the income as a hobby on federal returns, or vice versa. The IRS looks at nine factors to determine if something is a hobby or business - including whether you conduct the activity in a businesslike manner, your expertise, time and effort invested, expectation of asset appreciation, success in similar activities, history of income/losses, occasional profits, your financial status, and elements of personal pleasure.

One trick I learned from an accountant friend - keep a separate log for your hobby sales that clearly documents each sale with dates, amounts, and context (like "church fundraiser" or "neighbor request"). This helps establish the occasional/non-commercial nature of the sales if questioned. Also track your expenses separately from any business activities. When my wife started selling her paintings occasionally, we created a simple spreadsheet showing that she was actually spending more on supplies than she was making from sales, which helps support the hobby classification. The key is showing you're not primarily motivated by profit.