1 Thanks for the suggestions! I checked and you're right - I had entered our property tax information in TurboTax but completely missed it in TaxAct. When I added it to TaxAct, the refund amounts got much closer. But there's still about a $120 difference between them. Could this be because of how they handle state tax credits differently?

5 That $120 difference could definitely be due to how each program calculates state tax credits. Each state has different credits and deductions, and sometimes the tax software interprets eligibility requirements differently. Look for any state-specific credits that might be applied in one program but not the other. Common ones include education credits, child and dependent care credits, and energy efficiency credits. One program might be automatically applying a credit that the other one isn't. Go through the state tax section line by line in both programs and you'll likely find where that remaining $120 difference is coming from.

17 Do you think it's worth paying for the more expensive software if it gives you a smaller refund? Logically the more accurate one should be better, but it feels wrong to pay more for less money back!

Thank you for mentioning the exclusion ratio! I think that's what I need to calculate. Do you happen to know which specific form or worksheet I should be using? My MIL's annuity was purchased about 12 years ago, and I do have the original paperwork showing the purchase amount.

You'll want to use the Simplified Method Worksheet, which you can find in the instructions for Form 1040. If her annuity started payments when she was between 65-69 years old, you would divide her total investment by 260 to get the amount of each payment that's considered return of principal. For example, if she invested $130,000 in the annuity, then $130,000 ÷ 260 = $500 of each payment would be tax-free return of principal. If she receives $800 monthly, then only $300 would be taxable as earnings. Keep track of this calculation each year because once she's recovered her full investment amount, all future payments become fully taxable.

I used TurboTax last year for my mom's taxes with an annuity. It asks you for the 1099-R information, then it has a section where you can enter the exclusion amount or indicate that it was purchased with after-tax dollars. It then walks you through the simplified method calculation. Worked fine for us.

Thanks for pointing out the actual tax difference! I was thinking about the $5 of income, not the actual tax amount which would be even smaller. That makes me feel better about the situation. Did you send your late 8606 forms with an amended return or just on their own with the cover letter? I'm debating both approaches and trying to figure out the easiest way to handle this without triggering unnecessary scrutiny.

I sent the late 8606 forms on their own with just the cover letter since they didn't actually change my tax liability for those years. The 8606 forms were just establishing basis for future use. In your case, since you do have a small change to your actual tax liability for 2019, I'd probably file an amended return for that specific year along with all the 8606 forms and a comprehensive cover letter explaining both issues. The reality is that the IRS isn't going to launch an audit over a dollar and change, but it's still technically the correct way to handle it. And having everything documented properly will save headaches down the road if you ever need to reference your IRA basis.

First Time Abatement is for failure-to-file and failure-to-pay penalties on returns, not specifically for the $50 penalty for late 8606 forms. Those are two different types of penalties. Are you sure that's what you received?

How exactly do you calculate this "insurance amount"? I've tried to do this before but always end up way off, either getting much bigger refunds than I planned or owing a little.

I use what I call the "10% buffer rule." I calculate what my ideal withholding should be for zero refund/zero amount due, then I add 10% extra to that amount as my safety margin. For example, if my calculated correct withholding is $1,000 per month, I'll actually withhold $1,100 per month. This typically results in a refund of about $1,200 at year end, which I'm comfortable with. It's small enough that I'm not giving a huge interest-free loan to the government, but large enough to absorb unexpected tax changes or calculation errors.

I've done this for the past three years with no issues. Applied about $8K of my refund to the next year's taxes each time, then adjusted my withholding way down for Q1 and part of Q2. Never triggered any special review or audit flags. The IRS systems treat it as a perfectly normal transaction because it is - it's a built-in option on the tax forms for a reason.

Is there a good template for tracking this? My company has done RSUs, ISOs, and ESPPs over the years and I'm already losing track of which shares came from where and when each lot vested.

I don't have a specific template, but I created one in Google Sheets that works well. The key columns I use are: Grant Type (RSU/ISO/ESPP), Grant Date, Vest Date, Shares Granted, Shares Vested, FMV at Grant, FMV at Vest, Shares Sold for Taxes, Net Shares Received, and Cost Basis per Share. I also add notes for any corporate actions like splits or mergers that affected share counts. This has saved me countless hours at tax time. The most important thing is to update it immediately when new shares vest, because trying to reconstruct this later is a nightmare.

E*Trade is awful for this! I switched jobs and my new company uses Fidelity, which is SO much better. They provide a supplemental tax statement that shows your original W-2 income amount for RSUs and the corresponding cost basis adjustment. Made my taxes 100x easier this year.