Wait, I didn't even think about state considerations! I'm in California. Does anyone know if California follows the federal $3k limit or do they have their own rules for capital losses against Roth conversions?

California generally conforms to federal tax treatment regarding capital losses and the $3,000 limit against ordinary income. They typically follow the same rules as the IRS in this area, so the planning would be similar for both your federal and California returns. However, other states like Pennsylvania and New Jersey treat capital losses differently, which is why I mentioned checking your specific state. Since you're in California, you'll want to use the same $3,000 limitation in your planning for both federal and state tax purposes.

I did a $42k conversion last year when my income dropped to about $35k after changing jobs. Best financial decision I've made! Yes, the tax bill was around $5k, but now that money is growing tax-free forever. Stock market has been up since then, so that $42k is already worth about $48k and I'll never pay taxes on those gains or any future ones. Just make sure you have cash set aside to pay the tax bill.

I haven't run the full numbers yet. I was hoping to understand the principles first before diving into calculations. That's helpful to know about the self-employment tax being unaffected by filing status. The grant was specifically for childcare program enhancement, so I'll definitely look into whether it qualifies as tax-exempt. Hadn't even considered that possibility!

This is actually a misconception. Filing separately doesn't protect you from audit risk if the business is legitimately your spouse's. The IRS can still look at both returns regardless of filing status. What might help is filing for innocent spouse relief if there are unreported income issues.

Thanks for mentioning SCORE! I hadn't heard of them before. Do they offer online options or is it all in-person? And would they be able to help with digital/creative business tax questions specifically?

They offer both online and in-person workshops depending on your location. During covid they moved most of their programs online and many stayed that way, which is great for accessibility. They definitely can help with digital/creative businesses! Many of their mentors have backgrounds in marketing, design, and digital services. When you sign up, you can specifically request someone familiar with your industry. The tax principles are largely the same across industries, but having someone who understands your specific business expenses and revenue models is super helpful.

This! I use a simple spreadsheet with categories for all my expenses and take photos of receipts with my phone. Makes tax time so much easier. Also, put 30% of every payment into a separate savings account for taxes - that saved me from panic when I got hit with my first self-employment tax bill.

That's horrible! Have you considered filing a complaint with the FTC or your state attorney general? Some states are starting to go after these mills for deceptive practices, and your case sounds like a perfect example. Also, did they give you any kind of written analysis explaining why they thought you qualified?

I did file complaints with both the FTC and my state AG's office. The AG's office actually responded and said they're collecting information on these kinds of cases, so hopefully something comes of it. They gave me a superficial "analysis" that basically just restated the qualification criteria without actually analyzing my business's specific situation. It was clearly designed to look official but didn't contain any meaningful analysis. My new CPA said it looks like they just used a template and changed the name and dollar amounts. Looking back, I should have been more skeptical, but they had fancy marketing materials and testimonials that seemed legitimate.

Do you think this will affect legitimate claims though? I'm worried that making it harder to file might prevent businesses that actually qualify from getting the credit. My restaurant legitimately qualified (we kept paying employees during shutdowns) but I wouldn't have known how to claim it without professional help.

If I need to report interest from years ago but don't have the documents anymore, is there a "safe harbor" amount I can claim? Like a percentage of the total or something? I'm in a similar situation but the escheatment happened in 2018.

There's no "safe harbor" percentage recognized by the IRS for this situation. Your best approach is to request records from the financial institution for that tax year. If they can't provide them, document your good-faith efforts to obtain the records. As a practical matter, you can calculate a reasonable estimate based on the bond fund's published yield for that period and the number of days you held it before escheatment. Keep documentation of how you arrived at your figure. If the amount is relatively small, the IRS is unlikely to challenge a reasonable estimate that you've documented your basis for calculating.

I used TurboTax last year for a similar situation. There's no specific "escheatment" section. You'll need to report any interest or dividends on Schedule B, and any capital gains or losses on Schedule D and Form 8949. Just enter it in the investment income section and follow the prompts. The important thing is categorizing what portion is return of principal (not taxable) versus interest/gains (taxable).