1 Oh no, I didn't file Form 8606 for those non-deducted years! I thought I only needed to file that when I did the actual conversion. Do you know if there's a penalty for filing those late? And would I need to do full amended returns or just submit the 8606 forms for those years?

7 There's a $50 penalty for each year you failed to file Form 8606 when you should have, but the IRS often waives it if you explain the situation. You don't need to file a full amended return - you can just file the missing Form 8606 forms by themselves for each year you made non-deductible contributions. Make sure to file these before you file your 2024 return with the conversion. You'll need to keep copies of all these forms permanently too, as they're your proof of basis. I learned this the hard way when I couldn't prove my non-deducted contributions from years ago and almost paid tax twice on the same money.

19 I've used it, but it won't show your non-deducted contributions unless you filed Form 8606 for those years. If you did file the forms, you can see them on your transcript and they'll show your running basis. Without those forms on file, there's no record of which contributions were non-deducted, so you'll need your own documentation (like account statements and previous tax returns).

That's a good idea about saving copies of both! If the IRS questions anything, I'll have proof of exactly what his employer sent. Would you recommend attaching a note explaining the situation with our tax return, or is keeping the documentation sufficient?

Just keeping good documentation is usually sufficient - no need to attach extra notes to your return. The IRS generally only asks for supporting documentation if they have specific questions during a review or audit. If you e-file, there's nowhere to attach explanations anyway. Just keep digital copies of both W-2s in your tax records folder for at least 7 years. If you're really concerned, you could also reach out to your husband's payroll department to ask why they issued two separate W-2s and if they filed both versions with the IRS.

I used TurboTax's import feature in a similar situation last year. In my case, it only imported the Federal/State W-2 and I had to manually enter the local tax information separately. The software prompted me specifically for city taxes in a different section, so it worked out fine in the end.

Doesn't using a PEO create complications with the S-Corp structure though? I heard that can cause issues with how distributions are handled versus salary.

No complications with the S-Corp structure at all. The PEO only handles the employment administration side - payroll processing, tax filings, compliance, etc. You still maintain complete control over your business operations and how you structure your compensation. Your S-Corp still exists exactly as before, and you can still take distributions separate from your salary. The PEO simply handles the W-2 employee portion of your compensation. Actually, many PEOs have specific expertise with S-Corps and can help ensure you're maintaining the proper salary-to-distribution ratio to satisfy IRS requirements while maximizing tax benefits.

You technically can do this, but you need to be careful. The IRS expects regular, reasonable compensation for services performed. Running payroll just once or twice a year with large amounts can raise red flags, especially if you're taking distributions throughout the year.

Thanks for suggesting ProSeries! That form-based approach is exactly what I miss from my professional days. Do you know if they offer a one-time purchase option or is it subscription-only? And roughly what price range are we talking about for the Basic version?

They offer both options. You can get a single-year license for around $450 for the Basic version, which includes federal and one state. It's definitely more expensive than consumer software, but much less than the professional versions which run into thousands. The nice thing is you can download a trial version to test before purchasing. This lets you see if the interface works for your needs. The learning curve isn't bad if you're already familiar with professional tax software. One thing to keep in mind is that while it's form-based, you still get the calculations and error-checking that prevents mistakes.

I second ATX! Been using it for 5 years after trying everything else. Perfect balance of functionality and price for experienced preparers. The Max bundle handles everything but costs around $1200. The basic package might be enough at around $600 if you don't need specialized business forms.

Thanks for this tip! I was dreading entering all these transactions individually. Do you know if I need to keep the CSV file or any other documentation in case of an audit? I want to make sure I'm covered.

Yes, definitely keep the detailed CSV files and any other transaction records for at least 3-7 years (standard IRS documentation retention period). While you only need to enter the summary in FreeTaxUSA, the IRS can request the detailed transaction records if you get audited. I also recommend creating a spreadsheet that shows how you arrived at your summary numbers. This creates a clear audit trail showing how your detailed transactions add up to the summary figures you reported. Makes things much easier if you ever need to explain or defend your reporting.

Yes, staking rewards absolutely need to be reported as income, typically as "other income" at their fair market value when received. This is separate from your capital gains/losses reporting. FreeTaxUSA has a section specifically for crypto mining and staking income under the Income menu. You'll enter the fair market value of the tokens when you received them. Then, when/if you eventually sell those staked tokens, you'll report that as a capital transaction using the fair market value at receipt as your cost basis.