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.

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).

Thanks for the explanation and tips! I've actually started tracking my expenses already - I bought some special non-slip shoes just for work and my own grooming scissors. Should I be saving receipts for everything? And do I need to formally register as a business or anything since I'm technically "self-employed"?

Yes, absolutely save receipts for everything work-related! Digital copies work too - I take photos of receipts with my phone and organize them in a folder. For larger purchases like equipment, keep the original receipt if possible. You don't necessarily need to formally register as a business for tax purposes - filing Schedule C with your personal tax return is sufficient for a sole proprietorship, which is what you are by default. However, some localities require business licenses even for independent contractors, so check your city/county requirements. It's usually a simple form and small fee if needed. Some groomers also get liability insurance to protect themselves - might be worth considering as your work increases.

Did you end up owing more taxes when you had to amend? I'm worried because I think I might have answered this wrong too on my last return for my pet sitting business.

Thank you so much for this breakdown! This is exactly my situation - I provide the furnished space, basic amenities, and occasionally coordinate cleanings between guests, but nothing like daily housekeeping or meal service. If I decide to push back with my current CPA or find a new one, are there specific tax code sections or IRS publications I should reference to support the Schedule E position?

The primary reference you want is IRC Section 469 and the related regulations that define "rental activity" versus "business activity." Also useful is IRS Publication 527 (Residential Rental Property) which discusses this distinction. For your specific situation, Revenue Procedure 2019-38 is particularly relevant as it provides a safe harbor for treating certain rental real estate enterprises as a business for the qualified business income deduction - but notably, this doesn't automatically make it subject to self-employment tax. The Tax Court has consistently held that providing basic amenities like furniture, utilities, and occasional cleaning between tenants doesn't rise to the level of "substantial services" that would trigger Schedule C treatment. The case Curphey v. Commissioner is often cited in these situations.

This is actually a really smart approach I hadn't considered. How exactly did you determine what percentage goes where? Is it based on time spent on services vs. just providing the property?

I filed through a CPA but want to check their work before asking them to amend. Does the interest paid on a home equity loan also count as mortgage interest for tax purposes? I know there used to be some difference.

Home equity loan interest is deductible only if the loan was used to buy, build, or substantially improve the home that secures the loan. If you used the money for other purposes (like paying off credit cards or student loans), the interest isn't deductible anymore. This changed with the 2017 tax law. Also, there's a limit on total mortgage debt for interest deductions - you can only deduct interest on the first $750,000 of mortgage debt ($375,000 if married filing separately) for loans taken out after December 15, 2017. For older mortgages, the limit is $1 million.

The IRS Tax Withholding Estimator is just for calculating paycheck withholding, not for figuring out amended returns. It's really confusing how few official calculators the IRS actually offers! I ended up just using FreeTaxUSA to recalculate - you can enter all your info there for free and it shows you the result without paying unless you actually file.