Thanks for the tip about confirming the zero amount! I just started entering my forms and noticed CashApp Tax did ask me about this. So that's normal then? And one more thing - should I be concerned about any penalties on the newer account since I'm 42 and took money out of a retirement account?

Yes, that confirmation step is completely normal! CashApp Tax is double-checking that you're telling it the distribution is non-taxable, which is correct for qualified Roth distributions. Regarding the newer account, since you're under 59½, you might face a 10% early withdrawal penalty on the earnings portion (but not on your contributions). However, there are exceptions to this penalty - like using the money for a first-time home purchase, certain education expenses, or if you have unreimbursed medical expenses exceeding a certain percentage of your income. The distribution code in Box 7 (you mentioned code J) suggests it's an early distribution, so CashApp Tax should calculate any applicable penalties automatically when you enter the form correctly. If you're eligible for an exception, make sure to indicate that when prompted by the software.

This is such a good point! I made the exact same mistake last year with distribution codes and ended up having to file an amended return because it showed my qualified Roth distribution as taxable when it shouldn't have been. Those tiny codes make a huge difference in the tax treatment.

17 Which states actually have these lower estate tax thresholds? Is there a simple list somewhere? My parents have property in multiple states and I'm trying to figure out if this is something we need to worry about.

3 As of 2023, the states with estate taxes are: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and the District of Columbia. The exemption thresholds range from around $1 million (Massachusetts, Oregon) to $9.1 million (Connecticut). Some states also have inheritance taxes, which are different - they're based on who receives the assets rather than the total estate value. Those states are Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Maryland actually has both types of taxes! If your parents have property in multiple states, you definitely need to look into each state's rules. The concept of "domicile" becomes really important in determining which state's laws apply.

8 Yes, you would be personally liable in two ways. First, as the executor, you have a fiduciary duty to handle the estate properly, which includes paying taxes before distributions. Second, as a beneficiary receiving assets from a taxable estate, you have transferee liability for your proportionate share of estate taxes. The IRS can come after you both as the executor who failed to ensure taxes were paid and as the beneficiary who received assets that should have been used to pay taxes. I strongly recommend getting professional help with this situation to avoid serious personal liability.

That's a really good point I hadn't considered. So you're saying that based on the residency test, my sister might not actually be eligible to claim my niece anymore since she's been living with me for most of the year? I definitely don't want either of us to get audited. Do you know if there's any exception to this residency test? Like if there's some kind of temporary arrangement or something? We didn't really think about the tax implications when my niece came to stay with me.

Yes, that's exactly what I'm saying. The residency test is pretty clear - a qualifying child must live with the taxpayer for more than half the year. With your niece living with you for 9+ months, your sister likely doesn't meet this requirement anymore. There are some exceptions to the residency test, but they're limited to specific situations like temporary absences (medical care, education, vacation, etc.), children of divorced or separated parents with a formal agreement, or kidnapped children. From what you've described, it doesn't sound like any of these exceptions would apply in your situation. I'd recommend having an honest conversation with your sister about the tax situation. The IRS would consider you to have the stronger claim to be the qualifying taxpayer for your niece based on the residency test.

This is the right answer! The residency test is super important for determining who can claim a dependent. If the niece lives with OP for most of the year, the sister technically shouldn't be claiming her unless there's a special exception. In my experience, the tax benefits for the person who has the child living with them (HOH status + child tax credits) are usually much better than just claiming a dependent who doesn't live with you. Might be worth both sisters calculating their taxes both ways to see what makes the most financial sense for the family as a whole.

That's a really good point about the fair market value. I've been researching comparable workshop spaces in my area to make sure I'm charging a reasonable amount. Would you recommend getting some kind of formal appraisal to document the fair market rental value? I hadn't considered selling the garage space to the business - that seems complicated since it's on the same property lot. Wouldn't that create zoning issues or require subdividing the property?

A formal appraisal would be ideal for documentation, but even gathering 3-5 comparable rental listings from your area can serve as reasonable support for your rental rate. Save screenshots or printouts of similar workspace rentals to keep with your tax records. You're absolutely right about the complications with selling just the garage. Unless your property is already zoned for mixed use, you'd likely face zoning issues. Subdividing residential property to sell a portion to a business entity is possible but extremely complex and might trigger reassessment of property taxes or other consequences. The rental approach you're considering is likely simpler from a practical standpoint.

If you convert it to a legal ADU with living facilities, it would likely be considered a separate dwelling unit entirely. This could actually work in your favor for the Augusta Rule because each dwelling unit gets its own 14-day exemption. Just make sure the conversion is permitted and up to code, otherwise you could have issues with both the IRS and local authorities.

You might be right! I just checked my email spam folder and found another message from Uber with a tax summary PDF. It shows the full $4000+ broken down as: customer payments, Uber fees, and then the promotions (which match the $600 on the 1099-NEC). So it sounds like I was supposed to report all of it, but the 1099-NEC only covers a small portion?

That's exactly it! The tax summary shows your complete picture. The customer payments minus Uber's fees is your actual service income that needs to be reported on Schedule C. The promotions on the 1099-NEC are also income but are being reported separately by Uber. So on your amended return, you'll need to make sure you're reporting the full amount from the tax summary, but be careful not to double-count the promotion amount that's on both the tax summary and the 1099-NEC. You're actually not that far off in what you filed if you reported the full $4000+ already - you just need to make sure it's allocated correctly on your Schedule C.

The issue isn't necessarily about paying too little tax, but about information not matching up. When your reported income doesn't match what the IRS gets from third parties (like Uber), it raises flags in their system regardless of which direction the discrepancy goes. The IRS automated systems look for matches, not just underpayments.