This is super helpful, thank you! I just called the estate attorney and she's going to send me copies of all the paperwork including the 1099 forms. She seemed to think it was probably a coding error too. Do you know if I need to file an amended return or is a dispute letter enough?

If you never reported this money as income on your original tax return (which you shouldn't have if it was inheritance), then you don't need to file an amended return. You just need to respond to the IRS notice with a clear explanation and documentation. Your response should include: 1) Death certificate copy, 2) Documentation showing you were a beneficiary, 3) Any incorrect 1099 forms with an explanation of why they're wrong, and 4) Documentation of the step-up basis if there were securities involved. If all this seems overwhelming, it might be worth paying a tax professional who specializes in estates for a one-time consultation.

This is a really important point. My family went through this with my grandmother's IRA. We all got distributions and ALL of it was taxable because it was a pre-tax retirement account. The step-up basis rules don't apply to IRAs and 401ks the same way they do to regular investment accounts. OP specifically mentioned it was "not an IRA" but sometimes people don't realize what type of accounts they're inheriting. If it was any type of retirement account (traditional IRA, 401k, 403b, etc.), those distributions are definitely taxable.

Thank you for bringing this up! I'm 100% sure it was a regular brokerage account and not a retirement account. I just got off the phone with the estate attorney who confirmed it was a non-retirement investment account, so it should have gotten the step-up basis treatment. She's going to send me all the documentation tomorrow, but she believes Fidelity incorrectly coded the distribution which is why the IRS thinks I owe taxes. I'll update once I know more!

Do all states have annual fees for LLCs? That might be a dealbreaker for me since my side gig only makes about 8k a year.

Not all states have the same fee structure. Some have low or no annual fees, while others like California are expensive. For example, Wyoming, New Mexico, and Arizona have very low annual fees under $100. If you're only making about $8k a year, you definitely need to calculate if the fees make sense for your situation. In many cases for smaller side hustles, operating as a sole proprietor and maximizing your eligible deductions on Schedule C is the most cost-effective approach. Just make sure you have good records of all business expenses and consider getting business insurance for liability protection instead of relying on an LLC structure.

That's interesting - wouldn't both show up on the same line of your tax return though? Schedule C income is Schedule C income whether it's from an LLC or sole prop, right?

Could you explain more about timing the income? I have some mutual funds in India I'm planning to sell. Would it be better to sell in January or March? And does it matter which bank account (NRE or NRO) I deposit the proceeds into?

Selling in January-March gives you more flexibility because you'll have that income in the current Indian tax year but can include it in next year's US taxes. This gives you almost a year to plan your overall tax strategy. For your mutual funds, it also depends on whether they're equity or debt funds, as they're taxed differently in India. As for accounts, it generally doesn't matter for US tax purposes whether you use NRE or NRO accounts - the US taxes worldwide income regardless. For Indian tax purposes, moving proceeds to an NRE account can sometimes offer advantages, but consult with an advisor about your specific situation.

Be careful with that approach. Giving up a green card after holding it for 8+ years can trigger the "exit tax" if you meet certain income/asset thresholds. The IRS treats it as if you sold all your worldwide assets on the day before expatriation. It's a pretty serious decision with long-term consequences.

I thought tax brackets might be part of it. So even though I'm in a higher bracket, is it only the amount above the previous bracket that gets taxed at the higher rate? I always get confused about how that works. Also, do you know if there's any way to figure out what the "sweet spot" is where I'm making good money but still getting decent credits/refunds? Feels like I need a spreadsheet to figure all this out.

That's exactly right! Only the money that falls into each bracket gets taxed at that bracket's rate. For example, if the 12% bracket ends at $45,000 and the 22% bracket starts at $45,001, only the $9,000 of your income above $45K gets taxed at 22%. The first $45K is still taxed at the lower rates. There isn't really a "sweet spot" because making more money is always better overall. However, there are certain income thresholds where credits phase out quickly. For a family of four, the EITC phases out rapidly between $45K-$59K depending on filing status. The Child Tax Credit starts phasing out at much higher incomes ($200K for single, $400K for married filing jointly).

You're probably having an AGI mismatch issue. The IRS uses last year's AGI to verify your identity. Make sure you're entering the EXACT number from last year's return, down to the dollar. If you used a different tax software last year, that might be the problem.

This is terrible advice. My school's "tax workshop" was just a generic presentation that basically said "NIL is taxable, consult a tax professional." They wouldn't answer specific questions because they were afraid of giving "tax advice." Complete waste of time.

I actually did try talking to our compliance office first, but they just gave me a generic handout about "tax implications" without any specific guidance. They said they aren't allowed to give tax advice and told me to talk to an accountant. Didn't even mention quarterly estimated payments at all, which seems like a pretty important detail!

Oh that's super helpful. My school's athletic department handles NIL deals through their foundation, and I've been wondering how that would show up on tax forms. Did you have to request the 1099 or did they eventually send the correct form automatically?

I had to specifically request the 1099 after I noticed the error. They initially included the NIL payment on my 1098-T, which is only supposed to show tuition and qualified scholarships. When I questioned it, they admitted it was an error because their system wasn't set up properly for NIL payments yet. I'd recommend calling your school's foundation office directly in January if you don't receive a 1099-NEC or 1099-MISC by the end of the month. Don't just assume they'll handle it correctly, especially since NIL is still relatively new for most university accounting systems. It's better to address any issues before you file your taxes than have to amend returns later.