I'm pretty sure my recharacterization was completed before the deadline (did it in mid-April 2024 for the 2023 contribution), but I had already filed my 2023 taxes in February. Does that mean I still need to amend to include the Form 8606, or can I just file the form separately?

You'll need to file an amended return (Form 1040-X) along with the Form 8606 for 2023. Since you already filed your original return without the 8606, you need to formally correct that with an amendment. If you hadn't filed yet when you did the recharacterization, you could have just included the 8606 with your original filing. But since you already filed without it, an amendment is necessary to establish your basis properly.

I used TurboTax last year for my backdoor Roth and had mixed results. It does have a section for Form 8606, but it doesn't specifically prompt you about recharacterizations. I had to know exactly what I was doing and override some of its suggestions.

Do you know if there's any rule about how long you can keep a 529 active? My daughter might not go to grad school for 10+ years, and I'm wondering if we should just keep the money growing tax-free until then?

There's no time limit on how long you can keep a 529 plan active. Some families keep these accounts going for generations by changing beneficiaries as needed. The money can continue growing tax-free indefinitely as long as it remains in the account. In fact, with the SECURE Act 2.0 that passed, starting in 2024, you'll even be able to roll unused 529 funds into a Roth IRA for the beneficiary (subject to annual limits and a lifetime cap of $35,000), which gives you another option if grad school doesn't happen. This is especially valuable if your timeline is 10+ years out since the rules might offer even more flexibility by then.

Did you have any trouble doing your taxes with this? I use TurboTax and wonder if it handles this situation correctly or if I need to do something special.

Thanks for that specific case reference! I'll definitely look up Ruckriegel v. Commissioner. If I wanted to fix this going forward, could I restructure the existing loans into back-to-back loans now, or would I need to pay off the current loans and start fresh with new properly structured loans?

For existing loans, you generally need to unwind them first before creating a proper back-to-back loan structure. Having your S Corp repay the affiliated company, then having the affiliated company loan to you, and you loan to the S Corp. Document each step with proper loan agreements. If unwinding isn't feasible due to cash flow constraints, consider a debt restructuring where the S Corp's debt to the affiliated company is replaced with debt to you personally. This requires proper documentation showing the affiliated company releasing the S Corp from its obligation and you becoming the creditor. You'll also need to show actual consideration for taking over the loans. Be aware that restructuring rather than unwinding and creating new loans faces higher scrutiny from the IRS.

Yes, basis impacts distribution ordering rules. S Corp distributions are tax-free to the extent of your stock basis, while distributions in excess of basis are generally treated as capital gains. When you properly structure loans to create debt basis, it doesn't directly affect the taxability of distributions (which are measured against stock basis, not debt basis). However, having sufficient basis (both stock and debt) allows you to claim losses, which preserves more of your stock basis for distributions. The ordering matters: First, stock basis is reduced by non-dividend distributions and losses. Only after stock basis is exhausted would debt basis be reduced by remaining losses. So properly structuring loans helps ensure you can take losses without creating taxable distributions.

Does requesting a hold on collections affect your credit score or create any other problems? I'm dealing with something similar but worried about making things worse.

Requesting a hold doesn't affect your credit score at all. The IRS doesn't report to credit agencies unless they've actually filed a tax lien, which wouldn't happen at this early stage in the process. The Taxpayer Advocate Service is actually designed specifically to help in situations like this where there's a clear error or hardship. Many people don't realize it exists, but they can be incredibly helpful when dealing with issues that aren't getting resolved through normal channels.

This happened to me too! I sent in all the documentation and they claimed they never received it, then hit me with additional penalties. What did you end up doing to resolve it?

Thanks for this clear explanation! Do you know if there's any way I can find out exactly how many years my parents claimed it without asking their accountant? And would the Lifetime Learning Credit be worth looking into if I'm no longer eligible for AOC?

The easiest way to find out how many years your parents claimed the AOC without asking their accountant would be to ask your parents to request a tax transcript from the IRS for the relevant years. They can do this online through the IRS website and it would show if they claimed the credit. The Lifetime Learning Credit is definitely worth looking into if you're no longer eligible for the AOC. While the AOC provides a maximum credit of $2,500 per eligible student, the Lifetime Learning Credit offers up to $2,000 per tax return (not per student). The Lifetime Learning Credit has no limit on the number of years you can claim it, and it can be used for undergraduate, graduate and professional degree courses. It has lower income limits and a smaller percentage of qualified expenses covered (20% vs. 100% for the first $2,000 for AOC), but it's a good alternative if you've exhausted your AOC eligibility.

That's not entirely accurate. There's also the gross income test for dependents who are not full-time students. If OP makes above a certain amount (around $4,400 for 2022), they can't be claimed as a dependent by their parents even if parents provide more than half their support.