Is there a time limit on when a financial institution can issue a corrected 1099-R? My mom's situation happened almost 2 years ago and we're just now discovering the mistake.

There's technically no specific time limit for a financial institution to issue a corrected 1099-R. They can (and should) correct erroneous information even years later. For your situation with your mom, you generally have 3 years from the original filing deadline to file an amended return to correct mistakes. So even at 2 years out, you still have time to get this fixed. The financial institution may be resistant since it creates extra work for them, but they are obligated to provide accurate tax reporting. Be persistent and escalate to management if needed.

Yes, I had success getting penalties (but not all interest) waived by requesting penalty abatement due to reasonable cause. I explained that the error was made by the financial institution, not me, and provided their admission letter. The IRS has discretion here and often waives penalties when you can prove the error wasn't your fault.

This is super helpful! I hadn't even thought about the dependent thing. I am still living with my parents and they pay for most of my stuff, so I'll definitely check with them about this. Is there an easy way to calculate how much I should be setting aside each time I get paid? I'm making anywhere from $150-400 a week depending on how many gigs I pick up.

A simple rule of thumb is to set aside 30% of everything you earn. That should cover both your self-employment tax (which is about 15.3%) and your federal income tax. If your state has income tax too, you might want to bump that up to 35%. The easiest way to manage this is to open a separate savings account just for taxes. Every time you get paid, immediately transfer 30% to that account and don't touch it. At tax time, you'll have the money ready to pay what you owe. Plus, if you end up owing less than you saved, you'll have a nice little bonus!

This is so important! I got slapped with a $420 penalty my first year freelancing because nobody told me about quarterly payments. The IRS doesn't play around with this stuff.

That's interesting - I just double-checked and my notice is definitely from the IRS directly. It has the official Department of Treasury/IRS letterhead and mentions the specific IRS tax examination department. But this is good info for others who might be in a similar situation!

I've heard they're focusing on high income returns (over $400k) and those with Schedule C business income after getting that increased funding. Targeting where they think they'll recover the most unpaid taxes.

Thanks for bringing this up. Just to clarify, this is definitely for consulting work - strategy and business development advice I'd be providing. So it sounds like even without a 1099, I need to report it as self-employment income on Schedule C, and I'd owe both regular income tax plus the self-employment tax. Seems like the consensus is that trying to hide it isn't worth the risk.

Exactly right. It's 100% taxable as self-employment income. Report it on Schedule C, pay both income tax and self-employment tax. You can also deduct legitimate business expenses against that income - any travel specifically for this consulting, a portion of your home if you use it regularly for this work, supplies, software, etc. Just make sure to keep good documentation of all expenses. The self-employment tax feels painful (15.3% on top of income tax), but remember that half of it is deductible on your 1040, which helps a little.

This is terrible advice. IRS has been ramping up enforcement with new funding. They specifically target self-employed people with unreported income. My cousin tried this "cash doesn't exist" game for years until he got hit with a $43k bill including penalties and interest. They reconstructed his income from bank deposits and found all kinds of stuff. Not worth destroying your financial future.

Thanks for bringing this up! I've actually been in Texas the entire time, so I think I'm ok on the state tax front. But that's a really good point for anyone else who might have moved around during their unfiled years.

I used a CPA after not filing for 3 years and it was 100% worth it. Cost me about $350 per year of unfiled taxes, but she found enough deductions that I hadn't known about to save me over $2000 in taxes. Plus she handled communicating with the IRS which was priceless for my anxiety.

That's really helpful, thanks! Did your CPA also help with negotiating penalties or setting up a payment plan, or just with preparing the actual returns?