Thanks for bringing this up! I'm in Minnesota and had no idea states might have different rules. Does anyone know if Minnesota has any special provisions for medical expenses? I'll look it up too, but thought someone here might know off-hand.

Minnesota does allow medical expense deductions, but they generally follow the federal rules. However, Minnesota has some specific provisions for certain care expenses that might help in your situation. If you're paying for long-term care services or have significant prescription drug costs, there are some additional state tax benefits you might qualify for. I'd definitely recommend looking at the Minnesota Department of Revenue website for details, as state tax provisions can change year to year. But in general, if you're itemizing medically on your federal return, those same deductions will carry over to your Minnesota return.

I switched from TurboTax to FreeTaxUSA last year and found it much better for handling my medical expenses. It's more straightforward about categorizing different types of medical costs, and I found their interview process more thorough for catching deductions TurboTax seemed to miss. Plus it's WAY cheaper. I was paying like $120 for TurboTax Deluxe plus state, and FreeTaxUSA was only about $15 for state (federal is free). Might be worth trying if you're not locked into the TurboTax ecosystem.

I've used H&R Block's software for the past three years, and it handles medical expenses pretty well. Their interface for entering medical expenses lets you categorize everything by type (doctor visits, hospital stays, prescriptions, etc.) which makes it easier to organize. One thing I really like is their audit risk assessment that gives you a heads-up if your medical deductions seem high compared to your income level. That helped me make sure I had all the proper documentation ready just in case.

I think you're onto something! I just checked the detailed calculations and it does show a self-employment tax amount even though I filed the 8919. Is there any way to fix this in the software or do I need to file a paper return?

Unfortunately most tax software doesn't handle this situation perfectly. You have a few options: You can try entering the income as W2 with zero withholding for now, and then attach an explanation letter with your return explaining the misclassification and your pending SS8. Many people do this since the end result is usually more accurate. Alternatively, you can file a paper return with the correct forms and calculations, which gives you more control but is obviously more work. If you go this route, include a clear explanation letter. Either way, keep detailed records of everything. Once your SS8 determination comes through (which can take 6+ months), you'll likely need to file an amended return anyway, especially if the IRS rules in your favor.

I filed in Feb last year and got my determination in December - so like 10 months. They ruled in my favor and then I had to file an amended return. The company had to pay their share of the taxes, and I got a nice refund for the extra I'd paid. Long wait but worth it in the end.

Is this true even for inherited properties? I thought the primary residence exclusion only applied if you actually owned the home, not if you inherited it?

The primary residence exclusion applies to any home you own and use as your main home, regardless of how you acquired it. If you inherited the property and then lived in it as your primary residence, those years of use count toward the 2-out-of-5 year requirement. What matters is ownership and use, not how you originally obtained the property. If you inherited it and immediately sold it without living there, then no, you wouldn't qualify. But if you lived in the inherited house after receiving it, those years absolutely count toward potential primary residence exclusion.

You can get a retroactive appraisal! I was in this exact situation. Find a qualified appraiser who specializes in retroactive valuations - they'll research comparable sales from that time period to establish what the property was worth when you inherited it. It costs a few hundred dollars but can save you thousands in taxes by properly establishing your basis.

That's super helpful - I had no idea retroactive appraisals were even a thing! Did you have any issues with the IRS accepting a retroactive appraisal when you filed your taxes? I'm worried they might question it since it wasn't done at the actual time of inheritance.

So you're saying I should either report all my actual income including the cash tip, or take out the excess contribution from my Roth? I'm guessing there's a process for removing excess contributions?

Exactly. You have two legal options here: either amend your return to include all your income (including the cash tip), or remove the excess contribution from your Roth IRA. There is indeed a process for removing excess contributions. You'll need to contact your IRA custodian and specifically request a "return of excess contribution." You'll need to remove both the excess amount and any earnings attributed to that excess portion. If you complete this before your tax filing deadline (including extensions), you can avoid the 6% excess contribution penalty. However, you'll still pay taxes on any earnings that came from the excess portion.

Most investment companies don't verify your income when you make IRA contributions - they just accept the money. It's your responsibility to make sure you're eligible. But they DO report all contributions to the IRS on Form 5498, so if there's a mismatch with your tax return, that's when problems happen.

Is there an easy way to calculate what percentage should be withheld? I always just use the IRS calculator but it's super complicated.

The simplest rule of thumb is to look at your effective tax rate from last year (total tax paid divided by total income) and make sure you're withholding at least that percentage. For most middle-class married couples, it's usually between 12-18% depending on your exact situation. The more accurate way is to use the IRS Tax Withholding Estimator on their website. It takes about 15 minutes if you have your most recent pay stubs and last year's tax return handy. It will tell you exactly what to put on your W4 to get the result you want (whether that's breaking even or getting a specific refund amount).

Did your company offer to help fix it? Mine just told me it was my responsibility to check my paystubs regularly 🙄