Thanks for the tip about entering them separately! Do you know if TurboTax will automatically ask me about the medical insurance exception, or do I need to look for that specifically somewhere?

TurboTax should ask you about exceptions after you enter each 1099-R form. When it asks about the distribution code (Box 7), it will then follow up with questions about your situation. If you indicate you were unemployed, it should specifically ask if you used any of the money for health insurance premiums. If it doesn't automatically prompt you, look for a section called "Exceptions to Tax Penalties" or something similar after entering your 1099-R information. Make sure you have documentation of your insurance premium payments during your unemployment period, as you'll need this if you're audited.

I used it last year for a similar retirement withdrawal situation. The expert was helpful in confirming I qualified for an exception to the penalty since I was using the money for health insurance during unemployment. For complex situations like multiple 1099-Rs with no W-2s, I'd say it's worth the extra cost for the peace of mind.

That's really helpful and kind of concerning - I definitely don't want to accidentally look like I'm doing something illegal! Is there anything specific I should do besides keeping good records? Should I mention anything to my bank about these transfers?

You don't necessarily need to proactively contact your bank, as they're already monitoring transactions. Just be completely transparent if they ask any questions. What I would strongly recommend is keeping a detailed spreadsheet with dates of all purchases and sales, original purchase prices (receipts if you have them), sale prices, and the purpose of each transaction. Take photos of the clothing items before shipping as additional evidence. Also save all communication with your buyer that shows these are legitimate sales of personal items. If you file taxes with an accountant, discuss this situation with them so they're aware of the full context.

Do wire transfers even generate 1099-Ks though? I thought those were mainly for payment platforms like PayPal, Venmo, etc.

Thank you for mentioning this! My fictional taxpayer has an AGI of $123,000, so they'd be in that phaseout range. How exactly do I calculate the deductible portion of the $7,500 rental loss in this case? Is there a specific worksheet in the instructions?

For an AGI of $123,000, you're right in the middle of the phaseout range. The calculation is pretty straightforward: you lose $0.50 of the $25,000 maximum deduction for every $1 over $100,000. So take $123,000 - $100,000 = $23,000 over the threshold. Multiply that by 0.5 = $11,500 reduction. This means your maximum deduction would be $25,000 - $11,500 = $13,500. Since your loss is only $7,500, you can deduct the entire amount because it's less than your modified maximum. Form 8582 is where you'd calculate this for a real return, but for your assignment, just showing this calculation should be sufficient unless your professor specifically required Form 8582 as part of the project.

Our professor had us use the free fillable PDFs from the IRS website for older tax years. Way less headache than dealing with outdated software! You can still download the 2017 forms and instructions directly from irs.gov/prior-year

Thank you! My income is around $48,000 - would I still qualify for EITC? And my brother is still in high school, but I am paying for some tutoring services. Would those count as educational expenses?

With $48,000 income and two dependents, you should still qualify for some EITC, though not the maximum amount. The phase-out for Head of Household with two qualifying dependents starts higher than your income, but you'll get a partial credit. Every bit helps! For educational expenses, unfortunately tutoring for high school generally doesn't qualify for the education credits. Those are primarily for post-secondary education (college, vocational schools, etc.). However, if the tutoring is related to a medical condition and prescribed by a doctor, you might be able to count it as a medical expense instead.

This is super important! And just adding on - there's sometimes a gap between disability approval and Medicare coverage starting. During that time, look into if your state has a Medicare Savings Program that could help with premiums.

So if the W2 is wrong but the actual withholdings were correct all along, does the person need to do anything special when they file? Like report the discrepancy somewhere?

Once you receive the corrected W2-c, you just use that form instead of the original incorrect W2 when filing your taxes. You don't need to report the discrepancy or include any special forms explaining the situation. The corrected W2-c will show the original incorrect amounts, the correct amounts, and the difference between them. This makes it clear to the IRS what changed and why. Just make sure you're using the final corrected numbers when completing your tax return.

In my experience it took about 3 weeks. If it's getting close to the deadline you can always file for an extension to give yourself more time.