Thanks for mentioning the payment plan option! Do you know if setting up a payment plan today (even if I plan to pay it off tomorrow) would help me avoid the penalties completely? Or would I still get hit with the 0.5% for the unpaid portion?

Setting up an installment agreement (payment plan) doesn't eliminate penalties completely, but it reduces the late payment penalty from 0.5% to 0.25% per month. You'd still owe interest on the unpaid balance too. If you're literally only going to be one day late, it might not be worth the hassle of setting up a formal payment plan, especially since there's a fee to establish one ($31 for online setup with automatic payments). For a one-day delay on $6k, you're looking at around $30 in penalties without a plan versus maybe $15 with a plan, but then you'd pay the $31 setup fee. The math doesn't work in your favor for such a short delay.

Was the abatement automatically applied or did you have to wait for them to send you something? I'm in a similar situation but hate waiting for mail from the IRS.

Super helpful, thanks! Do you happen to know if FreeTaxUSA generates that Form 8949 automatically when you make these adjustments? I heard something about needing to use code "B" for adjusted basis on that form.

Yes, FreeTaxUSA will generate Form 8949 automatically with the correct adjustment codes when you make these basis adjustments. When you indicate the 1099-B doesn't show the correct basis and enter your adjusted amount, it will use code "B" for the adjustment. You can preview the actual form before filing to verify everything looks right. It'll show your reported proceeds from the 1099-B, then your correct adjusted basis, and the difference will be your actual capital gain/loss. Just make sure when entering each lot that you're consistent with your adjustment method across all 8 lots.

This is an important point. OP should check box 14 of their W-2 as well - sometimes companies list the ESPP income there with a code like "ESPP" or "SD" (stock discount).

3 Is there a specific form for notifying the IRS about intention to use Section 1033? I just received insurance money for a rental property that was damaged in a storm and I'm still looking for a replacement.

14 There's no specific IRS form for declaring your intention to use Section 1033. You simply write a letter that includes your name, taxpayer ID, details about the converted property, date of the conversion event, amount of proceeds received, and a statement that you intend to acquire eligible replacement property within the allowed replacement period. Regarding the rental property situation, make sure you're aware of the different replacement periods - you generally have 2 years for most property, but 3 years for principal residences, and 5 years for certain federally declared disaster areas. Document everything meticulously, including all costs associated with the involuntary conversion (legal fees, appraisals, etc.), as these can adjust your basis.

8 I went through an audit on an involuntary conversion back in 2022. They focused heavily on two things: 1) Documentation of the "similar use" requirement and 2) Timing of the replacement. Make sure you have appraisals of both the original property and replacement property that clearly show how they serve similar functions in your business. For your farm situation, you might need to show how the processing facility serves the same business purpose as the equipment did in your overall operation.

8 Yes, you can still amend last year's return! The IRS allows you to amend returns going back three years from the original filing date or two years from when you paid the tax, whichever is later. So you definitely have time to reclaim that $560. I'd recommend filing amended returns for both years - no reason to pay tax twice on money that should be converted tax-free. The process is the same: wait for this year's return to process, then file Form 1040-X with a corrected Form 8606 for each year.

5 Thanks for confirming! I'll definitely look into amending both years then. I was worried I'd just have to eat that $560 as an "expensive lesson" in tax preparation. Good to know there's still time to fix it.

10 I switched from TurboTax to H&R Block last year and found their backdoor Roth questions clearer. They specifically ask if you made "nondeductible contributions" to a traditional IRA, which is the key terminology. They also have better explanations about basis calculation.

17 Thanks for the insight! Might give H&R Block a try next year. At this point I'm willing to try anything that makes this process less confusing.

That's a great point! But what if my self-employment income ends up being much higher than expected? Could I still get hit with penalties if the extra withholding doesn't cover enough?

As long as your total withholding covers either 90% of this year's tax liability or 100% of last year's liability (110% if your income is over $150,000), you won't face any penalties. If your self-employment income shoots up unexpectedly, you can always adjust your W-4 again mid-year to increase withholding further. Many people don't realize you can adjust your W-4 multiple times throughout the year. For extra security, you can also make one or two estimated payments toward the end of the year if it looks like your withholding won't be enough. This hybrid approach gives you flexibility while avoiding the headache of calculating quarterlies every few months.

But how do you know 25-30% is the right amount? Isn't everyone's tax situation different? I'm worried about setting aside too little.