1 Oh no, I didn't file Form 8606 for those non-deducted years! I thought I only needed to file that when I did the actual conversion. Do you know if there's a penalty for filing those late? And would I need to do full amended returns or just submit the 8606 forms for those years?

7 There's a $50 penalty for each year you failed to file Form 8606 when you should have, but the IRS often waives it if you explain the situation. You don't need to file a full amended return - you can just file the missing Form 8606 forms by themselves for each year you made non-deductible contributions. Make sure to file these before you file your 2024 return with the conversion. You'll need to keep copies of all these forms permanently too, as they're your proof of basis. I learned this the hard way when I couldn't prove my non-deducted contributions from years ago and almost paid tax twice on the same money.

19 I've used it, but it won't show your non-deducted contributions unless you filed Form 8606 for those years. If you did file the forms, you can see them on your transcript and they'll show your running basis. Without those forms on file, there's no record of which contributions were non-deducted, so you'll need your own documentation (like account statements and previous tax returns).

Oh wow, I hadn't even thought about state taxes! I've been living in the same state the whole time (Michigan), so I guess I'll need to file those too. Are the penalties for state taxes similar to federal?

State tax penalties vary depending on where you live, but in general they follow a similar structure to federal penalties - there's usually a failure-to-file penalty and interest on any unpaid tax amounts. Some states might be more aggressive with collection than others. Michigan has its own set of penalties, but they're typically less severe than federal ones. The important thing is to file both federal and state returns for each missing year. Some tax software automatically prepares your state return along with your federal, which makes the process easier. Just make sure you're using the correct forms for each specific tax year, as tax laws and forms change periodically.

TurboTax does offer previous years' versions, but only going back about 3 years. You have to buy each previous year separately which gets expensive fast. I found it easier to use FreeTaxUSA for my back taxes - they charge way less for prior year returns and have forms going back several years.

Thanks for the explanation and tips! I've actually started tracking my expenses already - I bought some special non-slip shoes just for work and my own grooming scissors. Should I be saving receipts for everything? And do I need to formally register as a business or anything since I'm technically "self-employed"?

Yes, absolutely save receipts for everything work-related! Digital copies work too - I take photos of receipts with my phone and organize them in a folder. For larger purchases like equipment, keep the original receipt if possible. You don't necessarily need to formally register as a business for tax purposes - filing Schedule C with your personal tax return is sufficient for a sole proprietorship, which is what you are by default. However, some localities require business licenses even for independent contractors, so check your city/county requirements. It's usually a simple form and small fee if needed. Some groomers also get liability insurance to protect themselves - might be worth considering as your work increases.

Did you end up owing more taxes when you had to amend? I'm worried because I think I might have answered this wrong too on my last return for my pet sitting business.

Thanks for suggesting ProSeries! That form-based approach is exactly what I miss from my professional days. Do you know if they offer a one-time purchase option or is it subscription-only? And roughly what price range are we talking about for the Basic version?

They offer both options. You can get a single-year license for around $450 for the Basic version, which includes federal and one state. It's definitely more expensive than consumer software, but much less than the professional versions which run into thousands. The nice thing is you can download a trial version to test before purchasing. This lets you see if the interface works for your needs. The learning curve isn't bad if you're already familiar with professional tax software. One thing to keep in mind is that while it's form-based, you still get the calculations and error-checking that prevents mistakes.

I second ATX! Been using it for 5 years after trying everything else. Perfect balance of functionality and price for experienced preparers. The Max bundle handles everything but costs around $1200. The basic package might be enough at around $600 if you don't need specialized business forms.

Oh crap, I didn't even think about state taxes. I lived in Illinois for two of those years and New York for part of another before moving abroad. Are the processes similar for catching up on state taxes? Do I need to file state returns before federal?

The processes are similar but each state has its own forms and procedures. Illinois and New York both have relatively straightforward processes for filing past-due returns, but they'll have different forms than what you're filing federally. Both states maintain prior year forms on their tax department websites. You don't necessarily need to file state before federal - you can work on them simultaneously. However, since most state returns start with your federal AGI or taxable income, it often makes practical sense to complete your federal return first. Just be aware that both states may have their own penalties and interest for late filing, separate from the IRS penalties. New York in particular can be quite aggressive with penalties, so don't delay getting those filed once you start the process.

This! The FBAR penalties are no joke. My cousin got hit with a $10,000 penalty for a non-willful violation. If they determine it was willful, penalties can go up to $100,000 or 50% of the account balance. Definitely something to take seriously!