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.

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).

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.

How complicated is the penalty abatement form? Did you need help filling it out or is it something that's pretty straightforward?

The penalty abatement form (Form 843) is actually pretty straightforward. It's just two pages, and for First-Time Penalty Abatement, you basically need to explain that you've had a good compliance history before this issue and had reasonable cause for the failure to pay. I wrote a simple letter stating I had always filed and paid on time previously, was unaware of the proper estimated tax requirements for my new business, and was now taking steps to resolve the situation. Include your contact info, the tax periods you're requesting abatement for, and why you believe you qualify. It took about 8 weeks to get approved in my case.

Thanks for mentioning COVID relief options. My business was definitely affected during that time. Do you know if these programs are still available in 2025? Also, how exactly do they calculate "disposable income" for the OIC formula?

Many of the COVID relief options have expired, but the IRS is still processing applications submitted during the eligible periods. If your tax debt originated during the pandemic years, you might still qualify for certain penalty relief under their broader "reasonable cause" criteria. It's worth mentioning in any communications with the IRS. For calculating disposable income in an OIC, they take your gross monthly income and subtract what they call "allowable expenses." These are based on national and local standards for living expenses like housing, transportation, food, etc. The key is that they use their own standards, not your actual expenses for many categories. So if your car payment is higher than their standard transportation allowance, they'll only count the standard amount. This is where many people run into issues with OICs - the IRS might calculate your disposable income as higher than what you actually have available after paying your real bills.

Thank you so much for this breakdown! This is exactly my situation - I provide the furnished space, basic amenities, and occasionally coordinate cleanings between guests, but nothing like daily housekeeping or meal service. If I decide to push back with my current CPA or find a new one, are there specific tax code sections or IRS publications I should reference to support the Schedule E position?

The primary reference you want is IRC Section 469 and the related regulations that define "rental activity" versus "business activity." Also useful is IRS Publication 527 (Residential Rental Property) which discusses this distinction. For your specific situation, Revenue Procedure 2019-38 is particularly relevant as it provides a safe harbor for treating certain rental real estate enterprises as a business for the qualified business income deduction - but notably, this doesn't automatically make it subject to self-employment tax. The Tax Court has consistently held that providing basic amenities like furniture, utilities, and occasional cleaning between tenants doesn't rise to the level of "substantial services" that would trigger Schedule C treatment. The case Curphey v. Commissioner is often cited in these situations.

This is actually a really smart approach I hadn't considered. How exactly did you determine what percentage goes where? Is it based on time spent on services vs. just providing the property?