That's really helpful, thanks for the warning! Was the amendment process difficult? I'm wondering if I can just do it myself or if I really need professional help with this.

The amendment itself wasn't too complicated. I used the same tax software I originally filed with (TaxAct), and they had a guided amendment process. The trickiest part was figuring out which forms needed to be amended - in my case it was Schedule D and Form 8949 for the investment changes, plus the 1040-X to summarize everything. If your tax situation is otherwise straightforward, you could probably handle it yourself. But given the size of your adjustment (going from a loss to a $37k gain), it might be worth at least consulting with a tax pro. That kind of change could impact other parts of your return like the Net Investment Income Tax or your overall tax bracket.

This! I learned this lesson the hard way. Now I wait until at least March 15th to file if I have any investment accounts. The extra wait for my refund is worth not having to amend.

Thank you for this advice! We actually hadn't thought about the credit reporting aspect at all. Just called Experian to place the fraud alert and we're going to check his credit reports tonight. Is there anything else we should do for protection beyond what you mentioned?

I'd also recommend freezing his credit with all three bureaus for maximum protection. Unlike a fraud alert which expires, a credit freeze stays in place until he lifts it. It prevents anyone from opening new accounts in his name because creditors can't access his credit report. Also, have him set up an account on the Social Security Administration website (ssa.gov) before someone else tries to using his information. And definitely enroll in IRS Identity Protection PIN (IP PIN) program after this is resolved - it's an extra security code he'll need for future tax filings that prevents anyone else from filing with his SSN again.

This is super important! When this happened to my cousin, the IRS identified the fraud pretty quickly because the fake return claimed income from companies that had never issued him a W-2. The agent said this is one of the most common ways they catch these fraudulent returns.

It was definitely a direct transfer where I never received any funds personally - I just authorized the new bank to pull the funds from my old IRA. So sounds like I won't get a 1099-R either. But hypothetically, if someone DID receive a check and then deposited it in the new IRA within 60 days, how would they report that? Just curious for future reference.

In a direct transfer where you never received the funds, you're correct that you won't receive a 1099-R, and there's nothing to report on your tax return. If someone did receive a distribution check and then completed a 60-day rollover, they would receive a 1099-R from the first institution with distribution code G. They would need to report this on their tax return (generally on lines 4a and 4b of Form 1040), showing the full amount on line 4a but putting $0 on line 4b (since it's not taxable if properly rolled over). They would write "Rollover" next to line 4b to indicate why the taxable amount is zero. This ensures the IRS knows you received funds but properly rolled them over within the allowed timeframe.

This is so helpful, thank you! So just to confirm - when my tax software asks if I made any "contributions" to my traditional IRA this year, I should NOT count the rollover amount as a contribution, right?

This happened to my brother! His construction job gave him a weird W2 that was mostly empty and later claimed he was "1099" but never gave him an actual 1099. He had to pay all the taxes himself and it was a nightmare.

That's a good point! What specific things should I document to show I'm running this as a legitimate business? I definitely want to turn a profit, but it's taking time to build up my designs and customer base.

You should keep track of how many hours you spend working on the business each week, have a separate business bank account, maintain professional records of income and expenses, create a business plan with profit projections, and document your marketing efforts. Also consider getting business cards, a business website or professional social media presence, and perhaps even form an LLC if you're serious about it long-term. The key is demonstrating that you're approaching this in a businesslike manner with the intention to make profit, even if you haven't gotten there yet. The IRS typically looks for profitability in 3 out of 5 years, but showing these business practices helps even if you're still in the early stages.

One thing to note - computers are considered "listed property" by the IRS if they're not used 100% for business, so you'll need to track business vs personal use. If you use it more than 50% for business, you can still claim depreciation proportional to business use.