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Be super careful about private lending! I did something similar last year (switched from marketing to private lending) and didn't realize I needed special licenses. Got hit with a $5,000 fine from the state banking department. Turns out most states consider lending to be a highly regulated activity unlike IT services. You might need: 1) NMLS registration 2) State lending license 3) Surety bond Plus lending to consumers has way more regulations than business-to-business lending. Make sure you know which type you're doing!
Did you need all those licenses even if you were just doing loans to friends and family? Or were you advertising to the general public?
I never updated any paperwork when I switched my LLC from graphic design to dropshipping. Been running it for 2 years with no issues. As long as you're paying your taxes, nobody cares what your LLC does imo.
That approach might work for some businesses, but private lending is much more heavily regulated than either graphic design or dropshipping. Banking/lending activities often require specific licenses and registrations regardless of your LLC structure. While the LLC itself might be flexible in its business purpose, certain industries have regulatory requirements that exist separately from business entity rules. Not complying with lending regulations can result in significant penalties, as another commenter mentioned about their $5,000 fine. It's always better to do things properly from the start rather than risk regulatory issues down the road, especially in financial services.
For what it's worth, you might be overthinking this. The software is just trying to determine if your state refund is taxable income. Quick rule: If you took the standard deduction (didn't itemize) on your federal return for 2022, then your state refund received in 2023 is NOT taxable. If you did itemize and included state taxes as part of your itemized deductions, then the refund might be taxable. So it's asking about state/local withholding specifically, not federal. Find boxes 17 and 19 on your W-2 like someone mentioned above.
That makes a lot of sense now. I was definitely mixing up the federal and state parts. Looking at my W-2s now, I can see the state withholding amounts in box 17. One more question - do I need to enter anything for local tax withholding if my state doesn't have local income taxes?
If your state doesn't have local income taxes, then you would just enter zero for the local tax withholding amount. Some states have both state and local income taxes (like New York with NYC tax, or Ohio with municipal taxes), while others only have state-level income tax. Just be sure to enter the state withholding amount from box 17, and if there's nothing in box 19 for local taxes, enter zero there.
When I was doing my taxes, I spent hours trying to figure out what "state/local refund amount" meant in TurboTax. Finally realized they just want to know how much your state refunded you last year to determine if it's taxable. The key is whether you itemized or took standard deduction last year. Did you get a refund from your state for tax year 2022 that was paid to you in 2023? If yes AND you itemized in 2022, you need to report it. If you took standard deduction, you can ignore it completely.
This cleared it up better than anything else I've read! So simple when explained that way. Software tax questions are so confusing sometimes.
Just FYI, when making payments through Pay1040, there's a processing fee that varies depending on how you pay. It's around 1.87% if you use a credit card (minimum $2.50) or $2.55 flat fee for direct debit from your bank account. I've been making partial payments for the past 3 months. I always choose the direct debit option since it's cheaper for payments over about $140. One thing to remember is to print or save the confirmation for each payment - I've had one payment that didn't get properly credited to my account at first, and having that confirmation made it much easier to get it sorted out.
Thanks for that tip! Do you know if the other payment processors (PayUSAtax or ACI Payments) have different fees? Are any of them cheaper than Pay1040?
Yes, each processor has slightly different fees. Last I checked, PayUSAtax charges 1.96% for credit cards (minimum $2.69) and $2.55 for direct debit, while ACI Payments/Official Payments charges 1.99% (minimum $2.50) for credit cards and $2.00 for direct debit. So if you're using direct debit, ACI Payments is actually the cheapest at $2.00 flat fee. If you're using a credit card, Pay1040 is still the best deal at 1.87%. The differences aren't huge, but they can add up if you're making multiple payments.
I just wanted to share that I did exactly what you're describing last year - owed about $1,800 and made payments over 5 months without setting up a formal plan. I used Pay1040 and selected "Form 1040 Series" like others have mentioned. One thing no one has pointed out yet: make sure you factor in the failure-to-pay penalty, which is 0.5% per month (or partial month) on the unpaid balance, capped at 25% of the unpaid amount. This is on top of the interest. The IRS will recalculate your balance every time they process a payment, but they don't always send updated notices. I ended up paying about $45 in combined penalties and interest by the time I was done, which wasn't too bad considering the flexibility it gave me.
Do you know if the failure-to-pay penalty applies even if you've filed on time? I thought that was only if you filed late?
Former tax preparer here. One thing nobody's mentioned yet - many in-person tax preparers at those seasonal tax shops are seasonal workers with minimal training. They're often using a guided software system similar to what you'd use at home - just a professional version. The real value comes when you work with an actual CPA or EA (Enrolled Agent) who knows the tax code inside out. They can do tax planning throughout the year, not just tax preparation at filing time. But those folks typically charge $250-500+ for even basic returns.
Is there any way to know if you're getting someone with real expertise vs a seasonal worker? I always see those pop-up tax places and wonder about the qualification level.
Ask about their credentials and experience directly. Anyone can call themselves a "tax preparer," but CPAs, Enrolled Agents, and tax attorneys have specific certifications and continuing education requirements. Look for those designations. At seasonal shops, ask how many years they've been preparing taxes and what training they've received. Experienced preparers, even without formal credentials, often have valuable practical knowledge. If they start working there just a few weeks before tax season, that's a red flag. Also, ask if they work on taxes year-round or just during tax season - year-round indicates more commitment to the profession.
When I used FreeTaxUSA I got a $2,350 refund. Went to H&R Block the next year (similar income/situation) and got back $2,290. Year after, tried TurboTax and got $2,490. Honestly I think its just normal variation in income, deductions etc year to year. No magic bullet imo.
Amara Okafor
Just a heads up that you might want to consider doing a backdoor Roth conversion since you can't deduct your traditional IRA contribution anyway. I was in a similar situation with my income and found that converting my non-deductible traditional IRA to a Roth IRA made more sense tax-wise. Since you've already paid tax on that $6,500 contribution (by not being able to deduct it), you'd only pay taxes on any earnings when you convert to a Roth. And then all future growth would be tax-free. Just make sure you don't have any other pre-tax IRA money or the pro-rata rule will complicate things.
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AstroAce
ā¢Thanks for this suggestion! I've heard about backdoor Roth conversions but wasn't sure if they applied to my situation. If I'm understanding correctly, since I can't deduct the traditional IRA contribution due to my income, converting it to a Roth would mean I'm not being taxed twice? Do you know if doing this backdoor conversion would fix the TurboTax error I'm getting, or would it potentially create new complications for filing?
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Amara Okafor
ā¢You've got it exactly right - since you can't deduct the traditional IRA contribution, you've already paid tax on that money. If you convert to a Roth soon after contributing (before there's significant earnings), you'll pay very little or no additional tax on the conversion. Then all future growth will be tax-free when you withdraw in retirement. Regarding your TurboTax issue, doing a backdoor Roth actually might simplify things. First, fix your current issue by properly coding the inherited IRA distribution and marking your traditional IRA contribution as non-deductible. Once that's working, you can add the Roth conversion as a separate transaction. TurboTax has a specific section for Roth conversions that's generally quite straightforward. The software will generate Form 8606 to track your non-deductible basis and properly report the conversion.
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Giovanni Colombo
Just wondering - has anyone tried using other tax software instead of TurboTax for handling inherited IRAs? I've been having similar issues and thinking about switching to H&R Block or FreeTaxUSA.
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Fatima Al-Qasimi
ā¢I switched from TurboTax to FreeTaxUSA last year and found it much easier for handling my inherited IRA from my dad. Their interface for entering distribution codes is more straightforward, and they have really clear explanations about inherited IRA rules. Plus it's way cheaper!
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