That's a great suggestion about the IRA! I never thought about that. If I'm gonna hit the contribution limit issue again next year, maybe I should reduce my 401k and put some in an IRA instead? Would a backdoor Roth make sense in this situation? I've heard about that but don't really understand how it works.

Exactly - if you know you'll likely face this issue again, you could contribute just enough to your 401(k) to stay under whatever threshold your plan administrator suggests, then put the rest in an IRA. Regarding backdoor Roth - that's mainly useful if your income exceeds the limits for direct Roth IRA contributions. You'd contribute to a traditional IRA (no deduction) and then convert it to Roth shortly after. It's a perfectly legal workaround for the income limitations, but has some nuances if you have existing traditional IRA balances (pro-rata rule). Would definitely be worth considering if you're over the Roth income limits.

Wait really? I thought it would count for the tax year when the original contribution was made. This is getting confusing...

Isn't that overkill for a small business sale though? $600 seems like a lot to spend just to fill out one tax form correctly. Did you consider just doing it yourself first?

For some small businesses it might be overkill, but in my case the sale was for over $150k so spending $600 for proper allocation made sense. I did try doing it myself initially, but got nervous when I realized how subjective the intangible valuations can be. The valuation expert provided documentation that showed market-based comparisons for similar businesses in my area, which made the allocations defensible if questioned. They also helped optimize the tax implications for both me and the buyer, which potentially saved more than the cost of their services.

I used TaxAct last year for my business sale and it was pretty decent with Form 8594. It had a specific section for business sales that walked through each asset class and helped allocate everything. Can't speak to TurboTax specifically but the business versions of most tax software handle this form adequately.

You're absolutely right - thanks for catching that! I mixed up the amounts. It was definitely the $300 supplemental for 2021, not $600. Do you happen to know which states provided their own unemployment tax breaks for 2021? I'm in Michigan if that helps.

Several states did offer some tax relief for unemployment benefits in 2021. Unfortunately, Michigan wasn't one of them. The states that excluded some unemployment compensation from state taxes in 2021 included Colorado, Delaware, Georgia, Hawaii, Iowa, Illinois, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Missouri, North Carolina, New Mexico, New York, and Oregon – but the amounts and qualifications varied significantly. For Michigan residents, unemployment compensation was fully taxable for 2021 at both federal and state levels. When you file your back taxes, make sure you have your 1099-G form showing all the unemployment you received. If you don't have it, you can usually retrieve it from your state's unemployment agency website.

Would filing an offer in compromise be an option for someone in this situation? I've heard that's a way to settle tax debt for less than what's owed if you can prove hardship.

I never thought about the Social Security angle! Do they provide the same level of detail as the IRS transcripts would? I don't have my final pay stubs unfortunately - learned my lesson about keeping those records now.

The SSA records won't have the same level of detail as IRS transcripts. They typically just show your earnings that were reported for Social Security purposes, but not tax withholding amounts. IRS wage and income transcripts are definitely more comprehensive for tax filing purposes. If you've already accessed your IRS transcripts, those are your best resource. The Social Security option is more of a backup if you couldn't get the IRS information for some reason.

I used FreeTaxUSA for 2020 and 2021 returns that I filed late. It was actually really good for prior years - each year costs around $15 for federal (state is extra). The interface for entering W-2 info from transcripts was straightforward, and they have decent support if you get stuck.

Thanks for sharing your experience! That's actually much cheaper than what I was seeing with TurboTax for prior years. I'll give FreeTaxUSA a try with my transcript information.

I tried to access my transcripts online but got locked out after failing the identity verification. I think this might be related to the name change issue mentioned above. Is there another way to get these transcripts?

You can request transcripts by mail using Form 4506-T if the online system isn't working for you. It takes about 10 business days to arrive, but it's better than nothing. Another option is to visit a local Taxpayer Assistance Center in person - just make sure to schedule an appointment first by calling their appointment line. Bring multiple forms of ID including your Social Security card and they can often help sort out identity verification issues on the spot and get you copies of your transcripts.

Definitely agree. I worked for the IRS for 7 years and the biggest problems were always from people who ignored the initial notices. The good news is they're usually pretty reasonable about removing penalties if you can show you're actively trying to resolve the issues.

Thanks for confirming that. I wish I'd known sooner! I eventually had to hire a tax professional which cost me $450 to straighten everything out, plus I paid about $300 in penalties that probably could have been avoided.