Thank you! That's a really important detail I wouldn't have thought about. Do you remember what specific form or code they needed to use for correctly documenting the excess contribution removal? I want to make sure I have all the right terminology when I call Fidelity.

For the 1099-SA form, the distribution should be coded properly. There's a box on the form for "distribution code" - for excess contributions returned by the tax filing deadline, it should be coded as "2 - Excess contributions" rather than "1 - Normal distribution." Make sure you specifically tell them it's for "excess contributions that were made when you weren't eligible for an HSA" and give them the specific tax year. I'd also recommend following up with an email if possible so you have written documentation of your request. Fidelity is generally good about this, but having it in writing saved me when my provider initially processed it incorrectly.

Yes, this is handled through the "last-month rule" or prorating your contribution. If you were eligible on December 1st, you can potentially contribute the full annual amount, but you have to remain eligible through the end of the following year (called the testing period). Otherwise, you can only contribute 3/12 of the annual limit for those three eligible months.

Do you know if we can e-file amended returns now or do they still have to be mailed in? I remember always having to mail them before but wasn't sure if that changed.

You can now e-file amended returns (Form 1040-X) for tax years 2019 and later using tax software, which is a huge improvement over the old paper-only system. However, there are some situations where you still need to mail in your amendment - like if you're amending a return that was filed before 2019, or if your amendment involves certain forms or schedules that aren't supported electronically. If your amendments are straightforward, e-filing is definitely the way to go since it's processed much faster than paper amendments. Just make sure your tax software supports e-filing of Form 1040-X.

If you're past the statute of limitations (generally 3 years) and you owed money to the IRS, technically they cannot assess additional tax or initiate collection actions against you. However, there are important exceptions: There's a 6-year statute of limitations if you omitted more than 25% of your gross income. And there's no statute of limitations for fraudulent returns or if you never filed a return at all. That said, voluntarily coming forward to correct errors shows good faith, which can help if there are any questions about whether the errors were intentional. The IRS generally views deliberate tax evasion much more seriously than honest mistakes.

Thanks for bringing this up! My qualified expenses should be enough since my tuition and required fees were about $18,000 this year, and I only received a $5,000 scholarship. The bond interest I'm trying to exclude is around $2,400. I wasn't counting room and board - good to know that's excluded for this benefit. Does it matter if some of the qualified expenses were paid from a 529 plan? Or does that create another reduction?

Yes, expenses paid with 529 plan distributions would reduce your qualified education expenses for the savings bond interest exclusion. The IRS doesn't allow "double-dipping" of tax benefits. So if you used $8,000 from a 529 plan to pay for some of that $18,000 in tuition and fees, and received a $5,000 scholarship, your remaining qualified expenses for Form 8815 would be reduced to $5,000 ($18,000 - $5,000 - $8,000). That would limit how much bond interest you could exclude.

There's no time limit between when the bonds were issued and when you use them for education. As long as you cash the bonds and pay the qualified education expenses in the same tax year, you can potentially claim the exclusion (assuming you meet all the other requirements about ownership, income limits, etc.). So 2010 bonds used for 2025 education expenses could qualify. Just remember both actions (redeeming the bonds and paying the expenses) need to happen in the same tax year.

Super curious about this too. The IRS letter says I need to respond within 30 days, but I'm worried about what happens if the amendment takes months to process. Do they put collections on hold the whole time?

Amended returns are currently taking 4-6 months to process, sometimes longer depending on complexity. The key is to respond to the notice within the 30-day deadline, explaining that you're filing an amended return to correct the issue. When you respond, include a clear explanation of why you believe the tax assessment is incorrect (gross vs net income) and state that you're preparing an amended return. This formal response will typically pause immediate collection actions. If you can speak with an IRS representative directly, they can often place a more specific hold on your account while the amendment processes.

Yes, typically you'll need to file amended state returns too. Most states automatically get notified of federal adjustments and will adjust your state tax liability accordingly. Better to be proactive and file the state amendment rather than waiting for them to come after you too.

Can they really go back indefinitely? I heard there was a 3 year limit on audits.

The 3-year limit applies to returns that have been filed. If you file a return but omit more than 25% of your gross income, the statute of limitations extends to 6 years. But if you don't file a return at all, there is NO statute of limitations. The IRS can come after you 10, 15, even 20 years later. And for criminal tax evasion (which hiding $1M could potentially be), the statute of limitations is 6 years. This is why tax professionals always advise filing something, even if you can't pay. Filing starts the clock on the statute of limitations, while not filing keeps your case open indefinitely.

Tax attorney here - generally no. Most tax debts survive bankruptcy. The rules are complicated, but for capital gains tax, you're typically stuck with it even after bankruptcy. Plus, if the IRS determines you deliberately avoided paying taxes, they might pursue criminal charges which definitely aren't dischargeable. To be eligible for discharge of any tax debt in bankruptcy, the taxes must be at least 3 years old, you must have filed a return at least 2 years before bankruptcy, and the IRS must have assessed the tax at least 240 days before you file. Willful evasion or fraud will make the debt non-dischargeable regardless.