Would the original poster need to file business returns separately from personal returns? And what about sales tax - is that a completely different process? I'm confused about how all these different tax types get resolved.

Based on the description, it sounds like the business was likely a sole proprietorship or single-member LLC, which means business income would be reported on Schedule C of the personal return. So the CPA would prepare personal returns (Form 1040) with business schedules attached for each year. Sales tax is indeed a separate process handled at the state level. The CPA would need to prepare and file sales tax returns for all unfiled periods. This is separate from income tax filings but should be addressed simultaneously since the state has already started collection actions. Most tax resolution CPAs can handle both income and sales tax matters, but it's worth confirming this specifically when hiring someone.

Good point about penalties. I think with the substitute return already filed, doesn't that mean some penalties are already assessed? Is it harder to get abatement after that point?

Thank you for mentioning this! The letter gives me 45 days to respond or file an appeal. Should I just send a simple letter saying I'm gathering documentation and seeking professional help? Or is there specific language I should use?

Yes, send a simple letter acknowledging receipt of their notice (include the notice number) and state that you're gathering documentation and seeking professional representation. Request an extension of time to respond fully - typically 30 or 60 additional days. Keep it professional and straightforward - don't try to argue your case yet or make any specific claims about your tax situation until you have professional guidance. The goal is simply to prevent default assessment while you get your team together. Send it certified mail so you have proof of delivery.

How did you find a good tax attorney? Just Google? Any specific credentials to look for?

I fortunately don't have any other traditional IRA assets - I've always used my 401k for pre-tax retirement savings and only opened the traditional IRA temporarily for the backdoor process. So I think I'm ok on the pro-rata rule, but that's definitely an important point for others to consider. Actually, I'm wondering if there's any advantage to purposely waiting until the market goes up before doing the conversion next time? That way I could potentially use up some of this basis carryforward?

Intentionally waiting for the market to go up before converting could help use up your basis carryforward, but it comes with risks. The longer you wait to convert, the more potential tax liability you could create if investments grow substantially before conversion. Remember that any growth that occurs while the money sits in the traditional IRA will be taxable when you convert. So while waiting might help with the basis issue, it could create a different tax problem. Most financial advisors recommend doing the conversion quickly after contribution to minimize taxable growth. It's usually a better strategy to just continue with regular backdoor contributions and let the basis work itself out over time rather than trying to time the market for tax purposes.

The basis carryforward calculation happens on Form 8606. If you contribute $6,000 (non-deductible) to a traditional IRA but the value drops to $5,500 before you convert to Roth, you'll have: - Line 5: $6,000 (your non-deductible contribution) - Line 8: $5,500 (the amount you actually converted) - Line 9: $0 (assuming no previous basis) - Line 10: $6,000 (from line 5) - Line 11: 1.000 (divide line 10 by line 8, but capped at 1.000) - Line 13: $5,500 (line 8 × line 11) - Line 14: $500 (line 10 minus line 13) That $500 on line 14 is your basis carryforward to next year's Form 8606.

Thanks for pointing this out! Of the 26% non-rental time, we probably used it personally for about 20 days total throughout the year. The rest was just vacancy between bookings. Does that change how I should handle the depreciation?

Since you used it for 20 days personally and that's less than both 14 days and 10% of your rental days, you're still in the clear to treat it as a regular rental property. Your depreciation calculation remains the same - you can deduct 74% of the annual depreciation amount. Remember though, when allocating other expenses like utilities and maintenance, you'll need to use the 74% factor consistently. And keep good records of personal use days versus rental days versus vacant days, as the IRS might ask for this documentation if you're ever audited.

Is that true for 2024 taxes? I thought there was still a $600 threshold before they send a 1099-K?

That's a great tip! I definitely didn't put my SSN on every page, just on the cover letter and the forms. Do you know if there's any specific format they prefer for this info? Like should it be in the header or just handwritten at the top?

The IRS prefers it in the upper right corner of each page. You can handwrite it or type it, but make sure it's clear and includes both the SSN and the tax year in question. Something like "SSN: XXX-XX-XXXX Tax Year: 2021" is perfect. Also, don't staple anything! Use paper clips if you need to keep pages together. Staples slow down their processing because they have to remove them to scan everything.

TAS has been swamped since the pandemic. I tried using them last year and they told me they were only taking "hardship" cases where people were facing immediate financial harm. Worth a try though!