I heard about someone trying to deduct their wedding because they invited business clients! Did any of those crazy deductions actually work? Asking for a friend...

None of the truly outrageous ones work! The IRS isn't stupid, though my brother-in-law says he's occasionally surprised by legitimate deductions people don't know about. The wedding one is actually interesting - if you can prove certain clients were invited specifically for business purposes, a PORTION might be deductible as a business entertainment expense. But the entire wedding? Absolutely not. Some people try to claim their entire basement as a home office when they just have a desk in the corner - that's asking for an audit!

I'm convinced the IRS intentionally makes the forms confusing so we mess up and they can charge penalties. Has anyone tried those free filing programs? Are they actually helpful or just as confusing?

Thanks for the tip about confirming the zero amount! I just started entering my forms and noticed CashApp Tax did ask me about this. So that's normal then? And one more thing - should I be concerned about any penalties on the newer account since I'm 42 and took money out of a retirement account?

Yes, that confirmation step is completely normal! CashApp Tax is double-checking that you're telling it the distribution is non-taxable, which is correct for qualified Roth distributions. Regarding the newer account, since you're under 59½, you might face a 10% early withdrawal penalty on the earnings portion (but not on your contributions). However, there are exceptions to this penalty - like using the money for a first-time home purchase, certain education expenses, or if you have unreimbursed medical expenses exceeding a certain percentage of your income. The distribution code in Box 7 (you mentioned code J) suggests it's an early distribution, so CashApp Tax should calculate any applicable penalties automatically when you enter the form correctly. If you're eligible for an exception, make sure to indicate that when prompted by the software.

This is such a good point! I made the exact same mistake last year with distribution codes and ended up having to file an amended return because it showed my qualified Roth distribution as taxable when it shouldn't have been. Those tiny codes make a huge difference in the tax treatment.

Could you explain a bit more about the difference between employee and employer contributions when it's just me? I'm a bit confused about how I can be both when I'm a sole proprietor.

When you're self-employed, you act as both the employee and the employer for retirement contribution purposes, even though it's just you. As the "employee," you can contribute up to $22,500 for 2023 (or $30,000 if you're over 50) from your compensation. As the "employer," you can also make an additional profit-sharing contribution of up to 25% of your net self-employment income (after deducting both business expenses and half of your self-employment tax). This dual contribution ability is what makes Solo 401ks so powerful for self-employed individuals - you can potentially put away much more than with other retirement options like SEP IRAs.

I've used both. SEP IRAs are definitely simpler to set up, but Solo 401ks usually let you contribute more overall. Neither one reduces self-employment tax though. The main advantage of a Solo 401k is you can make both employer and employee contributions, while SEP IRAs only allow employer contributions.

17 Which states actually have these lower estate tax thresholds? Is there a simple list somewhere? My parents have property in multiple states and I'm trying to figure out if this is something we need to worry about.

3 As of 2023, the states with estate taxes are: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and the District of Columbia. The exemption thresholds range from around $1 million (Massachusetts, Oregon) to $9.1 million (Connecticut). Some states also have inheritance taxes, which are different - they're based on who receives the assets rather than the total estate value. Those states are Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Maryland actually has both types of taxes! If your parents have property in multiple states, you definitely need to look into each state's rules. The concept of "domicile" becomes really important in determining which state's laws apply.

8 Yes, you would be personally liable in two ways. First, as the executor, you have a fiduciary duty to handle the estate properly, which includes paying taxes before distributions. Second, as a beneficiary receiving assets from a taxable estate, you have transferee liability for your proportionate share of estate taxes. The IRS can come after you both as the executor who failed to ensure taxes were paid and as the beneficiary who received assets that should have been used to pay taxes. I strongly recommend getting professional help with this situation to avoid serious personal liability.

Does the first person to file always win? I heard that the IRS just automatically accepts whoever files first and then the second person is stuck fighting for it.

No, the first person to file doesn't automatically "win" - they just get their refund processed first. The IRS doesn't know there's a conflict until the second person tries to claim the same dependent with the same Social Security number. When the second return comes in claiming the same dependent, it gets flagged for review. The IRS will apply their tiebreaker rules (which favor the parent the child lives with most of the time) and may request documentation from both parties. It's just that the second filer will likely need to paper file and wait longer for their refund while this gets sorted out. The rightful claimant will eventually get the tax benefits they're entitled to, regardless of who filed first.

I don't think there's a way to "reserve" your dependent before filing. The IRS doesn't have a pre-filing verification system for dependents that I know of. Your best bet is to file electronically as early as possible and make sure you have documentation ready if there's a dispute.

Thanks for clearing that up! I must have misunderstood what someone told me. Sounds like I should just focus on filing early with good documentation instead.