What counts as a "legitimate reason" for not filing? Would extreme financial hardship qualify? I lost my job in 2023 and just couldn't deal with knowing I'd owe taxes I couldn't pay.

The IRS considers things like serious illness, death in the immediate family, natural disasters, or unavoidable absence (like military deployment). Unfortunately, financial hardship alone typically doesn't qualify as reasonable cause for not filing, though it can help with payment arrangements. If you've had a good filing history before this (filed and paid on time for the past 3 years), you might still qualify for First Time Penalty Abatement regardless of your reason. It's worth asking about when you contact them.

You need to get the right version of the software for each specific tax year. So for 2023 you'd need the 2023 version, not the current 2025 one. Most tax software companies sell previous year versions, but sometimes they cost more than the current year.

I tried using TurboTax for back taxes and it was kind of a hassle. You have to buy each year separately and they charge more for previous years. I ended up using FreeTaxUSA instead which was way cheaper for multiple years of back taxes.

Do you still get the 1099-R if you do a hardship withdrawal? My husband needed emergency surgery last year and we took $25,000 from his 401k to cover costs insurance didn't pay. Will we get hit with penalties?

Yes, you'll still receive a 1099-R for hardship withdrawals. For medical expenses, there's a potential exception to the 10% early withdrawal penalty (though not to the regular income tax) if the medical expenses exceed 7.5% of your adjusted gross income. So let's say your combined AGI is $100,000 - medical expenses would need to exceed $7,500 to potentially qualify for the exception, and only the portion above that threshold would be exempt from the penalty. You'll need to file Form 5329 with your tax return to claim this exception. The $25,000 will still be counted as taxable income regardless, but you might be able to avoid at least some of the early withdrawal penalty.

This! I made this mistake a few years ago and overpaid my state taxes by almost $800. Double check ALL the boxes on your 1099-R, not just the main ones!

Did your brother handle this himself or use a tax professional? I'm in a similar situation but wondering if I need to hire someone.

He started the process himself but ended up hiring a tax professional halfway through because the IRS started asking for additional documentation he wasn't sure how to provide. It cost him about $800 for the tax pro, but considering it saved him several thousand in penalties, it was worth it. If your case is relatively straightforward and you're comfortable with tax forms, you might be able to handle it yourself. But in my brother's experience, having a professional who knew exactly what supporting documents to include and how to present the case to the IRS made a significant difference in the outcome. The tax pro also knew which specific medical expenses would qualify and how to properly document them to meet IRS requirements.

Thanks for this insight. Do you think there's any chance the IRS would consider a full abatement of the penalty? I'm really struggling financially and this penalty is going to put me in an even worse situation.

Full abatement is rare but not impossible. The IRS does have authority to provide relief in cases of exceptional circumstances. Your best approach would be to: 1) Request abatement based on reasonable cause, clearly documenting why you believed the withdrawal qualified for exception (any advice you received, confusion between 401(k) and IRA rules, etc.) 2) Request abatement based on financial hardship by completing Form 433-F (Collection Information Statement) to demonstrate your current financial situation and inability to pay. If you're already in a difficult financial position, also look into the IRS payment plan options or Offer in Compromise program. Even if they don't waive the penalty entirely, you might be able to settle for a reduced amount or spread payments over time. Document everything thoroughly - the more evidence you provide of both your reasonable belief that the withdrawal was exempt and your current financial hardship, the better your chances.

What happens if my kid has both types of income but we elect to include it on our return? Do we still have to pay the SE taxes on their earned income?

If you include your child's income on your return using Form 8814, you can only do this for their unearned income (investments, interest, dividends, capital gains). For any earned income (like from a job or self-employment), your child must file their own return regardless. So yes, if they had self-employment income over the threshold (about $400), they would still need to file a separate return for that portion and pay the applicable SE taxes.

Qualified 529 distributions used for educational expenses aren't counted as income at all (neither earned nor unearned), so they won't affect Kiddie Tax calculations. Only if the distribution isn't used for qualified expenses would it potentially count toward the Kiddie Tax thresholds.

Thanks so much for clarifying! That's a relief to know the qualified 529 distributions won't complicate his tax situation. Now I just need to figure out how to handle the dividend income properly.

Thanks for breaking it down like this! Super helpful. Quick question - should I use H&R Block for the amended return even though I was trying to use TurboTax for the side business part? I'm not sure if going back to H&R Block will be easier or if I should just start fresh with TurboTax for the amendment.

I'd recommend using H&R Block since they already have all your W-2 information and original return data in their system. Starting with TurboTax would mean re-entering all that information, which increases the chance of making errors. Most tax software keeps your information on file, so you should be able to log back into your H&R Block account and select the option to amend your return. This will pre-populate all your original information and let you add the additional schedules and income. It's generally much easier than starting from scratch with a different provider.

Does paying the owed tax immediately help avoid penalties even if the amended return takes forever to process? I'm in a similar boat with a side gig I forgot to report.