Wait, I thought Box 7 WAS for state withholding? Now I'm even more confused. Can someone clarify what this box is actually for?

You're right to be confused because there's been a change in the forms. On the OLD 1099-MISC, Box 7 was for nonemployee compensation. When they created the new 1099-NEC form specifically for nonemployee compensation, they reused the box numbers but for different purposes. On the 1099-NEC, Box 7 is for state income - meaning the portion of the Box 1 amount that's attributable to work performed in that state. This is mainly relevant if you worked in multiple states. It's NOT for withholding amounts. State tax withholding (if any) would be reported in Box 5 of the 1099-NEC, not Box 7. That's likely why the federal refund changed (the software misinterpreted it) but the state refund didn't.

That's a really good point and makes me feel better about approaching my client. I'll definitely be gentle when I ask for the correction since it seems like an honest mistake. Thanks for sharing the perspective from the other side!

That's definitely more reasonable than what I was quoted! Do they help at all with figuring out the right numbers to enter, or do I need to have all that prepared beforehand?

You need to have your basic numbers prepared - like total wages paid, taxes withheld, etc. They don't calculate those for you. But their interface does walk you through what goes where, and they have decent support if you get stuck. They're basically just a filing service rather than full accounting software. If you've been keeping decent records of your payroll throughout the year, you should have all the info you need. If not, you might need to go back through your records first before using their service.

This is such an important point! I'm in California and the state penalties for late filing were actually worse than the federal ones. Each state has different requirements and deadlines too.

Thanks for this tip! I didn't even think about the forms being different each year. Do I also need to mail them to different addresses, or can I send all the envelopes together to the same place?

You'll need to check the instructions for Form 1040 for each specific year, as the mailing addresses can change based on the year, your location, and whether you're enclosing a payment. Each year should have its own separate envelope regardless, but they might go to different processing centers. I'd recommend putting a clear note on the outside of each envelope with the tax year it contains to help prevent any mix-ups on the IRS end. And definitely keep copies of everything, plus proof of mailing (like certified mail receipts). This gives you documentation that you submitted everything if questions come up later.

You can definitely use software like TurboTax for prior years! They keep old versions available, though you might have to pay for them separately. I did my 2021 and 2022 returns this way a few months ago. Just remember you'll still need to print and mail the completed returns since e-filing is closed for those years.

Thanks for mentioning this, but no, it was just empty desert land that nobody lived on. No structures at all. It literally sat empty for decades until someone decided it was valuable because of the highway exit nearby.

Good to confirm. One other thing to consider - check if your state has different rules for inherited property taxes. Some states have their own tax treatment that might be more favorable than federal. For example, some states might use their own version of stepped-up basis or have special provisions for long-held family property.

This wouldn't trigger gift tax because it's a sale at fair market value, not a gift. The inheritance portion already happened when OP's mother passed away, and that would fall under estate tax rules (though with only a 15% interest in land worth $800K, it would be well below the estate tax threshold). The sale itself is just converting an asset to cash at market value - no gifting involved. OP and their sister would just each report their portion of capital gains based on their stepped-up basis.

1 You're right, the letter is specifically asking about my business travel expenses ($4,200) and home office deduction ($2,800). Does that mean they're accepting the other deductions without question? Should I just focus on these two categories?

19 Yes, focus on just those two categories they're specifically questioning. The IRS typically doesn't expand an audit unless they find serious issues with the items they initially selected. The travel expenses will need more substantiation since they have stricter requirements - try to find emails about the conferences, calendar entries, photos from the events, or even statements from clients or colleagues confirming your attendance. For the home office, measurements of the space, photos, and a statement explaining how it was used exclusively for business purposes will help. Also look for utility bills, internet bills, or other expenses that support your use of that space as an office. Remember that your records don't have to be perfect - you just need to show reasonable evidence that these were legitimate business expenses.

3 When I went through an audit 2 years ago, they charged me the additional tax plus interest from the original due date. They didn't add accuracy-related penalties because they determined I made a good faith effort and had some backup documentation (even though incomplete). If they think you were negligent or deliberately claimed false deductions, that's when the 20% accuracy penalty kicks in.