That's a really good idea! I do remember paying online through my bank for some quarterly estimated payments too. Would showing the bank statements be enough though? I'm worried they'll say I need the actual tax forms.

Bank statements are considered strong supporting evidence, especially for proving payments were made. While they may not replace the actual return completely, they directly contradict the claim that you paid zero taxes. Include a brief letter explaining your situation and that you're providing the best documentation available to you. Most state auditors are reasonable when presented with clear evidence of compliance. The key is showing you're making an honest effort to resolve the issue. If possible, combine these bank statements with your W-2 from that year and any IRS transcript you can obtain. Together, these paint a clear picture of your tax situation.

I had to deal with this exact situation. What worked for me was getting wage transcripts from the IRS (shows all your income reported on W-2s and 1099s), bank statements showing tax payments, and any other financial records from that year. Put it all together with a letter explaining the situation. In my case, the state tax auditor was actually pretty understanding once I showed I had legitimate documentation, even if it wasn't the exact original return. The key was being proactive and not ignoring their requests.

We never filed any special elections - just formed the LLC with our state. I guess that means we defaulted to partnership treatment? The thing is, we do intend it to be a profit-making business eventually, we're just in the startup phase where we're developing our product and not making much yet. We've each put in maybe 5-10 hours a week, so it's definitely not just a hobby for tax purposes.

Yes, if you never filed Form 8832, then you defaulted to partnership tax treatment, which means Form 1065 filings were required. Even with the small revenue, the fact that you're spending consistent time on it (5-10 hours weekly) and have an intent to make profit would likely qualify it as a business rather than a hobby in the IRS's view. That means you definitely need to file those past-due 1065 forms, but also that each partner should be able to deduct their share of the losses on their personal returns, which could be beneficial. Make sure to document your business intention well - keep business plans, marketing materials, etc. that show you're legitimately trying to make this profitable, which helps if you're ever questioned about the business vs. hobby distinction.

Partnership returns can get complicated, especially when catching up on multiple years. While it's possible to DIY with tax software like UltraTax or Lacerte, I'd recommend at least consulting with a tax professional who has partnership experience. The forms themselves aren't super complicated for a small business, but allocating items correctly on Schedule K-1s and ensuring consistency across multiple years can be tricky. If your partnership structure is simple and your financials are straightforward, you might be able to handle it yourself after getting some guidance. But if there's any complexity (special allocations, guaranteed payments, etc.), professional help is worth the investment to avoid future headaches.

Thanks for the honest advice. Our LLC is pretty simple - just me and my brother with a 50/50 split and minimal transactions. I'll probably look into one of those tax programs but maybe pay for an hour consultation with a CPA just to make sure I'm on the right track before submitting anything.

Do you know if the 10% early withdrawal penalty (I'm 52) is automatically factored into the withholding calculations or do I need to manually account for that too?

The 10% early withdrawal penalty is not automatically factored into the withholding calculated using Form W-4R. The withholding only covers the income tax portion, not the penalty. If you want to cover the penalty amount through withholding, you'll need to manually calculate 10% of the taxable portion of your distribution and add that as additional withholding on the form. Otherwise, you'll need to pay that penalty amount when you file your tax return or through estimated tax payments during the year.

I noticed the same thing! If your distribution pushes you into the 35% bracket, the W-4R might only withhold at 22% or 24%. I think they're assuming the distribution is your only income and spreading it across all the lower brackets too, rather than stacking it on top of your existing income.

Thanks! I definitely started tracking everything more carefully after reading these responses. Do you know if apps like Robinhood automatically account for wash sales on their 1099 forms?

Robinhood does report wash sales on their 1099-B forms, which is helpful. You'll see adjustments to your cost basis when wash sales occur. However, there's a potential issue - if you trade the same security across different platforms (like Robinhood and Webull), those platforms don't communicate with each other about wash sales. So while each platform reports wash sales that happen within their system, they can't detect wash sales that might occur when you sell at a loss on one platform and rebuy on another within 30 days. In that case, you'd need to identify those wash sales yourself when filing. But for your current situation with just Robinhood and small amounts, their reporting should be sufficient.

I have to respectfully disagree with this advice. While it's true the IRS is unlikely to pursue such a small amount, recommending not filing when required isn't good practice. In this specific case, OP actually isn't required to file based on the dependent unearned income threshold, but that won't be true for everyone reading this thread. Better to understand the actual rules than risk problems down the road.

Fine, technically you're right. But let's be real - the IRS is severely understaffed and focused on high-value enforcement. The chance of any consequences for not filing when you're owed a tiny refund or owe virtually nothing is practically zero. But yes, everyone should "understand the actual rules" 🙄

What happens if your kid takes more than 4 years to graduate? My son is probably going to take 5 years to finish his degree. Can I still claim anything in that fifth year?

After you've used the American Opportunity Credit for 4 years, you can still claim the Lifetime Learning Credit for any additional years. The Lifetime Learning Credit doesn't have the 4-year limit that AOTC has. The Lifetime Learning Credit is worth less overall (20% of up to $10,000 in qualified expenses, so maximum $2,000 credit), compared to AOTC which can be up to $2,500. But it's definitely better than nothing for that fifth year! Also, Lifetime Learning has fewer restrictions - doesn't require half-time enrollment and can be used for graduate school too.

I dealt with this last year. If box 5 is larger than box 1, it usually means the scholarship/grant money exceeded qualified tuition expenses. You generally can't claim a credit in this case because there are no "out-of-pocket" qualified expenses. BUT - here's the trick: If your scholarship/grant is more than qualified expenses, you can choose to treat some of the scholarship as taxable income to your daughter, which then allows you to claim a credit for that same amount of expenses. This sometimes works out better overall, especially if your daughter has little/no other income.