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Does anyone know if the distribution code "1" on the 1099-R matters for how this gets reported? When I had a similar situation my form had code "7" and I think that made a difference.
Code "1" on a 1099-R generally indicates an early distribution with no known exception, which means the custodian (Vanguard in this case) is basically telling the IRS "this person took money out early and we don't know of any exception that would exempt them from the penalty." Code "7" indicates a normal distribution, which wouldn't trigger the 10% penalty automatically. The different code does make a significant difference in how the IRS initially processes the form. If you complete a proper rollover, you'll need to report it correctly on your tax return to override what the 1099-R is indicating. Most tax software has specific sections for handling rollovers that will guide you through this.
Don't forget to look into your state tax implications too! The federal 10% penalty is one thing, but some states also have their own early withdrawal penalties. I learned this the hard way in California where they hit me with an additional 2.5% state penalty on top of the federal one for an early 401k withdrawal.
Has anyone else dealt with county property tax reassessment after inheriting rental property? In my case, continuing the federal tax depreciation was straightforward, but I got hit with a massive property tax increase because the county reassessed the property value when it transferred to me. Might want to check if that's an issue in your area.
One more tip - don't forget to depreciate the building separately from the improvements. The building itself (not including land) depreciates over 27.5 years from your date of inheritance based on the stepped-up basis. But as others said, the specific improvements like the roof continue on the original schedule. I messed this up my first year and had to file an amended return.
9 I'm still waiting on my refund too, filed 2/1/25. What's frustrating is the "Where's My Refund" tool still says "Processing" with no other details. Has anyone found a better way to get actual status updates? Is calling the IRS even worth it this early in the wait?
5 In my experience, calling before the 21-day mark is pretty useless. They'll just tell you it's still within the normal processing time. I'd wait until at least 21 days have passed before trying to contact them - then at least they might give you more specific info about any delays.
16 Anyone wondering about verification letters - I worked seasonal customer service for the IRS last year, and we were insanely backed up with generating these notifications. Your refund processing isn't linked to whether you have the verification letter or not. The letter is just confirmation your return was accepted into the system.
Has anyone tried just using the free fillable forms on the IRS website for back taxes? I'm in a similar situation but don't want to pay for tax software for multiple years.
I tried using the free fillable forms for my back taxes from 2020 and it was a nightmare. They don't provide any guidance, and I kept getting errors when I tried to submit because I missed some obscure form. Ended up paying for basic TurboTax anyway because I got so frustrated. If you only have W-2 income it might be doable, but with any complexity, I wouldn't recommend it.
Thanks for sharing your experience. That's exactly what I was worried about. I do have some investment income and a small side business, so it sounds like the free forms would be more trouble than they're worth. I'll probably just bite the bullet and pay for some basic tax software to make sure everything gets filed correctly.
I just want to add that you should figure out how much you might owe before filing everything. That way you can set aside enough money for a payment or be prepared to set up a payment plan. The IRS Fresh Start program might help if you owe a lot. Good luck!
Evelyn Kelly
Here's a tip if you're doing your own bookkeeping: create a separate "Sales Tax Collected" account in your accounting software as a current liability (not income). When Ebay collects the tax, you'd record it going into this account, and when they remit it to the state, it leaves this account. This keeps it completely separate from your income accounts and gives you a clean trail if you ever get audited. The balance should always zero out if Ebay is handling all the remittance for you.
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Paloma Clark
β’What about if some of my sales are direct through my website where I have to collect and remit the tax myself? Do I treat those differently than the Ebay collected ones?
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Evelyn Kelly
β’For sales through your own website, you'll use the same principles but with a few extra steps. You'll still record the collected sales tax in a liability account (not income), but since you're responsible for remitting it yourself, the balance won't automatically zero out like with Ebay. You'll need to regularly (monthly, quarterly, or annually depending on your state requirements) transfer that money to the appropriate tax authorities. When you make those payments, you'd record them as drawing down from your sales tax liability account. This keeps your income clean and gives you a clear record of your tax collection and remittance activities.
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Heather Tyson
Important note: if you're selling on multiple platforms, double-check the marketplace facilitator laws for each state you sell into. Some states have different thresholds for when marketplaces must collect taxes vs when sellers need to handle it themselves. It gets complicated fast!
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Raul Neal
β’I've been using TaxJar for this and it's been pretty helpful for tracking all the different state thresholds. The economic nexus rules are such a pain to keep up with manually.
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