Thanks for the tip about entering them separately! Do you know if TurboTax will automatically ask me about the medical insurance exception, or do I need to look for that specifically somewhere?

TurboTax should ask you about exceptions after you enter each 1099-R form. When it asks about the distribution code (Box 7), it will then follow up with questions about your situation. If you indicate you were unemployed, it should specifically ask if you used any of the money for health insurance premiums. If it doesn't automatically prompt you, look for a section called "Exceptions to Tax Penalties" or something similar after entering your 1099-R information. Make sure you have documentation of your insurance premium payments during your unemployment period, as you'll need this if you're audited.

I used it last year for a similar retirement withdrawal situation. The expert was helpful in confirming I qualified for an exception to the penalty since I was using the money for health insurance during unemployment. For complex situations like multiple 1099-Rs with no W-2s, I'd say it's worth the extra cost for the peace of mind.

That's really good to know - my bankruptcy was discharged about 14 months ago, so sounds like I should be past that waiting period. I do have one tax return I haven't filed yet because I knew I'd owe and couldn't pay. Should I get that filed ASAP before contacting them about the Fresh Start options?

Yes, absolutely file that outstanding return immediately. The IRS won't even discuss resolution options until you're in compliance with all filing requirements. Even if you can't pay what you owe, getting the return filed is the necessary first step. Think of it this way - the IRS sees unfiled returns as someone trying to hide or avoid their obligations entirely, while someone who files but can't pay is at least being transparent about their situation. Once you've filed everything, then you can approach them about payment options through the Fresh Start program with a much better chance of success.

I think this depends on your specific situation though. The IRS doesn't actually expect you to create more debt (like maxing out credit cards) to pay tax debt. They look at reasonable collection potential. When I submitted my OIC, I just had to document my current financial situation honestly.

Thank you! My income is around $48,000 - would I still qualify for EITC? And my brother is still in high school, but I am paying for some tutoring services. Would those count as educational expenses?

With $48,000 income and two dependents, you should still qualify for some EITC, though not the maximum amount. The phase-out for Head of Household with two qualifying dependents starts higher than your income, but you'll get a partial credit. Every bit helps! For educational expenses, unfortunately tutoring for high school generally doesn't qualify for the education credits. Those are primarily for post-secondary education (college, vocational schools, etc.). However, if the tutoring is related to a medical condition and prescribed by a doctor, you might be able to count it as a medical expense instead.

This is super important! And just adding on - there's sometimes a gap between disability approval and Medicare coverage starting. During that time, look into if your state has a Medicare Savings Program that could help with premiums.

Yes! This happened to me too with PBGC forms. The IRS computer systems automatically flag accounts when they receive certain forms, even if you don't claim the associated credits.

1 I hadn't even considered the self-employment tax! That's a really good point. If I go the self-employed route, I'd be paying 15.3% on the profit after expenses. But if I go the hobby route, I'd pay regular income tax on the full $160 without being able to deduct the $125 developer fee. Let me see... If I file as self-employed, my profit would be $160 - $125 = $35, and I'd pay 15.3% on that plus my regular income tax rate. If I file as a hobby, I'd pay just my regular income tax on the full $160. Hmm, this actually makes the hobby route seem better financially in my case. I need to calculate this more precisely. Thanks for pointing this out!

14 You're welcome! That's exactly the kind of calculation you should be doing. Just to add one more thing: remember that with self-employment, you can deduct half of the self-employment tax from your income. That helps a little. Also, if you think your app income might grow in the future, establishing it as a business now could be beneficial long-term, especially for building retirement savings through a SEP IRA or solo 401(k) once the income justifies it. Just something to keep in mind if you see potential for this to grow beyond covering just the developer fee.

19 I used TurboTax for my Etsy shop income last year (about $500). It handled both options fine, but I found the questions for the Schedule C to be easier to follow than trying to figure out where to put hobby income. They walk you through the business vs. hobby test and help you choose which approach makes sense.

7 Thanks for sharing your experience! That's helpful to know. I'll probably stick with TurboTax then since I'm already familiar with it. Did you end up classifying your Etsy income as business or hobby?