Thank you for mentioning this! I just double-checked the 2021 W-2 and you're right - Box 1 does NOT include the repaid amount. It's separate from the W-2 entirely. My husband actually wrote them a check for the repayment since he had already left the company. That's why we need to handle this through the claim of right provision. Seems like Schedule 3, Line 13b is the consensus from everyone here.

That makes perfect sense then. Since the repayment was made directly and not through payroll deduction on the new job, you'll definitely need to use the claim of right provision. Schedule 3, Line 13b with "IRC 1341" notation is exactly right. Just be sure to keep documentation of the repayment (like a copy of the check and any correspondence) in case the IRS ever has questions. They don't require you to submit this documentation with your return, but you should keep it for your records.

There's no minimum threshold for claiming a credit under IRC 1341, but there is a threshold that determines which method you can use. If the repayment was $3,000 or less, you can only take it as an itemized deduction (which may not help if you take the standard deduction). For repayments over $3,000 (like the OP's situation), you can choose either the deduction or the credit approach, whichever benefits you more. So for your $800 repayment, unfortunately you would only be able to claim it as an itemized deduction on Schedule A, which wouldn't help if you're taking the standard deduction.

That's a smart idea! How did you verify they knew what they were doing though? I'd be nervous having another student handle my taxes. Did they make you sign any kind of waiver in case they made a mistake?

I checked that the student had completed advanced tax courses, including international taxation, and was in the master's accounting program. The professor supervision was key - I actually met with both of them for the initial consultation, and the professor reviewed the final forms before submission. No formal waiver was required, but we did have a simple email agreement outlining what they would do and the fee. The accounting program treated this as a practical training opportunity, so they were motivated to get it right. The student was actually incredibly thorough and found deductions I didn't know I qualified for, even with the non-resident limitations.

What software did you try using? I was thinking about trying TurboTax for my amendment but now I'm nervous...

Can they expand the examination even if you only respond to what they asked for? I've heard horror stories about audits expanding to multiple years after they started looking at just one thing.

Yes, they can potentially expand the examination even if you only respond to what they asked for, but it's much less likely. They typically expand examinations when they find significant discrepancies that suggest similar issues might exist in other years, or if documents you provide reference other potentially problematic items. That said, correspondence examinations (the mail-in kind) rarely expand to full audits or multiple years unless they uncover major issues. The IRS has limited resources and generally focuses on the specific items they initially identified. If you maintain good records and legitimately claimed the deductions in question, even if your documentation isn't perfect, you'll usually be fine.

Thank you! This is super helpful. I'm actually missing receipts for about $1,200 worth of equipment purchases, but I definitely have the credit card statements. I wasn't sure if that would be enough on its own. For the donations, most were to my local animal shelter and a couple larger national organizations. I'll reach out to them ASAP for proper documentation. Do you know if the acknowledgment emails would work as a backup if I can't get the formal letters in time?

Credit card statements are a good start, but try to supplement them with additional evidence of what was purchased and its business purpose. If you have order confirmations, product manuals, photos of the equipment in use for your business, or even detailed notes you made about the purchases, include those as well. Acknowledgment emails can work as acceptable documentation if they contain all the required information: the organization's name, date of donation, amount donated, and a statement that no goods or services were provided in exchange (or their value if you did receive something). If your emails have all this information, they can serve as primary documentation. If they're missing some elements, include them as supporting evidence along with your request for formal letters.

That's a great suggestion about the IRA! I never thought about that. If I'm gonna hit the contribution limit issue again next year, maybe I should reduce my 401k and put some in an IRA instead? Would a backdoor Roth make sense in this situation? I've heard about that but don't really understand how it works.

Exactly - if you know you'll likely face this issue again, you could contribute just enough to your 401(k) to stay under whatever threshold your plan administrator suggests, then put the rest in an IRA. Regarding backdoor Roth - that's mainly useful if your income exceeds the limits for direct Roth IRA contributions. You'd contribute to a traditional IRA (no deduction) and then convert it to Roth shortly after. It's a perfectly legal workaround for the income limitations, but has some nuances if you have existing traditional IRA balances (pro-rata rule). Would definitely be worth considering if you're over the Roth income limits.

Wait really? I thought it would count for the tax year when the original contribution was made. This is getting confusing...

Thanks for the insights from your experience! Just to clarify - if my kids are receiving both W-2s from our businesses AND have their own separate self-employment income, which version would they need? Also, does TaxAct make it easy to handle the investment income reporting for all of us?

If your kids have both W-2 income and separate self-employment income, they'd definitely need the Self-Employed version. The W-2 part is easy with any version, but once you add self-employment income with business deductions, you need the higher tier. TaxAct does handle investment income reporting pretty well in my experience. All versions (even Deluxe) include basic investment reporting for things like dividends and capital gains. The interface walks you through entering 1099-DIV and 1099-B forms. If you have more complex investments like rental properties or partnerships, you'd need the Self-Employed version for those too.

I've used both. TurboTax is more user-friendly but WAY more expensive, especially for multiple returns with self-employment. TaxAct Self-Employed is about half the price of TurboTax Self-Employed and covers basically the same forms. TaxAct's interface isn't as pretty but gets the job done.