How exactly did you document the "worthlessness"? Did you need an independent appraisal or was your own documentation sufficient? I'm in a similar situation but don't want to spend more money on an appraiser if I don't need to.

I used a combination of internal financial statements and business records rather than paying for an expensive appraisal. I created a documentation package that included monthly P&L statements showing consistent losses, screenshots of competitor pricing that showed we couldn't compete profitably, documentation of failed attempts to sell the business (emails with potential buyers or brokers), and a formal business memo explaining the market conditions that made continuation impossible. My CPA said the key was showing I had made legitimate efforts to make the business work or sell it before declaring it worthless. We also included bank statements showing the business accounts were depleted. This approach worked for me, but situations vary - if your business had substantial physical assets rather than just a website, you might need more formal valuation. The most important thing is showing you've exhausted reasonable options before taking the tax loss.

If you're expecting lower income next year, it might make sense to delay the liquidation until January. Capital losses (which some of this likely will be) are more valuable in higher income years since they offset income. But if some qualifies as ordinary loss under Section 1244, that might be more valuable in a higher income year.

Thanks for breaking down the forms! If I do decide to file manually, does Schedule C require me to track a bunch of expenses? I literally just got paid for working shifts operating rides, no expenses or anything.

Schedule C is where you report your business income and expenses, but you don't have to have expenses to file it. If you didn't have any business expenses, you can just put $0 in those sections. You'll report your total 1099-MISC income ($940) as gross income on Schedule C, then since you have no deductions, that same amount becomes your net profit. This net profit gets transferred to your 1040 and is also used to calculate your self-employment tax on Schedule SE. Keep in mind you'll owe about 15.3% for self-employment tax (covers Social Security and Medicare) on your earnings, so set aside roughly $144 if you haven't already. The tax software would calculate this automatically, which is one advantage of using it.

Good point! What's the usual threshold for state filing requirements? I have about $1200 in freelance income and wondering if I need to worry about state.

Thanks for this perspective! I called the H&R Block office this morning and asked for the manager. At first they tried to stick with the "IRS will catch it" line, but when I mentioned their guarantee that covers preparer errors, their tone completely changed. They've scheduled me to come in tomorrow where they'll handle the amendment for me and they're giving me a document stating they'll cover any related penalties. Should I bring anything specific to the appointment?

Bring all your original tax documents (W-2s, 1099s, etc.), your payment receipt showing how much you paid, and the final tax return they prepared. If you have any emails or documentation about the error being discovered, bring those too. Also ask them to provide you with written confirmation that they'll track the amendment until completion and notify you when the refund is expected. Get the manager's direct contact information in case you need to follow up. Don't leave without copies of everything they submit on your behalf, including the 1040-X form they prepare.

The Taxpayer Advocate Service is great but they're super backed up right now. I called them last month about a similar issue and they told me they're only taking cases with financial hardship or where you're facing immediate negative action from the IRS. Did you have to prove hardship to get their help?

Do you know if you can get the earned income credit if your business operated at a loss? I thought you needed actual earned income to qualify for that. Also, would educational expenses count if they were related to improving business skills?

For the Earned Income Tax Credit, you generally do need some earned income to qualify, so a complete business loss might not help there - I should have been more specific. However, even minimal earned income (like side gigs) can sometimes qualify if you meet the other requirements. For educational expenses, if they were directly related to improving skills for your current business, they might be deductible as business expenses rather than qualifying for education credits. Business-related education can usually be deducted on Schedule C if you're a sole proprietor or flow through on partnership returns. This is actually where documenting business losses properly becomes important for future tax benefits.

Do you know if there's any minimum amount you need to earn before you're required to file? I've heard different things like $600 or $12,000 but I'm not sure what's accurate. Just trying to understand if there's an actual legal requirement to file with zero income or if it's just recommended.

Thanks so much for confirming the SECURE 2.0 Act timing. I was hoping there might be some retroactive relief, but that didn't seem likely. We've already taken the missed distribution now and I'm working on the waiver request letter. Do you know if I should mail the Form 5329 and letter separately from our regular tax return, or include it all together?

If you haven't filed your 2022 return yet, include the completed Form 5329 (with "RC WAIVER" written at the top) and your letter with your tax return. If you've already filed your 2022 return, then submit an amended return (Form 1040-X) with the Form 5329 and waiver letter attached. Make sure your letter clearly states that the missed RMD has now been distributed and reported as income for the year it was distributed (likely 2023). The IRS just wants to see that you've corrected the mistake and are taking responsibility. In my 30+ years working with tax issues, I've rarely seen them deny a first-time waiver request when the taxpayer has taken corrective action.

This is good advice! I work for a financial institution (can't say which one) and we help clients with missed RMDs all the time. We have template letters that have been successful with the IRS. Most custodians want to help because it's in everyone's best interest to resolve these issues smoothly.