Thanks for pointing this out! My contractor gave me a certification statement confirming it meets the requirements for the full credit amount under the Inflation Reduction Act. Do I need to keep that paperwork for my tax return or is there a form the contractor needs to file?

Yes, definitely keep that certification statement! You don't need to submit it with your tax return, but you should keep it with your tax records in case of an audit. The IRS can ask for supporting documentation up to 3 years after you file (longer in some cases). The contractor doesn't file anything - it's all on you to claim the credit correctly. Make sure the certification includes the specific HVAC model number, installation date, and clearly states it meets the Inflation Reduction Act requirements. Some manufacturers even provide specific tax credit certificates that make this easier.

How much did you owe if you don't mind me asking? I'm thinking about doing solar next year too but worried about the tax implications.

Thanks for mentioning this! Do you know if email confirmation of the download/activation would count as proof? Or do we really need actual project screenshots?

Email confirmations of download/activation are a good start, but they only prove you received the software, not that you actually put it to business use. The IRS specifically looks for evidence of the software being used in your business operations. Project screenshots with visible dates, saved project files with creation timestamps, or even emails to clients mentioning you used the new software on their project can all serve as stronger evidence. I'd recommend keeping several different types of proof just to be safe. My accountant calls it the "belt and suspenders" approach to tax documentation.

I got audited last year and software deductions were absolutely part of what they examined. It wasn't the only thing, but they specifically asked for proof that the $3200 design software I purchased was actually used in my business and when I started using it. They disallowed part of another tech purchase because I couldn't prove I was using it exclusively for business.

Thanks for this info! Do you know if the 10% early withdrawal penalty applies to the earnings portion? I'm 35, so definitely not at retirement age yet. The earnings were pretty minimal (around $75) but I want to make sure I don't miss anything when filing for 2023.

Yes, the 10% early withdrawal penalty does typically apply to the earnings portion if you're under 59½. So in your case, with approximately $75 in earnings, you'd owe regular income tax on that $75 plus an additional $7.50 as the 10% penalty. When you file your 2023 taxes, your tax software should walk you through this if you indicate that the distribution includes earnings from an excess contribution. Just make sure you enter the 1099-R information correctly and specify that it was a return of excess contributions from a prior year.

Any recommendations for which tax software handles this situation the best? I've used FreeTaxUSA in the past but I'm not sure if they have good support for these IRA issues.

That's an interesting approach I hadn't thought about! How do you calculate how much to pay quarterly? Is there a simple formula, or do you need to do a bunch of complicated math each quarter?

It's pretty straightforward! The simplest method is to estimate what your tax rate will be (probably 22% or 24% based on your income levels) and set aside that percentage of your side gig income. Then make quarterly payments using Form 1040-ES. For a more precise calculation, you can use the worksheet that comes with Form 1040-ES. It helps you figure out your expected tax for the year including all income sources. Then you subtract what's being withheld from your W-2 jobs to see what's left to pay quarterly. The IRS website also has a Tax Withholding Estimator that can help with this calculation.

I've tried several and found FreeTaxUSA handles multiple W-2s really clearly. It walks you through each one separately and makes it easy to keep track. Plus it's way cheaper than TurboTax but just as accurate in my experience!

How long do you need to wait between making the non-deductible traditional IRA contribution and converting it to Roth? I've heard differing opinions on this, with some saying you need to wait a certain period of time.

There's actually no required waiting period between making a non-deductible traditional IRA contribution and converting it to a Roth IRA. Some people do the conversion almost immediately after the contribution clears in their traditional IRA. The confusion about waiting periods likely comes from concerns about the "step transaction doctrine," which is a tax concept where the IRS could potentially view related transactions as a single transaction if they're clearly pre-planned steps. However, the IRS has not been challenging backdoor Roth conversions on this basis, and many tax professionals now consider it a standard, accepted practice regardless of timing.

I learned this the hard way! Missed filing 8606 for two years and had to submit amended returns. Such a headache. TurboTax didn't even prompt me about it when I entered my IRA info.