A word of caution from someone who's been through this - make sure you confirm whether your state tax return has different requirements for reporting these excess contribution earnings! I'm in California, and while I reported the earnings correctly on my federal return as "Other Income" on Schedule 1, I discovered that California wanted it reported differently on my state return. I ended up having to file an amendment because of this. Some states follow the federal treatment, but others have their own rules about how retirement account corrections should be handled. Worth checking your state's department of revenue website or calling them directly to confirm.

One more thing to consider - if you had a loss instead of a gain on your excess contribution (which can happen in down markets), the reporting is slightly different. If your excess contribution actually lost value between when you contributed and when you withdrew it, you unfortunately cannot claim that loss on your tax return when making a same-year correction. You would simply withdraw the reduced amount and report nothing on your tax return. However, if you're correcting a prior year excess contribution and experience a loss, there are specific rules about how you can claim that loss (typically as a miscellaneous itemized deduction subject to the 2% AGI floor - though this is currently suspended through 2025). Just mentioning this for completeness since the market has been volatile!

One thing nobody has mentioned is that you should check if the India-Netherlands treaty has a Limitation on Benefits (LOB) clause that might prevent treaty shopping. Some newer treaties have provisions that deny benefits if the main purpose of the structure is to get treaty benefits. Since your company is incorporated in the US but claiming Dutch treaty benefits, you'll want to make sure you have substantial business reasons for this structure beyond just the tax advantages. Otherwise, the Indian authorities might challenge your use of the Dutch treaty regardless of the tie-breaker rules.

Has anyone considered that you might actually benefit from making an election under the US check-the-box rules for the Indian subsidiary? If it's treated as a disregarded entity or partnership for US purposes, the withholding tax issue might be bypassed entirely for US purposes.

Don't forget about quarterly estimated tax payments if you go solo! This was my biggest mistake my first year with 1099 income. With your mixed income situation, especially the cash payments, you might need to be making quarterly estimated tax payments throughout the year. Otherwise you could get hit with underpayment penalties come tax time. Most tax software can help calculate what you should be paying each quarter going forward.

Just wanna add that if you do your own taxes this year, KEEP EVERYTHING. All receipts, mileage logs, payment records, etc. I mean literally everything related to income and expenses. First year I did my own taxes with 1099 income I got randomly selected for audit and it was brutal because I hadn't kept good records.

From a bookkeeping perspective, here's how I would record this in QuickBooks: 1. Create an Other Current Asset account called "Refundable Deposits" 2. Record the payment to this asset account (not to an expense) 3. When you get the money back, record the deposit against this same account This way your books will show that you have this asset, and your taxes won't show an expense that isn't really an expense. The key is that it doesn't impact your profit and loss statement at all - it's strictly a balance sheet item.

Just a quick note that if your state doesn't end up refunding the deposit (like if you mess up your sales tax filings or something), then it WOULD become an expense at that point. My brother had this happen with his construction business - they kept his $750 deposit because he filed late twice, and his accountant said to record it as a business expense in the year they officially told him it was forfeited.

I'm a little late to this, but there's an important distinction no one has mentioned yet. There are actually two different penalties that could be at play here: 1. Failure-to-file penalty: 5% of unpaid taxes each month (max 25%) 2. Failure-to-pay penalty: 0.5% of unpaid taxes each month (max 25%) The extension prevented the big failure-to-file penalty, but you're still on the hook for the failure-to-pay penalty since the money was due April 18th. Plus interest, which compounds daily. Your accountant should have estimated what you owed and advised you to make a payment by the deadline even if the return wasn't ready. That's where they dropped the ball.

Am I the only one stuck on the fact that the accountant added the wrong dependent information? That seems like a bigger issue than the extension! You should double-check everything else on the return because that's a pretty significant error. What tax software does your accountant use? Some of the professional ones are better than others at catching errors.