Thanks, that's really helpful about the lump sum election. I hadn't even thought about the tax implications of getting disability backpay. Do you know if I would need to file amended returns for the previous years in that case, or is it handled differently?

You don't need to file amended returns for the previous years with a lump sum election. Instead, when you file your taxes for the year you receive the backpay, there's a special calculation that's done on that year's return. The SSA will send you a letter (SSA-1099) showing how much of your payment applies to each previous year. Your tax preparer (or tax software) can then use this information to calculate your tax as if the income had been received in those earlier years, potentially putting you in a lower tax bracket for the lump sum. It's a bit complex, but any tax professional familiar with disability claims should know how to handle it. And definitely keep all documentation about your medical expenses, as some of those might be deductible as well.

I second the VITA suggestion. I used them when I was in college and they were great. Just make sure to bring all your documentation - they'll want to see your ID and social security card, plus any income info you have (even if it's just printouts from the survey sites showing your earnings).

I actually hadn't thought about the FSA option! Does it provide the same tax advantages as an HSA? And what happens to any FSA funds when we transition to the HDHP with an HSA in 2025?

FSAs do provide a similar tax advantage by allowing pre-tax contributions that reduce your AGI, similar to an HSA. However, they typically have much lower contribution limits (usually around $3,050 for 2023) compared to HSA limits ($7,750 for family coverage). Regarding your second question, FSA funds generally need to be used by the end of your plan year, though some employers offer either a grace period (usually 2.5 months) or a carryover option (usually $610 maximum). If you don't use the funds within these timeframes, you forfeit them - that's the big downside compared to HSAs. When you transition to an HDHP with HSA in 2025, you'll need to either spend down your FSA funds before the new plan year or see if your employer offers that limited purpose FSA I mentioned that can coexist with an HSA.

This is great advice! When I had my second child last year it counted as a qualifying life event and I was able to switch from a PPO to an HDHP mid-year. Started contributing to my HSA right away for the remaining months.

Thanks for sharing your experience! That's really helpful to hear from someone in a similar situation. Did you have to fill out any special forms to document the support calculation, or did you just keep your own records in case of an audit?

We didn't have to submit any special forms with our tax return specifically for the support calculation. Our tax preparer just had us keep good documentation (basically a spreadsheet showing our household expenses and what portion went to our daughter). The most important thing was making sure our daughter's tax return properly indicated she could be claimed as a dependent on someone else's return. That way the systems don't flag a conflict. Keep records of major expenses you pay for your daughter in case you ever get questioned, but in our experience, this was a pretty straightforward situation once we understood the support test isn't about income but about who's paying for living expenses.

The kiddie tax only applies to unearned income (interest, dividends, capital gains, etc.), not earned income from actual work. Since OP's child is earning money from modeling/commercial work, that's considered earned income and would be taxed at the child's own rate, not the parents' rate.

I had no idea about penalty abatement! Would that work even though it's been so long since the original due date? And do I need to have the return filed first before I can request this?

Yes, you can still request penalty abatement even after a significant delay. The IRS doesn't have a strict deadline for requesting abatement, though they're generally more receptive when you're actively trying to resolve the situation by filing your return and making payment arrangements. You absolutely need to file the return first before requesting any kind of penalty abatement. The IRS won't consider penalty relief on unfiled returns. Once your return is filed, you can request First-Time Penalty Abatement if you had a clean compliance history for the three years prior to 2021. If you had legitimate reasons for not filing (serious illness, natural disaster, etc.), you could alternatively request Reasonable Cause abatement with supporting documentation.

Those calculations seem high. Doesn't the failure-to-pay penalty cap at 25% just like the failure-to-file penalty? I thought the combined penalties couldn't exceed 47.5% of the original tax.

How much did the CPA charge? I'm trying to figure out if the cost would be worth it compared to potential savings.

My CPA charged $450 for my return, which included W-2 income, investment income, and some small business income from consulting. Given that he saved me $3,800, it was definitely worth it! Most CPAs I researched charged between $350-700 for returns with complexity similar to yours. The key is finding someone who specializes in the areas relevant to your situation - in your case, someone experienced with S-corporations and investment income.

Can you elaborate? I'm also getting K-1 income from an S-corp and just using TurboTax. Now I'm worried I'm leaving money on the table.