That's really helpful to hear a real-world example! Did you have to do anything special on your tax return to document the rollover and subsequent withdrawal? And did your 401k plan administrator automatically provide that contribution/earnings breakdown, or did you have to specifically request it?

You'll receive a 1099-R from your 401k provider showing the total distribution, and you'll need to report the rollover on your tax return. For the withdrawal, you'll get a 1099-R from your IRA custodian the following year. I didn't need to file any special forms since my withdrawal was less than my total contributions, but I did keep detailed records of my basis. My plan administrator provided the contribution/earnings breakdown automatically as part of the distribution paperwork. If yours doesn't, definitely request it - you need this documentation to establish your basis. Some administrators have this readily available, while others might require you to specifically ask for a "distribution statement showing contribution and earnings portions.

Wait I'm confused. So if I open my first ever Roth IRA today at age 55, then immediately roll over my Roth 401k that I've had for 20 years, I still have to wait until age 60 to access the earnings tax-free even though I'll be past 59.5?

That's exactly right. The 5-year rule for Roth IRA earnings requires that your first Roth IRA was established at least 5 tax years ago AND you're 59½ or meet another exception (disability, first-time home purchase, etc.). So in your example, if you open your first Roth IRA at 55 and roll over your 20-year Roth 401k, you could access all the contribution portions immediately without tax or penalty. However, for the earnings to come out tax-free, you'd need to wait until both: 1) you're 59½ (which you already are), and 2) it's been 5 tax years since you established your first Roth IRA - so that would be at age 60.

Doesn't creating an LLC and doing the S-Corp election cost a lot in administrative fees? I've heard you need to run payroll and everything. Is it really worth it for just one property?

You're right that it doesn't make financial sense for just one property. The administrative costs (state filing fees, payroll service, possibly a CPA) would likely outweigh the tax benefits until you have multiple properties generating significant income. For a single property, increasing your W-4 withholding or making quarterly estimated payments is definitely more cost-effective. I'd say the S-Corp approach usually starts making sense around 3-5 properties or when rental income exceeds about $40,000 annually. Until then, the simpler approaches others have mentioned are your best bet.

This is really important. Depreciation is actually required by the IRS even if you don't claim it. And they'll hit you with depreciation recapture taxes when you sell regardless. So definitely claim it!

That exclusive use requirement is so tricky! I have a home daycare and the IRS has different rules specifically for daycare providers. We can claim spaces that have mixed use (like kitchen, bathroom) based on time used for business. I wonder if there's any similar exception for pet boarding? Might be worth looking into.

That's a really good point. Do you think I need to file amended returns for previous years? Or could I just start doing it correctly going forward? I'm a bit worried about opening a can of worms if I start amending returns.

Generally, if you discover an error on past returns, you should file amended returns. However, there's a 3-year statute of limitations on most tax issues, so you'd typically only need to amend returns from the past 3 years. That said, this isn't necessarily a black-and-white error. There are legitimate situations where rental arrangements between yourself and your business can be appropriate, especially if you have the right business structure. Before amending anything, I'd recommend getting that third opinion from someone who can look at your specific situation. If you do need to amend, a tax professional can help you present the changes in the most favorable light, possibly reducing or eliminating penalties. Sometimes when you self-disclose and correct issues, the IRS is more lenient than if they discover the issue during an audit.

Did you use a tax professional to help with your Offer in Compromise or did you handle it yourself? I'm wondering if it's something I can navigate on my own or if I should budget for professional help.

I started the process myself but ended up hiring a tax resolution specialist about halfway through. The forms themselves aren't super complicated, but determining the right offer amount is tricky. The IRS rejected my first submission because I miscalculated my "reasonable collection potential." The professional helped me resubmit with the correct calculations and stronger documentation of my hardships. It cost me about $1,500 for their help, which felt worth it since they got my offer accepted. If your situation is straightforward you might be able to do it yourself, but having someone who knows what the IRS is looking for definitely improved my chances.

Is that automatic or do you have to apply for that specific benefit? My tax debt is around $14k so I'm worried about liens affecting my credit.

Thanks for suggesting this! Do you have any idea how much a CPA typically charges for handling a simple amendment? I'm trying to weigh if the potential refund would be worth the professional fees.

For a relatively straightforward amendment like yours, most CPAs would charge somewhere between $200-500 depending on your location and the complexity of your overall tax situation. If your $3,800 business expense would significantly reduce your self-employment taxes (which can be 15.3% of your net earnings), you could potentially recover $500-700 or more, making the CPA fees worthwhile. Plus, they'll handle all the paperwork and respond to any IRS inquiries, which adds value beyond just the monetary return.

Does anyone know if the free tax filing services like FreeTaxUSA or Credit Karma support e-filing amendments? Or is this only available in the paid versions of software?

Last I checked, FreeTaxUSA does support preparing and e-filing 1040-X amendments, even in their free version for federal returns (though state amendments might have a fee). Credit Karma Tax (now Cash App Taxes) has been a bit behind on amendment e-filing support, but they might have added it by now. One important thing to note is that you can only e-file an amendment if your original return was also e-filed. If you filed by paper originally, you'll need to submit your amendment by paper too.