Did your brother handle this himself or use a tax professional? I'm in a similar situation but wondering if I need to hire someone.

He started the process himself but ended up hiring a tax professional halfway through because the IRS started asking for additional documentation he wasn't sure how to provide. It cost him about $800 for the tax pro, but considering it saved him several thousand in penalties, it was worth it. If your case is relatively straightforward and you're comfortable with tax forms, you might be able to handle it yourself. But in my brother's experience, having a professional who knew exactly what supporting documents to include and how to present the case to the IRS made a significant difference in the outcome. The tax pro also knew which specific medical expenses would qualify and how to properly document them to meet IRS requirements.

Thanks for this insight. Do you think there's any chance the IRS would consider a full abatement of the penalty? I'm really struggling financially and this penalty is going to put me in an even worse situation.

Full abatement is rare but not impossible. The IRS does have authority to provide relief in cases of exceptional circumstances. Your best approach would be to: 1) Request abatement based on reasonable cause, clearly documenting why you believed the withdrawal qualified for exception (any advice you received, confusion between 401(k) and IRA rules, etc.) 2) Request abatement based on financial hardship by completing Form 433-F (Collection Information Statement) to demonstrate your current financial situation and inability to pay. If you're already in a difficult financial position, also look into the IRS payment plan options or Offer in Compromise program. Even if they don't waive the penalty entirely, you might be able to settle for a reduced amount or spread payments over time. Document everything thoroughly - the more evidence you provide of both your reasonable belief that the withdrawal was exempt and your current financial hardship, the better your chances.

What happens if my kid has both types of income but we elect to include it on our return? Do we still have to pay the SE taxes on their earned income?

If you include your child's income on your return using Form 8814, you can only do this for their unearned income (investments, interest, dividends, capital gains). For any earned income (like from a job or self-employment), your child must file their own return regardless. So yes, if they had self-employment income over the threshold (about $400), they would still need to file a separate return for that portion and pay the applicable SE taxes.

Qualified 529 distributions used for educational expenses aren't counted as income at all (neither earned nor unearned), so they won't affect Kiddie Tax calculations. Only if the distribution isn't used for qualified expenses would it potentially count toward the Kiddie Tax thresholds.

Thanks so much for clarifying! That's a relief to know the qualified 529 distributions won't complicate his tax situation. Now I just need to figure out how to handle the dividend income properly.

Thanks for breaking it down like this! Super helpful. Quick question - should I use H&R Block for the amended return even though I was trying to use TurboTax for the side business part? I'm not sure if going back to H&R Block will be easier or if I should just start fresh with TurboTax for the amendment.

I'd recommend using H&R Block since they already have all your W-2 information and original return data in their system. Starting with TurboTax would mean re-entering all that information, which increases the chance of making errors. Most tax software keeps your information on file, so you should be able to log back into your H&R Block account and select the option to amend your return. This will pre-populate all your original information and let you add the additional schedules and income. It's generally much easier than starting from scratch with a different provider.

Does paying the owed tax immediately help avoid penalties even if the amended return takes forever to process? I'm in a similar boat with a side gig I forgot to report.

That's a great point about specialization. Do you think it's better to find someone who focuses on small businesses since I have the side gig income? Or would a general personal tax CPA be sufficient?

For your situation with both personal tax events (home purchase, 401k distribution) and a side business, I'd look for a CPA who specializes in individual taxes but has experience with small business owners or self-employed individuals. A good way to gauge this is to ask them specific questions about home office deductions and qualified business income deductions. If they give you detailed, clear answers rather than generalities, that's usually a good sign they have the right expertise for your situation.

This is really smart advice! I never thought about using a CPA as a one-time learning opportunity. Did you literally just ask them to walk you through what they were doing?

I tried to check my transcript but the IRS site keeps giving me an error when I try to create an account. Something about not being able to verify my phone number? Is there another way to check the transcript?

Yes, the IRS identity verification system can be frustrating! If you can't verify online, you can request your transcript by mail using Form 4506-T, but that obviously takes time. Another option is to call the IRS transcript request line at 800-908-9946. It's automated and separate from the main IRS line, so sometimes it's easier to get through. They can mail you a transcript, which will at least show what's happening with your return.

I filed Feb 1st and got my refund on Feb 18th, so about 2.5 weeks. My sister filed a week before me and got hers in 12 days. I think it really depends on the complexity of your return and whether you have certain credits or deductions that trigger extra review.

Thanks for sharing your timeline! Maybe mine is just taking longer because I have a home business this year with Schedule C stuff. Guess I'll try to be more patient!