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One thing nobody has mentioned yet - don't forget about potential state tax implications if your rental property is in a different state than your residence. I made this mistake last year. Some states may consider your rental activity as doing business in that state, which could potentially trigger filing requirements. This is especially important if you're physically present in that state doing work on the property.
That's a really good point I hadn't considered. The rental property is actually in a different state than where I live. So you're saying I might need to file a non-resident state tax return for the state where the rental is located? Were there any resources you found helpful for figuring out the state-specific requirements?
Yes, you may need to file a non-resident state return. It depends on the specific state's rules where your rental is located. Some states have minimum income thresholds before filing is required, while others want you to file regardless of the amount. I found the state's department of revenue website to be the most helpful resource. Most have specific sections for non-resident property owners. Also, software like TurboTax or H&R Block will usually prompt you about this situation if you indicate you have rental property in another state. In my case, I had to file in Arizona even though I live in California because my rental income exceeded their minimum threshold.
Has anyone considered the vehicle aspect of this? You might be able to deduct some of the truck purchase if you can legitimately allocate a portion to business use during that period. Keep track of total miles driven for rental work vs. personal during your ownership.
That wouldn't work because OP already said they don't plan to use the truck for business after driving it home. You can't just allocate part of a vehicle purchase to business use for a one-time thing and then convert it to 100% personal use. The IRS would see right through that.
One thing to consider - if you just have W2 and 1099 income without complicated investments or business structures, software like FreeTaxUSA can handle past years for a fraction of what you were quoted. They charge around $15-20 per federal return for prior years. For 1099 income, you'll need to fill out Schedule C, but most tax software walks you through this with simple questions. Just make sure you have good records of your expenses to offset that 1099 income - things like home office, supplies, mileage, etc. Don't let a CPA scare you into thinking your situation is more complex than it is. The $8800 quote is appropriate for someone with seriously complicated tax issues, not basic W2 and 1099 filing.
You'll need to mail in prior year returns - the IRS doesn't allow e-filing for tax years more than 2 years past. Print everything out, sign the forms, and send them via certified mail so you have proof of filing. For state returns, it varies by state. Some states do allow e-filing for prior years, but many follow the same rule as the IRS. Most tax software can still prepare state returns for prior years for around $15-20 per state. Just make sure you're using the software version for the correct tax year - 2021 taxes need to be prepared using 2021 tax software, etc.
Has anyone here actually gotten a penalty abatement for filing late? I'm in a similar boat (3 years unfiled) and I'm worried about how much the penalties are going to be on top of what I owe.
What tax software are you using? This is actually a common enough issue that some of the better tax programs have a workflow for it. I know for sure that ProSeries and Lacerte (professional software) handle this situation, but I think even TaxAct has a way to deal with incorrect 1099s.
Right now I'm using TurboTax Business for the partnership return and regular TurboTax for my personal. I looked through both and couldn't find any specific option for "incorrect 1099-NEC issued to individual instead of business." Do you know if TurboTax has this capability somewhere?
TurboTax isn't great at handling this specific situation. In TurboTax Business, you'll need to manually enter the 1099-NEC income as "income not reported on a 1099" since you technically don't have a 1099-NEC issued to the LLC. For your personal TurboTax return, you'll need to enter the 1099-NEC, but then add a negative "Other income" line on Schedule C with a description like "Income reported on Partnership Form 1065" to offset it. Make sure to include an explanation statement with both returns. If you're doing this more than one year, I'd honestly recommend switching to TaxAct or even paying a professional to use Lacerte, as they have specific workflows for this exact scenario.
Has anyone here actually gotten an AUDIT because of this issue? I'm in the same boat (with Lyft incorrectly issuing to me vs my LLC) and I'm wondering about the real-world consequences if I just report it on my Schedule C instead of going through all this offset business.
I can share what happened to me. I didn't handle an incorrect 1099 properly in 2022 (just reported it on Schedule C), and I got a CP2000 notice from the IRS about a year later because the K-1 income from my partnership didn't match what they expected based on the 1099s. Took about 4 months and several letters to resolve. Not a full audit but definitely a headache.
Just wanted to add something that hasn't been mentioned yet. If you received any unemployment benefits in the past year, that could also be part of why you're owing taxes. A lot of people don't realize unemployment is taxable income, and often the default withholding on it is very low or zero unless you specifically request more to be withheld.
Is anyone else having this issue too? I also always claim 0 and usually get around $1,000 back, but this year I only got $218. Not owing like OP but definitely a big change from previous years.
Same here! I claimed 0 all year and ended up owing $175. My coworker had the same thing happen. I think there might have been some change to how taxes are calculated or withheld that a lot of us weren't aware of.
Interesting to hear others are experiencing this too. Makes me feel like it's not just something I did wrong. I'm going to look into updating my W4 with the new form like others have suggested.
Bethany Groves
Does anyone know if the Wage and Income Transcript shows state tax info too? Or is it just federal? I created my account and can see all my federal stuff but nothing for state taxes.
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Rebecca Johnston
ā¢Adding to what the other person said - some states automatically get the federal info and will flag discrepancies if your state return doesn't match what the IRS has. That's how I got caught missing a small 1099 last year. The feds didn't catch it but my state did!
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Bethany Groves
ā¢Thanks for the clarification! That makes sense. I'll check if my state has a similar portal. Just wanted to make sure I wasn't missing something in the IRS account.
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Nathan Dell
Just a heads up to everyone - make sure you're actually on the real IRS website when setting up ID.me. My brother thought he was creating an account but it was some phishing site. Go directly to IRS.gov and navigate from there rather than clicking links in emails or search results.
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Maya Jackson
ā¢This happened to my mom too! She got an email claiming to be from "IRS online services" with a link to "set up your account" and it was totally fake. Always go directly to irs.gov!
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Nathan Dell
ā¢Exactly! The official way is to go to IRS.gov and look for "Sign into your Online Account" - anything else might be sketchy. My brother was lucky his credit card company flagged the charges that showed up after he entered his info on the fake site.
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