But what about Section 336(e)? Doesn't that election let you treat the liquidation differently for basis purposes? I thought that gave corporations some flexibility in how assets are valued during liquidation.

Good question about 336(e). That election is different - it applies to certain stock dispositions, not to the liquidation itself. A 336(e) election can apply when a corporation sells stock of a subsidiary, and it essentially treats the transaction as an asset sale rather than a stock sale. But in a straight 332 liquidation where the parent is receiving assets directly from its subsidiary, 334(b)(1) controls and mandates carryover basis. The flexibility you're thinking about might relate to planning opportunities before the liquidation, but not to the basis determination once you're in a qualifying 332 liquidation.

Totally agree. My company did a subsidiary liquidation last year and we got caught by the built-in loss limitations we didn't know about. Cost us a fortune. Would have been worth paying a specialist!

Yes! This happened to me too. They coded mine as a "7" (I'm over 59.5) even though it was definitely a rollover. My tax guy said the important thing is to mark it as a rollover when entering it into tax software. He said the IRS reconciles this with the 5498 form your receiving institution files showing the money went into another IRA.

Thanks for confirming! That makes me feel better. I didn't realize the receiving institution files a Form 5498 that the IRS can match to my rollover. That makes sense that there would be a paper trail on both ends. I've been keeping all my documentation just in case, but it's good to know there's an additional safeguard in the system.

Oof, that's a really good point. I had the same issue with a 401k rollover (not an IRA). Had to scramble to find extra cash to make up the withheld amount. Then had to wait for the tax refund the following year to get that withheld money back.

Thanks for putting it in perspective! I think you're right that TurboTax is already giving me the standard deduction. When you put it that way, 2.9% doesn't sound as scary. I'm single with no dependents and this is my first time owing instead of getting a refund so I just panicked. Do you know if I can still contribute to an IRA or something to reduce my 2024 taxes even though it's already 2025?

Yes, you can still contribute to an IRA for the 2024 tax year until the tax filing deadline (April 15, 2025). This is one of the few "retroactive" tax moves you can make. For 2024, you can contribute up to $7,000 to a traditional IRA, and if you haven't already done so, this could reduce your taxable income. With your income level, a $1,000 contribution might save you around $100 in taxes. Plus, you might qualify for the Retirement Savings Contribution Credit (Saver's Credit), which could give you additional tax benefits for contributing to retirement accounts.

The EITC income limits changed slightly for 2024 filing. For single filers with no children, the limit is actually $17,950. But the other issue is that unemployment compensation doesn't count as "earned income" for EITC purposes. So OP would only count the $17,900 from their job, not the unemployment money.

I think TurboTax checked for that automatically but I'll double check. I don't have any kids so I'm not sure if I qualify, but if the limit is around $17,900 for just my job income (without counting unemployment) then maybe I do? Thanks for the suggestion, I'll look into it!

We both have 401k contributions (I'm at 8%, he's at 6%) and health insurance premiums that come out pre-tax. We don't own a home yet so no mortgage interest. Would increasing our 401k contributions help reduce this withholding shock? We're trying to save for a house down payment, so losing $633/month is really going to hurt that goal.

Increasing your 401k contributions would definitely help reduce your withholding requirements. For every additional percent you contribute, you'll lower your taxable income and potentially reduce those extra withholdings. For example, if you each increased your 401k contributions by just 2% (you to 10%, him to 8%), that would reduce your combined taxable income by about $3,860 annually, which could lower your withholding needs by roughly $850-900 per year. Plus, you'd be building more retirement savings. It's a win-win, though I understand it's a tradeoff with saving for the house down payment.

Did you use an online tax prep service to do this "test run" or is there a specific calculator you'd recommend?

I tried that route last year and PayPal told me they couldn't change it once the transaction was complete. Even with both parties confirming it was a mistake. They basically said I'd have to handle it on my tax return. But that was my experience - maybe others have had better luck?

Thanks for sharing your experience. That's disappointing to hear. I was hoping to address this before it became a tax issue. I'll probably reach out to PayPal anyway just to try, but will prepare for handling it on my tax return. Did you end up using Schedule C to offset it like some have suggested?

Crypto adds another layer of complexity. If your dad transferred Bitcoin to you as a gift, it's still a gift for tax purposes, but Coinbase may have issued a 1099 because they don't know the nature of the transfer. The important thing to know is that you take on your dad's cost basis in the Bitcoin. You won't owe any taxes until you sell the Bitcoin, at which point you'll pay capital gains tax on the difference between your dad's purchase price and your selling price. Make sure to document that this was a gift transfer so you have proof if questioned.