Thanks for bringing this up! I just checked my 1099-G and see they only withheld about 10% for federal taxes. Is that going to be enough or should I be preparing to pay more when I file?

The 10% withholding might be enough, but it depends on your total income for the year and tax bracket. Unemployment benefits are taxed at your normal income tax rate, not a flat 10%. If unemployment was your only income for the year, 10% might cover it for federal taxes. But if you had other income sources or worked part of the year, you might owe additional taxes. A good tax program will calculate this for you when you enter all your information. Just be prepared for the possibility of owing some money, and don't be caught off guard. This is one advantage of filing sooner rather than later – if you do owe, you'll have more time to plan for payment before the filing deadline.

I used Credit Karma Tax last year with a 1099-G and claiming a missed stimulus. It was actually completely free, no hidden fees even with the Recovery Rebate Credit. The interface was pretty easy to use, though not as polished as TurboTax. Just make sure you have all your documents ready before you start!

That's a good point I hadn't considered. Do you know if he would need to amend all three years of returns if he decides to recontribute now? Or is there a simpler process?

Yes, he would need to file amended returns for any tax year where he reported income from the distribution. So if he reported 1/3 of it on his 2020, 2021, and 2022 returns, he would need to file amended returns for all three years to get back the taxes he paid on those amounts. There's no shortcut process unfortunately - each year needs its own amended return. The sooner he does it the better, especially for 2020, since the time limit for amendments is approaching. One strategy some people use is to only recontribute the amount necessary to avoid being pushed into a higher tax bracket for those years.

This is correct. I worked at H&R Block that year, and Form 8915-E was specifically for reporting coronavirus-related distributions. Without that form being filed, the IRS would have processed the distribution as a regular early withdrawal subject to the 10% penalty.

This is good advice but I'm wondering about audits. If the OP puts together all this documentation now in December, doesn't that look suspicious? I've heard the IRS can tell when you're backfilling information.

Creating documentation now isn't suspicious at all - many business owners reconcile their books at year-end. The IRS is concerned with whether expenses are legitimate, not when you organized the records. As long as the expenses actually happened and you have some form of proof (bank statements, receipts, credit card statements), you're fine. The IRS gets concerned when expenses appear fabricated or when there's no supporting documentation at all. They understand that not everyone is a bookkeeping expert, especially first-time self-employed folks. Just be honest, reasonable with your deductions, and keep all the supporting documents you can find.

That's not entirely true. The IRS prefers contemporaneous records, but they do accept reconstructed logs if they're reasonable. I had to do this after losing my mileage notebook, and my accountant said it's acceptable if you can show how you arrived at the numbers using delivery records, maps, etc.

How did you find your CPA? Did you just google or get a referral? I'm worried about ending up with someone who doesn't know what they're doing.

I got a referral from another small business owner friend - definitely the way to go if possible! Ask around to people in similar situations as yours. If that's not an option, check reviews but specifically look at responses from people with tax situations similar to yours. A good interview question is asking potential CPAs about their experience with your specific situation (side business, interstate move, etc). If they start immediately mentioning specific deductions or considerations for your situation without prompting, that's usually a good sign they know their stuff!

That's a really good point about the time aspect. I spent like 6 hours just trying to figure out how to categorize my side business expenses last year with the software, and that was before all these new complications. Maybe paying someone is worth it just for the stress reduction alone!

What about leasing? I heard there's some loophole where if you lease an EV instead of buying, the MAGI limits don't apply to the customer because the credit goes to the leasing company? Is that true?

Yes, that's correct about leasing. When you lease an EV, the leasing company (usually the manufacturer's financing arm) is technically the owner of the vehicle, so they receive the tax credit directly. They often pass this benefit on to the customer in the form of reduced lease payments or a capital cost reduction. In these cases, the MAGI limits don't apply to you as the lessee because you're not claiming the credit directly. This has indeed become a popular workaround for higher-income customers who wouldn't qualify for the credit if they purchased. Just make sure the leasing company is actually passing along the credit value to you in the lease terms.

The MAGI (Modified Adjusted Gross Income) limit for single filers to get the full EV credit is $150,000. At $145k you should be eligible for the full credit IF your car meets all the other requirements (battery components, minerals, etc.). The "prior year" option means when you file your 2023 return in 2024, you can use either your 2023 MAGI or your 2022 MAGI, whichever is lower. So if your income was lower last year, you could use that instead.