Because the IRS doesn't know whether your distribution is contributions, conversions, or earnings without you telling them. That's what Form 8606 does - it helps you calculate and show which part of your distribution is taxable. Without it, they'd have to assume the worst (that it's all earnings).

What kinds of things could be missed on a home sale? I thought it was pretty simple - if you lived there 2 of 5 years you get the exemption up to $250k/$500k depending on if you're single or married?

The basic exemption rule is straightforward, but there are several areas where people commonly miss opportunities or make mistakes. Home improvements can be added to your basis (original purchase price + improvements), which reduces your capital gain. Many people don't keep good records of these or don't know which improvements qualify. This includes major renovations, additions, new roof, HVAC systems, etc. - not regular repairs or maintenance. If you ever used part of your home for business or rental purposes, the calculation gets more complex since that portion may not qualify for the full exemption. This requires proper allocation and depreciation recapture considerations.

Second FreeTaxUSA! Used it for the last 3 years and it's just as good as TurboTax for way less. I had a home sale last year too and it walked me through it fine. Saved like $120 compared to TT.

Thanks for the warning. I tried the online transcript request but couldn't verify my identity because my phone isn't in my name (I'm on my parents' family plan). How long does the mail request usually take? I'm worried it won't arrive in time for my deadline.

Mail requests generally take 5-10 business days to process plus mailing time, so you're right to be concerned about meeting your deadline. Since you're in a time crunch, I would recommend using Claimyr as others have suggested to get through to an IRS agent who can provide your wage information immediately over the phone. Alternative verification methods for the online transcript system include using a credit card number (doesn't have to be in your name) or getting a one-time code mailed to your address of record, but that also takes 5-10 days. The fastest solution is definitely speaking directly with an IRS agent who can read your wage information to you from their system.

This is great advice! I had a similar issue and my school's financial aid office was able to give me a 30-day extension on tuition payments once I showed them proof I had filed my taxes. Saved me from having to drop my classes while waiting for the loan disbursement.

We actually checked their credit report last week and there's nothing on it about tax liens. Does that mean the debt might be too old to collect? They haven't had any credit cards or loans during this period either, so the report is basically empty.

That's actually a potentially good sign. The IRS stopped putting tax liens on credit reports for the most part after 2018, but if this debt was active and being pursued aggressively before then, you might have expected to see something. The empty credit report aligns with their "off the grid" lifestyle, which ironically might have worked in their favor regarding the statute of limitations. However, this is still not conclusive evidence - they need to get their tax transcripts to know for certain what debts might still be collectible.

This isn't entirely accurate. If they haven't filed returns for those years, they won't meet the "return filed at least 2 years ago" requirement. The IRS also sometimes files "Substitute for Returns" which don't count as taxpayer-filed returns for bankruptcy purposes. They would need to file proper returns first.

You're absolutely right about the return filing requirement - I should have been more clear. If your friend hasn't filed returns for those tax years, they would need to file them first and then wait two years before the taxes would be eligible for discharge in bankruptcy. The Substitute for Return point is also important. If the IRS filed these on your friend's behalf, they don't count toward making the tax dischargeable - your friend would need to file their own returns to replace these.

Is there any difference in features between the free file versions and the paid ones? I'm worried the free ones might be missing important forms or checks that could save me money.

For basic to moderate tax situations, the free versions have all the essential forms and features you need. The paid versions often add extras like audit support, tax advice hotlines, or more hand-holding for complex situations. The main forms and calculations are identical though - the IRS math is the same regardless of which version you use. Sometimes the paid versions just make certain things more convenient or provide extra peace of mind. But for most people, the free file versions work perfectly fine.

The IRS Free File program typically opens in mid-January. For 2025 (filing 2024 taxes), they've announced it should be available starting January 15th. However, even if you file early, the IRS won't begin processing returns until late January or early February.