This is such a helpful discussion! I'm currently 58 and considering doing a Roth conversion before I retire next year. Based on what everyone's shared, it sounds like the Code 2 designation is standard regardless of age, which is good to know. One thing I'm curious about - for those who had taxes withheld during the conversion process, how did you determine the right withholding percentage? I'm worried about either withholding too much (and giving the government an interest-free loan) or too little (and owing penalties). My tax situation is pretty straightforward - mostly W-2 income with some dividends - but I'm not sure how to estimate the tax impact of adding, say, a $75k conversion to my income for the year. Did you just use the standard 20% withholding, or did you calculate something more specific based on your tax bracket? Also, has anyone done conversions over multiple years to manage the tax impact? I'm thinking it might be better to do smaller conversions over 3-4 years rather than one large conversion that pushes me into a higher bracket.

This thread has been incredibly helpful! I'm 61 and just completed my first Traditional to Roth conversion last week. My broker also used Code 2 on the 1099-R, and like many of you, I was initially confused by the "early distribution" language when I'm clearly over 59.5. What I found most valuable from reading everyone's experiences is the emphasis on Form 8606 - I almost skipped filing it since I had taxes withheld, thinking that was enough. Now I understand it's essential for documenting the conversion and protecting against double taxation on any non-deductible contributions. For those asking about withholding strategy, I went with 25% to be conservative since the conversion pushed me from the 22% to 24% bracket. I'd rather get a refund than owe penalties. The multi-year approach mentioned by several people makes a lot of sense - wish I had thought of that before doing my full conversion in one shot! One question for the group: if I want to do another conversion next year, do I need to wait any specific period of time between conversions, or can I do them annually without issue?

is it weird that my accountant just puts a plug number on line 5 to make line 8 match schedule k line 18? he says "everyone does it that way" but it seems kinda sketchy to me...

I've been doing S-corp returns for small businesses for over 15 years, and Schedule M-1 reconciliation is definitely one of the most confusing areas for new filers. Here's my step-by-step approach that might help: 1. Start with your book income (line 1) 2. Add back any federal income tax expense you recorded on books (line 2) - S-corps don't pay entity-level tax 3. Add excess capital losses and charitable contributions that exceeded limits (line 3) 4. This gives you line 4 - your adjusted book income Then for deductions not on books: 5. Add non-deductible expenses like 50% of meals, penalties, etc. (line 5) 6. Add income that's on your tax return but not your books (line 6) 7. Add other deductions on return not on books (line 7) Finally: Line 4 minus line 7 should exactly equal Schedule K line 18. If they don't match, work backwards - there's always a specific reason. Don't ever use "plug" numbers to force a balance. Each adjustment should be traceable to actual transactions or differences in how items are treated for book vs. tax purposes. The key is being methodical and documenting every adjustment you make.

Has anyone used professional fiduciaries for these kinds of decisions instead of family members serving as trustees? I'm dealing with my parents' trust and feeling overwhelmed by all these tax considerations.

As someone who went through a similar situation with my father's trust, I'd recommend getting clarification directly from your trust document first. The key thing to understand is that your 2023 decision doesn't legally bind you for future transactions - each sale can be handled independently based on what makes the most tax sense at the time. One important consideration that hasn't been mentioned yet is the timing of distributions. If you decide to distribute the capital gains to beneficiaries, you'll need to make sure the distribution occurs in the same tax year as the sale (2025) for the gains to be taxable to them rather than the trust. Also, consider whether your beneficiaries have any other significant income in 2025 that might push them into higher brackets. The trust's compressed tax brackets (hitting the top rate at just $14,450) often make distribution the better choice, but it's worth running the numbers for each beneficiary's specific situation. Your sister might be right about her lower bracket making distribution more beneficial overall.

Just wanted to add another perspective on the hobby vs business classification issue. I went through this exact situation with my 18-acre property last year and found that the IRS Publication 225 (Farmer's Tax Guide) is absolutely essential reading. It breaks down the specific factors they consider when determining profit motive. One thing that really helped my case was creating a detailed business plan showing projected income growth over 5 years, even though I was currently losing money. I also joined my state's Farm Bureau which gave me access to agricultural business resources and helped demonstrate my serious intent to operate as a legitimate farm business. The key insight I learned is that you don't need to be profitable immediately - you just need to show you're making reasonable efforts to become profitable. Things like soil testing, attending agricultural workshops, keeping detailed financial records, and gradually expanding operations all support your business classification. Consider also looking into value-added products from your corn - like selling at farmers markets or making corn maze activities in fall. These can significantly boost your revenue without requiring major infrastructure changes.

One aspect that hasn't been covered much here is the importance of establishing legitimate business practices beyond just income generation. I transitioned my 16-acre property from hobby to business status by focusing on what tax professionals call "businesslike behavior." This means getting a federal EIN number, opening a separate business bank account, creating invoices for any sales (even small ones), and maintaining a dedicated workspace/office area for farm planning and record-keeping. I also started attending local agricultural meetings and workshops - the attendance records and certificates actually helped demonstrate my commitment to learning proper farming techniques. For someone in your position with 14 acres, I'd strongly recommend starting with multiple small revenue streams rather than trying to hit a big income target with one activity. Things like selling firewood from land clearing, offering custom brush hogging services to neighbors, or even selling compost from yard waste can each bring in a few hundred dollars annually. Combined, these activities create a more compelling business case than relying solely on corn sales. The IRS really looks at the totality of your operation - are you making informed business decisions, adapting your practices based on results, and consistently working toward profitability? Documentation of these efforts is just as important as the actual income numbers.

This is a really complex situation that trips up a lot of people! Based on what you've described, you'll likely need to file in both states since you have income earned in Colorado but your domicile (permanent legal residence) is still in Arizona. Here's what I'd recommend: **For Colorado**: You'll file as a nonresident since you're just working there temporarily. Colorado will tax the income you earned while physically working in the state, regardless of where your permanent address is. **For Arizona**: Since your driver's license, voting registration, and permanent address are all there, Arizona considers you a resident and will want to tax all your worldwide income. However, you'll get a credit for taxes paid to Colorado to avoid double taxation. The key thing to remember is that "residency" for tax purposes isn't just about where you get mail - it's about where your life is actually centered. Since you're living in hotels/Airbnbs temporarily for work, you haven't established Colorado residency yet. Make sure to keep detailed records of your work dates in Colorado, as you'll need this for your tax filings. Most tax software can handle multi-state returns, but given the complexity of your situation, it might be worth consulting with a tax professional to make sure you're handling everything correctly. Also double-check that your employer is withholding the right amount for Colorado - you don't want to get hit with underpayment penalties!

I went through almost the exact same situation last year! Working in one state while maintaining residency in another is definitely confusing, but here's what I learned: Since your permanent address, license, and voter registration are all in Arizona, you're still considered an Arizona resident for tax purposes. The fact that you're temporarily staying in hotels/Airbnbs for work doesn't change your legal domicile. You'll need to file: 1. **Arizona resident return** - reporting ALL your income (including what you earned in Colorado) 2. **Colorado nonresident return** - reporting ONLY the income you earned while working in Colorado Arizona will give you a credit for the taxes you pay to Colorado, so you won't be double-taxed on the same income. You'll essentially pay whichever state has the higher tax rate. The tricky part is making sure your employer is withholding enough Colorado tax. Check your paystubs - Colorado has a flat rate of 4.55%, so you can estimate if they're withholding enough. If not, you can submit a new W-4 to increase withholding or make estimated payments. One thing that saved me a lot of headache was keeping a simple calendar of which days I worked in Colorado versus any days I might have worked remotely from Arizona. Some tax software will ask for this level of detail. The good news is that most tax software handles multi-state returns pretty well these days, but definitely keep all your documentation organized!