I had this exact issue last year with a family trust. I received a distribution on February 28, 2022 that the trust counted toward their 2021 taxes using the 65-day rule. My tax preparer initially included it on my 2021 return, but after researching further, we amended to report it on my 2022 return instead, since that's when I actually received the money. The key document that clarified this for us was the explanation of the Section 663(b) election in IRS Publication 559. It specifies that the election only affects the trust's deduction timing, not the beneficiary's income recognition. The beneficiary includes the amount in income for the year in which it's received.

As someone who has dealt with multiple trust distributions over the years, I can confirm that the beneficiary reporting follows actual receipt date, not the trust's election year. However, I want to add an important practical consideration that hasn't been mentioned yet. Make sure to coordinate with your trust administrator about the timing of K-1 preparation. In my experience, when trusts use the 65-day election, there can be delays in getting the K-1 because the trustee needs to finalize both the current year distributions and any 65-day election distributions before completing the tax return. I've found it helpful to request from the trust administrator a preliminary distribution summary showing what distributions were made when, and whether any 65-day elections will be used. This helps me plan my tax filing timeline and avoid surprises when the K-1 arrives. The character of the income (ordinary vs. capital gains) will flow through to you regardless of the timing election the trust makes. One last tip: keep detailed records of when you actually received each distribution, including bank deposit dates. This documentation has been invaluable when working with my tax preparer to ensure everything is reported correctly.

@Savanna Franklin - I understand your confusion completely! I went through this exact same situation two years ago after a workplace injury that left me with a 40% permanent disability rating. The good news is that your workers comp settlement is absolutely tax-free under IRC 104(a)(1) and Revenue Ruling 68-10. Your buddy is 100% correct - these payments are tax-exempt, and your cousin is completely wrong about needing to be retired. The tax exclusion applies regardless of your age, employment status, or whether you're collecting a pension. The only requirement is that the payment is compensation for a work-related injury under workers compensation law. You don't need any special forms, and you don't "deduct" anything. You simply don't report the workers comp settlement as income at all on your tax return. It's excluded from your gross income entirely. Just make sure to keep all your settlement paperwork, disability rating documentation, and any correspondence from your state's workers comp board. These documents prove that your payment qualifies for the IRC 104(a)(1) exclusion. Since you can still work light duty, any future wages from that work will be taxable as normal income, but your disability settlement remains completely tax-free. Don't stress about this - workers comp disability settlements have very straightforward tax treatment when they're legitimate compensation for workplace injuries like yours!

@Savanna Franklin - I've been following this thread with great interest as someone who recently went through a similar situation. Based on all the excellent information shared here, I want to emphasize a few key points for your peace of mind: Your 35% permanent disability rating settlement is absolutely tax-exempt under IRC 104(a)(1) and Revenue Ruling 68-10. Your buddy was completely right, and your cousin's information about needing to be retired is totally incorrect. The tax exemption applies to anyone receiving legitimate workers compensation benefits for work-related injuries, regardless of age or employment status. What I found most helpful during my own experience was creating a simple filing system specifically for workers comp documentation. Keep your settlement agreement, disability rating letter, medical records establishing the work-related injury, and any correspondence from your state's workers compensation board all together. This makes tax filing straightforward and gives you everything you need if questions ever arise. You don't report the settlement as income at all - it's completely excluded from your gross income, not deducted. No special forms needed. Just make sure any future light duty wages you earn are reported as regular taxable income (those are separate from your settlement). The stress of uncertainty is definitely worse than the actual tax treatment, which is very straightforward for legitimate workers comp benefits. You're handling everything correctly by not reporting the disability payment on your return!

This is a really helpful thread! I'm dealing with a similar SEHI deduction issue as an S-Corp owner. Just to clarify - when you manually entered the APTC repayment amount in the S Corp Health Insurance Premiums field, did you enter the full APTC repayment amount, or did you have to calculate some percentage of it? I'm trying to figure out if the entire APTC repayment becomes eligible for SEHI deduction, or if there's additional calculation needed based on the number of months covered or income levels. My APTC repayment was about $1,800 but I want to make sure I'm not claiming more SEHI deduction than I'm actually entitled to. Also, for anyone who's been through an audit - do you know if the IRS typically scrutinizes SEHI deductions heavily when they're manually entered like this instead of being automatically calculated by the software?

This is exactly the kind of issue that made me switch to working with a CPA for my S-Corp taxes. I spent countless hours trying to figure out the SEHI deduction with APTC complications across different software platforms and kept getting different results. What I learned from my CPA is that the interaction between APTC repayments and SEHI deductions is one of the most commonly mishandled calculations in DIY tax software. The issue isn't just with FreeTaxUSA - it's that the tax code requirements are complex and most software companies haven't invested in programming all the edge cases properly. My recommendation for S-Corp owners dealing with health insurance deductions: if your APTC repayment is significant (over $1,000), it might be worth having a tax professional review your return even if you prepare it yourself. The potential savings from getting the SEHI deduction right often outweigh the cost of a consultation, and you'll have peace of mind that everything is documented correctly for audit purposes. For those sticking with DIY, definitely keep detailed records of your health insurance premium payments, APTC statements, and any calculations you make. The IRS wants to see that you can substantiate every dollar of the SEHI deduction if questioned.

Another thing to consider: if your dad itemizes deductions, he may need to reduce the theft loss by 10% of his AGI and $100. But if he can claim it as an investment theft loss on Schedule A (instead of a capital loss), he won't be limited to the $3,000 annual deduction limit for capital losses.

Based on what everyone's shared here, it sounds like your dad has a solid case for claiming this as a theft loss. The key points I'm seeing are: 1. Make sure you have all the SEC documentation proving it was officially declared a Ponzi scheme 2. Use Form 4684 and possibly Form 8949 as mentioned by Ravi 3. The timing matters - claim it in the year the SEC declared it fraudulent, not when he invested 4. Revenue Procedure 2009-20 could be your best friend here - lets you deduct 95% of the loss right away Given that your dad is on a fixed income and this hit him so hard financially, I'd really recommend getting professional help to make sure you maximize the tax benefits. Whether that's a CPA experienced with investment fraud or one of those document analysis services people mentioned, the potential tax savings could be substantial. Also document EVERYTHING - bank statements, original investment paperwork, SEC filings, settlement details. The IRS will want a clear paper trail showing the original investment amount and what was recovered. Hope your dad can get some financial relief from this terrible situation!

As a newcomer to this community, I can't tell you how relieved I am to find this discussion! I've been in the exact same situation - had Medicaid coverage for about 4 months in 2024 after losing my employer insurance, and I've been absolutely stressed about those TurboTax warnings saying my return might get rejected without a 1095-A form. Reading through everyone's experiences has been incredibly reassuring. I had no idea that Medicaid automatically counts as "minimum essential coverage" and that those scary rejection warnings are just generic messages that don't apply to government coverage like Medicaid. The distinction between marketplace insurance (which needs 1095-A forms) and Medicaid (which doesn't) makes so much sense now. I was getting confused because I kept thinking I must be missing some crucial documentation, when really I just needed to select the right coverage type in the software. Thank you to everyone who shared their successful filing experiences and took the time to call state offices and the IRS for confirmation. It's such a relief to know that multiple people have gone through this exact situation without any issues. This community support has completely eliminated my tax filing anxiety!

As someone new to this community, I just want to echo what everyone else has said about this being such a helpful discussion! I'm currently dealing with this exact situation - had Medicaid coverage for about 8 months in 2024 after a period of unemployment, and I've been getting those same scary TurboTax warnings about missing 1095-A forms. Reading through all these experiences has been incredibly reassuring. I had been frantically searching online for what forms I needed to submit, and kept finding conflicting information that made me more confused. It's so clear now that the 1095-A warnings are specifically for marketplace insurance with premium tax credits, which is completely different from Medicaid coverage. The tip about looking for "government-sponsored coverage" or "minimum essential coverage" options instead of marketplace insurance selections is exactly what I needed. I kept getting stuck in those marketplace questions because the software made it seem like that was the only path forward. Thank you to everyone who took the time to call their state Medicaid offices and the IRS to get official confirmation. As someone navigating these systems for the first time, having this real-world guidance from people who've actually been through it successfully makes all the difference. This community is amazing for breaking down these confusing government processes!