Does anyone know if I need to keep track of these non-dividend distributions myself or if my brokerage will do that for me? I got some from my MLP investments last year and I'm not sure if my cost basis is being adjusted automatically in my account.

You're absolutely right to be thinking about this carefully! While it's true that non-dividend distributions lower your cost basis and potentially increase your taxable gain when you sell, there are some important timing benefits to consider. The key advantage is that you're getting cash now without any immediate tax consequences, while only paying taxes later when you sell. This tax deferral can be valuable because: 1. You have use of that money immediately (time value of money) 2. Your future tax rate might be lower than today's rate 3. You can control the timing of when you realize the gain by choosing when to sell Also, some non-dividend distributions might represent genuine returns of excess capital that the company doesn't need for operations, rather than just accounting maneuvers. In those cases, you're getting back money that might otherwise just sit on the company's balance sheet earning minimal returns. That said, you're right to be cautious - make sure you're tracking these basis adjustments properly since they'll affect your taxes when you eventually sell!

H&R Block should be helping you deal with this! Their preparer gave you incorrect advice about using a pay stub instead of waiting for your W-2, and now you're dealing with the consequences. Most tax prep chains have some kind of guarantee or assistance if you get audited for a return they prepared. Call the specific H&R Block office where you had your taxes done and ask to speak to the manager. Explain the situation and that you need their help responding to the audit notice, especially since it was their advice that led to this situation in the first place.

This is unfortunately a common issue with amended returns. The IRS systems don't always communicate well between departments, so your audit was likely triggered by the original return before your amendment was fully processed. Here's what you should do immediately: 1. **Respond to the audit notice promptly** - Don't wait for your amended return to finish processing. Include a cover letter explaining that you already filed Form 1040X on February 8th to correct this exact issue. 2. **Include your amendment tracking info** - Reference that the IRS received your amended return on February 11th and include any confirmation numbers you have. 3. **Provide all requested documentation** - Even though you already sent it with your amendment, include everything they're asking for: your W-2, the amended return copy, and any other supporting docs. 4. **Call the IRS** - Use the phone number on your audit notice to speak with someone who can potentially connect your audit case with your pending amended return. This could save you weeks of back-and-forth. The good news is that you've already done the hard work of correcting the issue. Most of these cases get resolved quickly once the auditor sees you proactively fixed the problem. Your refund might be delayed while this gets sorted out, but you shouldn't face any penalties since you corrected the error promptly. Don't panic - this is more of a paperwork coordination issue than a serious tax problem.

Has anyone here used tax software like TurboTax or H&R Block for handling this non-AFS inventory situation on Schedule C? I'm trying to figure out if standard software can handle this properly or if I need something more specialized.

I'm in a very similar situation with my small e-commerce business and have been wrestling with this exact question for weeks! Reading through all these responses has been incredibly helpful. What I'm still confused about is the timing aspect. Since I'm using cash method accounting and treating inventory purchases as expenses when paid, what happens if I buy inventory in December 2024 but don't sell it until 2025? Under the traditional COGS method, that would stay in ending inventory for 2024. But with the non-AFS section 471(c) method, it sounds like I can deduct the full purchase price in 2024 even though the sale won't happen until 2025. Is that correct? It seems almost too good to be true that I can expense inventory immediately when purchased rather than waiting until it's sold. I want to make sure I'm not missing something important about the timing rules. Also, does anyone know if there are any restrictions on what types of businesses can use this method? I sell handmade crafts online - would that qualify the same as a retail business?

Just wanted to add some clarity on the withholding estimate you got from your bank. The $300-400 they quoted at 24% might actually be correct if they're only withholding on the earnings portion of your withdrawal, not the full $5,000. Banks often use conservative estimates for withholding because they know contributions from Roth accounts come out tax-free. If your $5,000 withdrawal is mostly contributions with only a small portion being earnings, then 24% of just that earnings amount would result in much lower withholding than you'd expect. However, don't forget you'll still owe that 10% early withdrawal penalty on the full amount if you're under 59½, which would be $500 in your case. The bank's withholding estimate typically doesn't include penalties - just income tax withholding. So your total tax burden could be the withholding amount PLUS the $500 penalty, assuming no exceptions apply to your situation. I'd recommend asking your 403(b) administrator for a breakdown of your account balance showing contributions vs. earnings so you can calculate this more precisely.

Great question about the breakdown! Your 403(b) administrator is required to track your contribution basis for tax purposes, but they're not necessarily required to show it clearly on regular statements. You'll definitely want to request this information specifically - call them and ask for a "contribution basis report" or "cost basis breakdown." When you actually take the withdrawal, they'll provide you with a 1099-R form that shows the total distribution and should indicate how much is taxable vs. non-taxable. However, getting this breakdown beforehand helps you plan better. You'll need this information for tax filing purposes if any portion of your withdrawal includes earnings. The 1099-R will report the distribution to the IRS, and you'll use that to complete Form 8606 (if needed) to properly report the tax-free vs. taxable portions on your tax return. Pro tip: Some administrators can provide this over the phone, while others might require a written request. If you're planning the withdrawal soon, I'd start this process now since it can sometimes take a few days to get the detailed breakdown.

This is such a timely question! I just went through this exact same process about 6 months ago when I started my vending business with 8 machines. The learning curve is steep but totally manageable once you understand the basics. First thing - definitely get your sales tax permit from your state's department of revenue ASAP. Most states require this before you start operating. The application process varies but usually takes 1-2 weeks. For tracking sales, I invested in digital counters for my older machines (about $50 each) and they've been worth every penny. Makes record keeping so much easier than trying to estimate from cash collections. You'll need detailed records for your quarterly filings. One thing that caught me off guard was that some locations charge a separate business license fee for vending operations, even if you already have your state permits. Check with each city/county where your machines are located. I had to get additional permits for 3 of my 8 locations. The food vs. non-food taxation is definitely tricky and varies by state. In mine, candy and soda are fully taxable, but certain packaged foods have reduced rates. I ended up creating a spreadsheet mapping each product to its tax category to avoid confusion. Good luck with your business! The tax stuff seems overwhelming at first but becomes routine once you get your systems in place.

Great thread everyone! As someone who's been operating vending machines for about 3 years now, I wanted to add a few important points that might help newcomers avoid some common pitfalls. One thing I don't see mentioned yet is the importance of understanding nexus rules if you're planning to expand. Even within the same state, different counties or municipalities might have varying tax rates and requirements. I learned this when I placed machines in a neighboring county and discovered they had a 0.5% additional local sales tax that I wasn't collecting. Also, keep meticulous records of your machine locations and when you move them. I had a situation where I relocated a machine mid-quarter, and during my state audit, they wanted documentation showing exactly when the move happened to properly allocate the tax liability between jurisdictions. For anyone just starting out, consider joining your state's vending association if there is one. They often provide updated tax guidance specific to vending operations and can be invaluable for staying current on regulatory changes. The membership fee pays for itself quickly when you consider the cost of making tax compliance mistakes. And definitely budget for quarterly tax payments from day one - don't wait until year-end to deal with this. Set aside about 8-12% of your gross sales (depending on your state's rates) in a separate account so you're never scrambling to cover your tax liability when returns are due.