Wouldn't a HELOC be even better if they own a home? The rates are usually much lower than personal loans.

Yes, a HELOC would definitely be better if you own a home with sufficient equity. The rates are typically much lower than personal loans, often in the 4-6% range currently. Plus the interest might be tax-deductible if you use it for home improvements (though not for paying taxes). I suggested a personal loan because many traders who get caught in this situation are younger and might not own property yet. But you're absolutely right that a HELOC is a better option if available.

Form 9465 is exactly what I used when I owed $15k a few years back. Super straightforward. Just know that if you owe over $10k they'll probably file a tax lien which can affect your credit.

My custodian did break it down - there were about $78 in earnings on the excess amount. Does that change how I should handle the forms? So confused about why I'm still paying penalties even after doing what I thought was the right thing.

That explains it! When you recharacterize, both the contribution and earnings get moved. But for the 6% penalty calculation, you're still considered to have made an excess contribution until you properly "use up" that contribution amount. You need to either: 1) reduce your 2024 Roth contribution by the $390 excess amount, or 2) remove the $390 from your retirement accounts entirely. The earnings situation is properly handled through the recharacterization, but the "slot" of contribution is what's creating the ongoing penalty. Form 5329 has a specific line where you can claim a "credit" for addressing the prior year's excess. Make sure to complete that for 2024 once you've taken one of these steps, and you'll stop the penalty cycle.

In my experience, NO tax software handles Roth recharacterizations correctly, especially when they span multiple tax years. I had to manually override several fields in TurboTax last year. The biggest issue is that the tax software interview questions don't properly distinguish between recharacterization vs conversion, and they don't track your basis correctly across tax years. I'd strongly recommend either getting professional help or at minimum running your completed forms by a tool that specializes in these situations before filing.

Thank you! That's really helpful. I think I'll have to do some manual overrides then. I was worried I was doing something wrong but it sounds like the software itself just doesn't handle these complex situations well.

Can you explain bracket creep more simply? I kinda get it but not really. Does this mean we should expect the same thing to happen for 2024 taxes?

Bracket creep happens when inflation pushes your income into higher tax brackets, even though your actual purchasing power hasn't increased. For example, if you made $100,000 in 2021 and $108,000 in 2022 (an 8% increase), you might think you're 8% richer. But if inflation was also 8%, your real purchasing power stayed the same - yet you might be paying taxes at a higher rate because you crossed into a higher bracket. For 2024, the brackets were adjusted by 7.1% for inflation, which is pretty substantial. This should help reduce bracket creep compared to 2022-2023. However, if your income grows faster than that adjustment, you could still experience some bracket creep effect. The key is to look at your effective tax rate (total tax divided by total income) rather than just the dollar amount to see if you're truly paying a higher percentage.

Absolutely this! My health insurance premiums jumped by almost 30% between 2021 and 2023. And while yes, we can deduct them, that deduction only helps on income tax, not self-employment tax. So we're still paying 15.3% SE tax on money that immediately goes out the door to health insurance.

OMG you might be onto something with the reimbursements! I did have about $1,500 in travel expenses that they reimbursed me for when I had to fly to their headquarters for a big project. I didn't count those as income in my records because they were just covering my costs. Is that what's causing the discrepancy?

That's almost certainly the issue then! The $1,500 in reimbursed expenses plus your $7,830 in actual income equals $9,330, which is very close to the $9,450 they reported (the remaining $120 difference could be a calculation error or another small reimbursement you're forgetting). Reimbursed expenses should NOT be included on your 1099-NEC if they were legitimate business expenses. The client should issue a corrected 1099-NEC showing only the $7,830 in actual service income. If they included the reimbursements, they're reporting it incorrectly. Take this explanation to your client and specifically point out that expense reimbursements shouldn't be on the 1099-NEC. Many small businesses don't realize this and their accountants might not catch it if they're just given total payment figures.

You're right that reporting MORE income than what's on your 1099-NEC won't trigger IRS concerns - they're generally more worried about underreporting. However, for your own protection and record-keeping, it's still best to request a corrected 1099-NEC that accurately reflects what you were paid. The reason is that your client is likely taking a tax deduction for what they paid you. If their records show they paid you $2,000 more than what they reported on your 1099-NEC, that discrepancy could potentially cause problems for them in an audit, which could circle back to questions about your income.

Thanks for the advice! I'll reach out to them and request a corrected form. They've been pretty disorganized with their accounting (they're a startup) so I'm not surprised there was an error. Better to get everything aligned properly.

Thank you for mentioning Form 3911! Is there a waiting period before I should file this, or can I submit it now since it's been over 3 months since I mailed my return?

You can file Form 3911 now since it's been more than 8 weeks since you mailed your return. The IRS recomm

This is actually bad advice. Filing an extension now would be pointless since we're past the original filing deadline. Extensions have to be filed BEFORE the due date. At this point OP needs to focus on getting the original return processed or filing a duplicate.