Is there a time limit on when a financial institution can issue a corrected 1099-R? My mom's situation happened almost 2 years ago and we're just now discovering the mistake.

There's technically no specific time limit for a financial institution to issue a corrected 1099-R. They can (and should) correct erroneous information even years later. For your situation with your mom, you generally have 3 years from the original filing deadline to file an amended return to correct mistakes. So even at 2 years out, you still have time to get this fixed. The financial institution may be resistant since it creates extra work for them, but they are obligated to provide accurate tax reporting. Be persistent and escalate to management if needed.

Yes, I had success getting penalties (but not all interest) waived by requesting penalty abatement due to reasonable cause. I explained that the error was made by the financial institution, not me, and provided their admission letter. The IRS has discretion here and often waives penalties when you can prove the error wasn't your fault.

That's interesting - I just double-checked and my notice is definitely from the IRS directly. It has the official Department of Treasury/IRS letterhead and mentions the specific IRS tax examination department. But this is good info for others who might be in a similar situation!

I've heard they're focusing on high income returns (over $400k) and those with Schedule C business income after getting that increased funding. Targeting where they think they'll recover the most unpaid taxes.

That's really helpful to hear from someone who's already doing something similar! Did you find it complicated to switch from partnership to LLC after you'd already started? I'm worried about setting up something and then having to change it later.

It wasn't too bad switching from partnership to LLC, but definitely created some extra paperwork I could have avoided by starting with the LLC. I had to formally dissolve the partnership, file new paperwork for the LLC, get a new EIN, open new business bank accounts, and update all my insurance policies and client contracts. The whole process took about a month and cost around $500 including state fees and having my accountant update everything. Would have been much simpler to just start with the LLC from day one. The annual maintenance is super easy though - just a simple form and fee in my state. Your state might be different, so check your secretary of state's website for the specific requirements.

I use it for my handyman business and it's great for tracking mileage automatically. The app uses GPS to track your trips and you just swipe business vs personal. At the end of the year it calculates all your mileage deductions automatically. Definitely worth it if you're driving a lot for business.

Thanks for bringing this up! I've actually been in Texas the entire time, so I think I'm ok on the state tax front. But that's a really good point for anyone else who might have moved around during their unfiled years.

I used a CPA after not filing for 3 years and it was 100% worth it. Cost me about $350 per year of unfiled taxes, but she found enough deductions that I hadn't known about to save me over $2000 in taxes. Plus she handled communicating with the IRS which was priceless for my anxiety.

That's really helpful, thanks! Did your CPA also help with negotiating penalties or setting up a payment plan, or just with preparing the actual returns?

Thanks for the explanation! Do you know if there's any legal requirement for which method employers use? And would switching to a salaried position solve this problem, or would we still have issues if she took unpaid time off?

There's no legal requirement for which withholding calculation method employers use - it's usually determined by whatever payroll software they've implemented. Some systems allow changing the method, but many smaller employers are locked into whatever their provider offers. Switching to a salaried position would generally solve this problem since salary typically means consistent paychecks regardless of hours worked (within reason). Even with unpaid time off, most salary calculations are more consistent with withholding. However, part-time salaried positions are relatively uncommon in pharmacy settings. Another option is to ask if they can set up a "minimum withholding" arrangement where taxes never exceed a certain percentage of gross pay.

This is smart advice! My paycheck once went to zero and I assumed it was taxes, but it turned out they were taking uniform fees, health insurance for the whole month, and a retirement loan repayment all from one small check. Worth investigating all deductions!