I've been dealing with IRS issues for years and wanted to share some additional tips that might help. First, definitely keep detailed records of all your installment agreement payments - bank statements, canceled checks, money order receipts, whatever you used to pay. This documentation will be crucial if the IRS questions the overpayment. Also, be aware that if you filed joint returns, the refund will typically be issued to both spouses even if only one person's name was on the installment agreement. Make sure your current address is updated with the IRS before requesting the refund, as they'll mail the check to your address of record. One more thing - if you're expecting a large refund like this, consider having it direct deposited instead of receiving a paper check. You can request this when you contact them, and it's much faster and more secure. Just have your bank routing and account numbers ready when you call or include them in any written correspondence. Good luck getting your money back! The IRS definitely owes it to you.

I just wanted to add my experience with a CP-89 negative balance situation. Like others have mentioned, it definitely means the IRS owes you money. In my case, I had overpaid on a 2013 installment agreement and received a similar notice. One thing I learned that might help - if you're having trouble getting through to the IRS by phone, you can also visit a local Taxpayer Assistance Center (TAC) if there's one near you. You'll need to make an appointment through the IRS website, but I found the in-person service much more helpful than trying to navigate their phone system. The representative was able to pull up my entire payment history on the spot and confirm the overpayment. They processed my refund request right there, and I received my check about 3 weeks later. Just make sure to bring your CP-89 notice, a copy of your ID, and any payment records you have from the installment agreement. You can find TAC locations and schedule appointments at irs.gov/help/contact-your-local-irs-office. It's definitely worth considering if the phone route isn't working out for you!

Don't forget to consider state taxes too! Federal treatment is one thing, but states can be weird about divorce settlements.

I just want to echo what others have said about getting the wording right in your divorce decree - this is absolutely critical! I went through a similar situation two years ago where my ex withdrew from his 401(k) to pay me as part of our settlement. The key thing that saved me from tax headaches was having our lawyer include very specific language that this was "an equalization of marital property" and not spousal support. We also had to include a statement that the withdrawal and any associated taxes/penalties were solely my ex-husband's responsibility. One thing I'd add that I learned the hard way - make sure you get a copy of the 1099-R that your ex will receive from his IRA custodian showing the withdrawal. You don't need to report it on your taxes, but having that documentation helps if the IRS ever questions where the settlement money came from. My tax preparer said it's good to keep with your divorce papers as backup documentation. Also, since you're in Texas (lucky you with no state income tax!), you shouldn't have any state-level complications, but definitely confirm this with your divorce attorney. The federal treatment should be straightforward - no taxes for you as long as it's properly documented as property division.

Just FYI, tax software makes this WAY easier to figure out. You don't need to understand all the details about gross vs net income yourself. Programs like TurboTax, FreeTaxUSA, or even the IRS Free File options will walk you through entering your different income sources and expenses. I use HR Block and it automatically figures out my taxable income after I enter all my 1099 income and business expenses. The interview style questions make sure I don't miss any deductions too.

I'm a tax professional and wanted to add some clarity here. You're absolutely correct that taxes are based on your net income after legitimate business expenses, not gross income. However, I'd caution against relying solely on third-party tools or services without understanding the fundamentals yourself. For your specific situation with $42,000 in design income and $8,500 in business expenses, you'll report both amounts on Schedule C. Your net profit of $33,500 will be subject to both regular income tax AND self-employment tax (15.3%). This is important because many people forget about the self-employment tax component. A few key points: 1) Make sure all $8,500 in expenses are truly business-related and properly documented, 2) Consider whether any purchases should be depreciated over multiple years rather than deducted in full this year, 3) Track your home office expenses and vehicle mileage if applicable, and 4) Remember that your standard deduction will further reduce your taxable income after calculating your adjusted gross income. The quarterly payment advice mentioned earlier is spot-on - with $33,500 in net self-employment income, you should definitely be making estimated payments to avoid penalties. I'd recommend consulting with a local CPA for your first year with significant self-employment income to make sure you're set up correctly going forward.

Has anyone actually had their tax return audited after claiming AOTC for grad school? I'm in a similar boat (finished undergrad in 3.5 years) and want to claim it, but I'm nervous about getting flagged.

I'm actually a CPA who deals with education credits regularly, and I can confirm that you should be eligible to claim the AOTC for your first year of grad school. The IRS looks at whether you've completed the "first 4 years of post-secondary education" before the beginning of the tax year - since you completed your degree in 3 years, you have 1 year of eligibility remaining. The key factors that make you eligible are: 1. You haven't completed 4 academic years of post-secondary education 2. You're enrolled at least half-time in a degree program at an eligible institution 3. Your income is below the phase-out threshold (which you mentioned it is) One thing to double-check: make sure your graduate program is at an institution eligible for federal student aid. Most accredited universities are, but it's worth verifying. Also, keep good records of your transcripts showing you only completed 3 years of undergrad - this will be helpful documentation if the IRS ever has questions. Given your situation, you should be able to claim up to $2,500 in AOTC for qualified education expenses in your first year of grad school.

Wait a minute, I'm confused about something. If photography is truly just a hobby and not a business, isn't there a limit to how much you can deduct? I thought you couldn't claim losses on a hobby - like your deductions can't exceed your income from the hobby. Is that still true?

As someone who just went through this exact situation with my occasional photography sales, I can confirm that getting an EIN for privacy protection is totally legitimate and won't force you into business status. The IRS allows individuals to obtain EINs for various reasons beyond just business formation. Here's what I learned from my research and talking to a tax professional: 1. Having an EIN doesn't automatically require Schedule C filing - the determining factor is whether your activity meets the IRS criteria for a business (profit motive, regularity, time investment, etc.) 2. You can absolutely report the income on Schedule 1, Line 8 as hobby income even with an EIN. Just make sure to be consistent in how you treat the activity. 3. When you receive the 1099-NEC (which they'll likely issue for $600+), include a brief statement with your tax return noting that the 1099 income is being reported as hobby income on Schedule 1. This prevents automated IRS matching notices. 4. Creating an LLC isn't necessary for just getting an EIN - you can apply for one as a sole proprietor for privacy purposes. One thing to consider though: since hobby expenses aren't deductible anymore (thanks to 2018 tax law changes), you might actually save money by treating it as business income on Schedule C if you have legitimate photography expenses. The self-employment tax might be offset by equipment deductions, but run the numbers for your specific situation. The key is being consistent in your treatment and having a clear understanding of your intent with the activity.