One thing nobody has mentioned yet is that you can request the auditor's workpapers through a Freedom of Information Act (FOIA) request. These documents show exactly how they evaluated your case and can reveal weaknesses in their analysis. I did this after my audit when I felt the auditor wasn't being fair, and the workpapers showed they had completely misunderstood the nature of my business. They had classified my consulting business as a different industry with different expense patterns. When I appealed and pointed this out with clear documentation about my actual business operations, I was able to get many of the denied expenses reinstated. The FOIA request takes time (sometimes months), but it gives you incredible insight into exactly why they denied specific items, which makes your appeal much more targeted and effective.

I'm so sorry you're going through this - it sounds absolutely devastating, especially after putting in all that effort to organize everything properly. The fact that they rejected 90-100% of your legitimate business expenses seems extreme, even for a typical audit. One thing that really stands out to me is that you mentioned having two different Schedule C businesses with losses. The IRS has been cracking down hard on what they perceive as "serial loss" situations, especially when taxpayers have multiple business activities. They're quick to apply the hobby loss rules even when you've been profitable in previous years. The timing of your audit also seems suspicious - you mentioned clients pushed payments into next year, which created an unusual loss situation. This kind of temporary cash flow issue shouldn't disqualify legitimate business expenses, but auditors sometimes don't understand the nuances of how different businesses operate. Have you received the formal Notice of Proposed Adjustment yet? You typically have 30 days from that notice to request an appeals conference, which gives you another chance to present your case to a different IRS employee who wasn't involved in the original audit. The appeals officers are generally more experienced and willing to consider the broader context of your situation. Don't give up just because your current CPA is recommending you pay. You have legitimate rights in this process, and paying an unfair assessment just encourages more aggressive audit practices.

For what it's worth, I think the chances of getting audited solely because of a mortgage interest deduction mismatch are pretty low. I'm a landlord with multiple properties and have had situations where my deductions seem way out of proportion to my reported income. Never been audited once in 12 years.

I went through something very similar about 3 years ago when my roommates bailed on our shared mortgage. The stress was unreal, but here's what I learned: the IRS really does focus on who actually made the payments, not just whose names are on paperwork. Keep detailed records of every payment you made - bank statements, online payment confirmations, even screenshots of your online banking. I created a simple spreadsheet showing each monthly payment with the date, amount, and payment method. This documentation was crucial when I got a CP2000 notice (not a full audit, just a matching discrepancy). One thing that helped me was getting a letter from my mortgage servicer confirming that all payments came from my account. Most servicers will provide this if you call and explain the situation. It's official documentation that supports your position. The reality is that mortgage interest deductions, even large ones, are pretty common and well-understood by the IRS. As long as you can prove you made the payments, you're entitled to the full deduction regardless of what your co-owners do with their 1098 forms. Just make sure you're prepared to back up your claim with solid documentation.

This is such helpful information! I'm in a similar situation - been wearing glasses for over 15 years and finally ready to take the plunge on corrective surgery. I had no idea that Limited Purpose FSAs could cover LASIK/PRK/SMILE procedures. I've been contributing to both my HSA and LPFSA but honestly haven't been maximizing either one properly. One question I have - does anyone know if there are any pre-approval requirements from the FSA administrator before getting the surgery? Or can you just get the procedure done and submit for reimbursement afterward? I want to make sure I don't run into any surprise denials after spending thousands on the surgery. Also, for those who've gone through this process, did you get any pushback from your FSA company about it being "cosmetic" rather than medical? I'm worried they might try to deny it on those grounds even though vision correction should clearly be medical.

This thread has been incredibly helpful! I'm actually in the process of researching LASIK myself and had completely overlooked the LPFSA option. I've been so focused on whether to use my HSA that I didn't even think about my limited purpose FSA. One thing I wanted to add for anyone considering this - make sure to factor in the consultation costs too. Most places charge $100-200 for the initial evaluation to determine if you're a good candidate, and this is also typically covered under your LPFSA as a vision expense. So you can use your FSA funds for both the consultation and the actual procedure if you decide to move forward. Also, if you're like me and have been putting this off for years, don't wait too long! I just learned that some refractive errors can change over time, and the sooner you address them, the better your long-term results might be. Plus, the technology keeps improving - my optometrist said the procedures available now are much more precise than even 5 years ago.

Just to add another perspective - my wife and I dealt with this last year for her aunt. We found that if your qualified long-term care expenses exceed the total benefits paid (the amount in Box 1), then none of the benefits are taxable, regardless of the per diem checkbox. In your case, since the benefits ($180K) exceed the expenses ($126K), you do need to calculate the taxable portion, but don't forget to include ALL qualified long-term care expenses, not just the obvious ones. Things like modifications to the home for accessibility, certain transportation costs to medical facilities, and some prescription costs can sometimes be included.

My accountant told me that with the per diem LTC policies, you should look at IRS Form 8853 instructions first. There's also a calculation worksheet in there that helps figure out the taxable amount. Don't forget that the per diem limit is adjusted each year for inflation! The 2023 limit was $370, 2024 is $390, and 2025 will be different again. Make sure you're using the correct year's limit when you do your math.

Didn't see this mentioned yet, but the most important factor is the business use percentage. Even if you get the ownership/lease structure figured out, your wife needs to keep a detailed mileage log showing business vs personal use. The IRS is super strict about this documentation. My recommendation is to use an app like MileIQ or Everlance to track all driving automatically. Without good records, you could lose the entire deduction in an audit regardless of whose name is on the title.

Great question! I went through something similar with my consulting business. The key thing to understand is that the IRS cares more about actual business use than whose name is on the title. Here's what I learned from my CPA: If your wife's LLC will be the primary user of the vehicle for business purposes, you have a couple of solid options: 1. **Transfer ownership to the LLC** - This is usually the cleanest approach. The LLC owns the asset and can claim depreciation/Section 179 deduction directly. You'd need to handle the title transfer through your state's DMV. 2. **Create a formal lease agreement** - If you keep it in your name, the LLC can lease it from you. This needs to be a legitimate business arrangement with market-rate payments, proper documentation, and you'd report the lease income. For a vehicle over 6,000 lbs used primarily for business, the LLC could potentially claim the full Section 179 deduction (up to $1,160,000 for 2024) or bonus depreciation, which gives you that big upfront tax benefit you're looking for. The critical part is documenting business use percentage with detailed mileage logs. The IRS will want to see contemporaneous records showing business vs. personal use. I'd strongly recommend using a mileage tracking app from day one. Also consider liability insurance - make sure your coverage is appropriate for business use regardless of which ownership structure you choose.