12 How do you qualify for this First Time Penalty Abatement thing? Is it automatic or do you have to specifically request it?

3 You need to specifically request First Time Penalty Abatement - it's not automatic. The basic qualifications are: you haven't had any significant penalties in the 3 years before the tax year you're requesting abatement for, you've filed all currently required returns (or filed extensions), and you've paid or arranged to pay any tax due. You can request it by calling the IRS after filing all your returns, or your tax professional can help you submit the request. In my case, they removed about $4,300 in failure-to-file and failure-to-pay penalties, though I still had to pay the interest. Definitely worth asking for!

9 I filed 3 years of back taxes myself last year. It's definitely doable if you're organized and your situation isn't super complicated. The hardest part was getting all the right documents together. For the actual filing, I used FreeTaxUSA's prior year returns - they're only $15 per state return (federal is free) even for old years, much cheaper than TurboTax. Just make sure you're using the forms for the correct tax years and be meticulous about documentation, especially for self-employment income. Allow yourself plenty of time - each return took me about 3-4 hours.

Totally valid point! Real IRS checks have watermarks and security features. The paper should have a slight blue tint and there's usually a watermark visible when held up to light. Also, if you're not expecting a check or the amount seems off, it's another red flag. Scammers count on people being excited about surprise money and not questioning it too carefully.

Do you know if Cash App Tax has import features? I've heard mixed things but thinking about trying it this year.

Cash App Tax does have some import capabilities, but not as extensive as TurboTax. Last I checked, they could import W-2s by taking a picture, and they can import some 1099s from major brokerages like Robinhood and a few others. The coverage isn't nearly as comprehensive as TurboTax though, which can connect to hundreds of financial institutions. If you have accounts at smaller or less common brokerages, you might still need to enter things manually with Cash App Tax.

The free versions often miss deductions though. My cousin works for H&R Block and says they train them to upsell because the free version is designed to be incomplete.

How exactly did you format your response? Did you use any specific IRS forms or just write a letter explaining the situation?

I wrote a formal letter that referenced the notice number and my tax ID at the top. I didn't use a specific IRS form, but made sure my letter was very clear and organized. I started with a direct statement: "I am writing to request abatement of the substantial understatement penalty because all income was properly reported on my original return." Then I included a table showing exactly where each item appeared on my return with line numbers and amounts. I attached highlighted copies of both my filed return and the 1099 forms, with the relevant numbers circled. I find that making it super easy for them to see the evidence increases your chances of success. Don't make them hunt for information or they might just deny your request due to lack of clear documentation.

Most tax software doesn't have great features for handling notices after filing. TurboTax has an "audit support" feature but it's pretty basic - mostly just gives you general guidance. H&R Block offers actual representation if you pay for their Peace of Mind extended service, but that's something you have to purchase when you file, not after you get a notice.

Omg I totally didn't even think about state taxes! I'm in California - do you know if they have any special requirements for small online businesses?

California definitely has state income tax, and they're pretty thorough about collecting it! You'll need to report your income on your CA state tax return. California also technically requires a business license for most businesses, though many small online sellers operate without one initially. If your sales exceed $600 annually, you should register for a Seller's Permit with the California Department of Tax and Fee Administration, especially if you're selling any physical products alongside your digital content. For purely digital goods like photos, the rules can be a bit different, but it's still income that needs to be reported.

This is actually helpful tax advice for OP's question though? Maybe save the economic commentary for another thread.