This is exactly what I was looking for, thank you! I've checked our returns and there's no Form 6765 included anywhere, so I guess we're not claiming these credits. Based on that 4-part test, I'm pretty sure at least some of our projects would qualify. We do a lot of work on complex structures with unique sustainability challenges that require significant testing and prototyping. Do you know if there are downsides to claiming these credits? Like does it increase audit risk or anything like that?

There is a slightly increased audit risk since R&D credits are scrutinized more carefully than some other deductions, but it's manageable with proper documentation. The key is to maintain thorough records of your qualifying activities - project plans, design iterations, testing results, emails discussing technical challenges, etc. The potential benefits usually far outweigh the risks. If you're confident your activities meet the four-part test and you have documentation to support it, don't let audit concerns prevent you from claiming legitimate credits. Just make sure you're working with someone experienced in R&D credits for architectural firms specifically, as they can help structure your documentation properly.

What software do you use to track this? We're a small engineering firm and our time tracking is pretty basic right now.

Thanks for this advice. I have been keeping emails, but I hadn't thought to document the phone calls with this level of detail. Do I need to submit this documentation with my tax return or just keep it in case of questions later?

You don't need to submit the documentation with your tax return unless you're filing by mail and want to include it as supporting evidence. But definitely keep it in your records for at least 3 years (the standard IRS lookback period for audits). If the IRS does question the discrepancy between your Form 4852 and what your employer reported, having this documentation ready shows you weren't trying to misrepresent anything - you were actively trying to get the correct information but had to file with what you knew was accurate. It demonstrates good faith on your part.

That's terrible advice. You should NEVER file knowingly incorrect tax information, regardless of the amount. That's literally asking for problems down the road.

I wasn't suggesting filing incorrect information! I was suggesting evaluating whether the correction is material enough to warrant the extra steps. For example, if box 12 is off by $5 due to a rounding error, that's very different than if it's off by $5,000. The IRS itself has de minimis rules for certain reporting requirements. I'm not saying to ignore significant errors, just to consider whether the particular error materially affects tax liability before going through the Form 4852 process.

Is there any way to tell TurboTax to be more consistent? Like maybe a setting to always include explanations or something? I'm preparing returns for multiple family members and it would be easier to explain if they all had similar structures.

Nah, not really. The tax software has to include certain forms based on specific tax situations - there's no override for that. The IRS expects specific forms for specific situations, and the software complies with those requirements. For the explanation worksheets, those are typically included based on automated triggers within the software. TurboTax might include more detailed explanations when amounts are close to thresholds or when there are multiple factors affecting a calculation.

Yes! The desktop version tends to include more supplementary worksheets and explanations. I've used both and the desktop version consistently produces longer returns with more supporting documentation. I think it's actually a feature of the desktop version since it's marketed more toward complex situations.

I've heard about OIC but wasn't sure if I'd qualify. Do they look at your assets too? I own my house with some equity in it and have a couple of vehicles. Would that disqualify me?

Yes, they absolutely look at your assets. The IRS typically expects you to liquidate or borrow against assets with equity before they'll approve an OIC. They calculate your "reasonable collection potential" based on your income, expenses, and asset equity. For your home, they'll consider the quick sale value (usually 80% of market value) minus any mortgages and exemption amounts. For vehicles, they'll look at equity beyond what's needed for basic transportation. Having assets with equity doesn't automatically disqualify you, but you'll need to account for that equity in your offer amount.

I got a Partial Payment Installment Agreement (PPIA) last year. It's definitely easier than OIC but still required full financial disclosure with Form 433-F. The key difference is that with PPIA, you make payments based on what you can afford until the collection statute expires (usually 10 years from assessment). After that, the remaining balance is forgiven.

Do you ever help families set up the payroll stuff? My nanny keeps saying she wants to be "on the books" but neither of us know where to start.

I don't personally set it up for families, but I do point them toward resources. Many use household payroll services like HomePay, SurePayroll, or Poppins Payroll that specialize in nanny taxes. They handle all the paperwork, tax withholding, and filings for around $40-60/month. I also recommend they check the IRS Publication 926 (Household Employer's Tax Guide) which explains everything. Most families find that once they have a system set up, it's pretty easy to maintain and gives everyone peace of mind.

This whole thing sounds so complicated and expensive. Is it really worth doing all this for a part-time nanny? How much extra does it end up costing?