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Whatever you do, DO NOT CASH THOSE CHECKS!! My cousin did this with an extra refund they sent him, spent it, and ended up owing the original amount plus penalties and interest. The IRS will eventually figure out their mistake. When they sent you the second check after you already disputed the first one, that's a red flag that their systems aren't communicating internally. Keep detailed records of every interaction - dates, times, who you talked to, what was said. You might need this paper trail later.
Thanks for the warning! Did your cousin have to pay back a lot in penalties? That's exactly what I'm worried about - even if I don't spend the money, I'm concerned they might still hit me with fees just for depositing it.
He ended up paying about 8% more than the original amount because of the penalties and interest that accrued during the 7 months before they discovered the error. The worst part was they froze his next year's refund until everything was paid back. Even if you just deposit it without spending, they might still consider that as you "accepting" the refund, which could potentially trigger penalties. The IRS doesn't care much about intent - they care about whether you received funds you weren't entitled to. Better to be proactive and get written documentation showing you've tried to return it.
You might want to check if someone filed a fraudulent return in your name. If the amount is way more than you'd normally expect as a refund, it could be identity theft where someone filed a return with inflated deductions or credits. The fact that you're getting multiple checks even after disputing is concerning.
This happened to my brother last year. Someone filed a fake return with his SSN claiming a huge refund, and he got similar letters and checks. The IRS fraud department was actually pretty helpful once he reported it.
Make sure you also check if you qualify for the first-time homebuyer exception with your Roth IRA withdrawal! If you haven't owned a home in the previous two years, you can withdraw up to $10,000 of EARNINGS (not just contributions) from your Roth IRA without the 10% early withdrawal penalty for a first home purchase. Your contributions still come out tax and penalty free first, then up to $10k of earnings can come out penalty-free (though earnings are still subject to income tax unless the account is 5+ years old).
Does the 5-year rule apply differently to contributions vs. the first-time homebuyer exception? I thought the 5-year rule only affected whether earnings were tax-free for qualified distributions after 59.5, not for the special exceptions?
You're asking about a somewhat confusing aspect of Roth IRAs. There are actually two different 5-year rules. The first applies to earnings in general - for earnings to be completely tax-free, your first Roth contribution must have been made at least 5 years before withdrawal, AND you must be 59½ or meet another exception. For the first-time homebuyer exception specifically, if your Roth has been open for 5+ years, then up to $10,000 of earnings used for a first-time home purchase can be both penalty-free AND tax-free. If your Roth hasn't been open 5+ years, the $10,000 of earnings is still penalty-free but would be subject to income tax.
Just a quick tip from someone who went through this exact thing - make sure you have proof of ALL your contributions over the years. The IRS made me provide documentation for every single year I contributed, and I was missing records for two years which created a huge headache.
What counts as valid proof? I have my tax returns but they don't show the specific Roth contributions since they're not deductible. Would bank statements showing transfers to the brokerage work?
Has anyone used any of the tax relief companies that advertise on the radio? I owe around $8k to the IRS from 2022 and these companies claim they can settle for "pennies on the dollar" but it sounds too good to be true.
STAY AWAY from those tax relief companies! My brother paid one $4,000 and they did literally nothing he couldn't have done himself for free. Those "pennies on the dollar" settlements (called Offers in Compromise) are extremely rare and most people don't qualify. They just take your money and submit basic paperwork.
Don't forget that if you had health insurance through the marketplace with premium tax credits, failing to file can mean you have to repay ALL of the premium assistance you received. That's what happened to my cousin - he thought he'd get a small refund but ended up owing over $7,000 because of the premium tax credit repayment.
Have you considered setting up a Dependent Care FSA through your wife's employer? If she has access to one, you can contribute pre-tax dollars (up to $5,000 in 2025 for married filing jointly) to pay for qualified childcare expenses. This is often more advantageous than the Child and Dependent Care Credit, especially if you're in a higher tax bracket. The catch is you generally can't double dip - you'd need to choose either the FSA or the tax credit.
My wife does have access to a Dependent Care FSA through her company, but we weren't sure if it made sense to use it since I'm self-employed. Would this be better than the Child and Dependent Care Credit you think? We're probably in the 24% bracket if that matters.
At the 24% tax bracket, the Dependent Care FSA would likely be more beneficial. With the FSA, you'd save 24% federal income tax plus 7.65% FICA on up to $5,000, potentially saving around $1,583. The Child and Dependent Care Credit at your income level would probably be at the 20% rate, giving you a maximum credit of $1,200 for two or more children (20% of $6,000). The FSA is generally the better choice for higher-income families, plus it reduces your FICA taxes which the credit doesn't do. Your wife's employment status is what matters for the FSA eligibility, so you being self-employed doesn't affect your ability to use her employer's FSA. Just make sure to coordinate this with your tax planning since you can't use the same expenses for both benefits.
A bit off topic but have any other home-based LLC owners found good tax software? I tried H&R Block last year and it missed so many self-employed deductions. Thinking about switching for 2025 filing.
Keisha Jackson
For the Child Tax Credit specifically, make sure you have your kids' Social Security numbers and that they lived with you for more than half the year. The IRS has been cracking down on improper CTC claims lately.
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Paolo Moretti
ā¢They actually ask for proof that kids lived with you when filing? I've never had to upload school records or anything using turbotax.
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Amina Diop
don't stress too much abt the audit thing. i did landscaping work for 3 yrs, claimed EITC and CTC, and never got audited. just be reasonable with ur estimates and keep what records u can going forward. the irs is mainly looking for people claiming crazy business losses or suspicious deductions, not regular ppl trying to do right. the Schedule C tax form is pretty straightforward for this kind of work. just make sure u track those business expenses - equipment, gas, repairs, etc. it'll reduce ur taxable income significantly!!
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Dylan Mitchell
ā¢That's reassuring to hear. I'm definitely not trying to cheat the system, just worried about my lack of documentation. Any tips on tracking business expenses for yard work specifically?
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