Does First Time Penalty Abatement work if you have multiple years unfiled? I thought it was only for a single mistake, not years of non-compliance.

First Time Penalty Abatement only applies to one tax year, but even with multiple years unfiled, they can still qualify if they didn't have any penalties in the three years before the earliest unfiled year. So if 2021 is their earliest unfiled year, they'd need a clean compliance history for 2018-2020. You're right that it's designed for isolated mistakes rather than patterns of non-compliance, but the IRS often still grants it for the first year in a multi-year situation. The remaining years wouldn't qualify for first-time abatement, but might qualify under other reasonable cause arguments depending on the circumstances.

That 30% recommendation is really smart. I used to only save 15% and kept getting surprised by how much I actually owed. Switching to 30% has made a huge difference. I even set up automatic transfers to my "tax" account whenever money hits my checking account.

Thank you for mentioning this! With the baby coming next month, I completely forgot to factor in how that would affect our taxes next year. Would you recommend we split the $2,000 child tax credit between both our W-4 forms or put the full amount on just one of our forms? Also, do you know if we qualify for the child care tax credit as well as the dependent care FSA? Or can we only use one of those options?

You can put the full $2,000 on just one W-4 form, or split it between both - the end result will be the same. Just make sure you don't claim it on both forms (which would incorrectly double-count the credit). Regarding the child care tax credit vs. dependent care FSA: You can potentially use both, but there's an important limitation. The expenses you pay through the FSA cannot also be used for the child care credit - no "double dipping." Usually, with your income level, the FSA is more beneficial because it reduces your taxable income directly. The child care credit percentage is reduced at higher income levels, making the FSA more valuable for most dual-income professional couples.

This is spot on. My wife and I have almost identical incomes to the OP, and increasing our 401k contributions made a huge difference. We each increased from 10% to 15% contributions and it dropped our tax bill by almost $3,000. Plus that money is growing tax-deferred instead of going to the IRS. Also worth noting that at their income level, they might be close to the phase-out range for some tax benefits once the baby arrives, so tax planning becomes even more important.

Omg I think that's actually what happened. Looking at the letter more carefully, it mentions something about "self-employment tax assessment" and Form SE. The tax place definitely never mentioned anything about that - they just asked for my 1099 and did the return. I definitely don't have mileage records from 7 years ago. I was just a clueless college kid taking delivery orders. Do you think the tax advocate will still be able to help even if I technically do owe this money? The amount they're asking for is seriously impossible for me to pay.

The Tax Advocate Service can absolutely still help even if you legitimately owe the money. They can help you: 1) Verify that the assessment is actually correct and made within the proper timeframe. Just because you might owe self-employment tax doesn't mean their calculation is correct. 2) Set up a payment plan with terms you can actually manage. If the amount is truly beyond your ability to pay, they might even be able to help with an Offer in Compromise to settle for less than the full amount. The most important thing is to respond and work with the IRS rather than ignoring the notice. The penalties and interest will continue to grow, and eventually, they can take more serious collection actions. The fact that you relied on a professional tax preparer who failed to properly address your self-employment tax obligations might help with penalty abatement, which could significantly reduce what you owe.

This is exactly what happened to my brother. His tax preparer included the 1099 income on his return but completely missed the Schedule SE. Four years later, he got hit with a huge bill for the self-employment taxes plus penalties and interest. He ended up having to set up a payment plan for like $80/month for years. The IRS was actually pretty reasonable about the payment terms once he got through to someone.

17 The 1099-K threshold changed for 2023 tax year though, right? I thought now they issue them for much smaller amounts, like $600+?

22 You're absolutely right about the threshold change. For tax year 2023, the reporting threshold was supposed to drop to $600 with no minimum transaction count. However, the IRS delayed implementing this lower threshold, so for 2023 taxes, the old $20,000/200 transaction threshold still applies. But for the 2024 tax year (filing in 2025), the threshold is scheduled to be $5,000. The IRS has been gradually phasing in these changes. Always good to check the current year's requirements as they've been adjusting these thresholds recently. Regardless of whether you receive a 1099-K, you still need to report all your income correctly.

11 Unfortunately, if you're not filing Schedule C, you generally can't deduct those fees. The "Other Income" line on Form 1040 is for reporting gross income without associated expenses. This is one reason why it might be worth considering if your side gigs actually constitute a business - even a small one - so you can file Schedule C and deduct legitimate expenses.

Thanks for the tip about the TurboTax tracker! Just checked and it does show a more specific estimate than the IRS site - says my refund should arrive by this Friday. That's a good point about withholding too. I've actually been thinking about adjusting mine. Do you just fill out a new W-4 with your employer to change it? Was it complicated to figure out the right amount?

Yes, you just need to submit a new W-4 to your employer. It's not too complicated - the form has a worksheet that helps you calculate the right amount. You can also use the IRS's Tax Withholding Estimator online which is pretty user-friendly. The key is to think about your tax situation for the whole year - any major life changes, additional income sources, etc. I found that even with my adjustments, I still got a small refund this year (about $500) which I prefer to potentially owing money. It's kind of a balancing act.

This is so true. I claimed EITC and my return was "accepted" on Jan 31 but my refund didn't come until March 12. The Where's My Refund tool just showed "processing" for over a month with no explanation. Super frustrating.