Do you need to qualify for the Taxpayer Advocate Service? I thought they only help in hardship situations or when you've been trying to resolve an issue for a long time without success.

You're right that the Taxpayer Advocate Service typically helps with hardship situations or cases where you've made multiple attempts to resolve an issue with the IRS without success. They prioritize cases where people are facing immediate negative financial impact, like the threat of losing housing or transportation. In most tax debt situations, especially ones with liens or levies threatened, you'll likely qualify for their help. But even if you don't qualify for their full service, they can still point you toward the right resources. They're one of the few truly free options available, and they work for the taxpayer, not the collection division of the IRS.

I did this successfully last year. Called the IRS (took forever to get through) and set up a payment plan for $22,000. First, I requested Currently Not Collectible status which they granted for 6 months when my income was really low. Then I set up a $250/month payment plan after I got a new job. They were actually reasonable to work with once I finally reached someone.

I tried the DIY approach and messed it up badly. Filed the wrong form for an OIC and got rejected, which reset my collection timeline. I think it depends on how complicated your situation is and how comfortable you are with tax forms.

You should definitely cash it! Government checks expire after one year, but you can request a replacement. It's your money! Even if it's a small amount, why give it back to the government? Plus, not cashing it might cause accounting discrepancies in their system.

That's good to know about the one-year expiration. I'll dig through my files and see if I can still find it. You're right that it's silly to give money back to the government even if it's just a dollar and change. As for discrepancies, that makes sense. I never thought about how it might mess up their accounting if the check is never cashed. I'll be more careful with any future random checks!

I looked really closely at the check and you're right! There is a tiny code printed at the bottom edge that says "INT-2024". Must be interest payment for 2024 processing like you said. Mystery solved! Thanks for this tip - I would have never noticed that tiny print.

Ugh you're right, I totally wasn't even thinking about state taxes. Do I need to file state returns for every state I lived in during that time? I moved twice in the last few years.

Yes, you'll need to file in each state where you lived and earned income. If you moved mid-year, you might need to file part-year resident returns in both states for that year. Most states follow similar rules to federal for filing thresholds, but some have much lower income requirements. You'll want to file the state returns for the same years as your federal returns. Many states have their own tax forgiveness or amnesty programs that might help reduce any penalties if you owed taxes. Some states also had their own stimulus programs during COVID that you might have missed.

How would the IRS even know what you used the Pell Grant money for? I just got a lump sum deposited to my account every semester.

Thank you for this detailed breakdown! For the Schedule C Part V explanation, how specific should I be? Is something like "Adjustment for deposits received but not earned under accrual method of accounting" sufficient?

That explanation is a good start, but I recommend being even more specific. Something like: "Adjustment of $34,000 for client deposits received in 2024 for design services to be completed in 2025 - accrual method of accounting." The more precise you are about the exact nature of the adjustment, the clearer it will be to anyone reviewing your return. Also, make sure your record-keeping is impeccable - for each deposit, have the client contract showing when services will be delivered, and your invoice clearly marking the payment as a deposit for future work.

I had a "correspondence audit" (by mail) about this exact issue last year. They just asked me to provide documentation explaining the difference. I sent them my client contracts showing future service dates, my bookkeeping records showing when payments were received vs when work was completed, and a reconciliation worksheet. The case was closed with no issues or additional taxes. The key was having good documentation - if you can clearly show why the difference exists and that you're following proper accrual accounting methods, there's nothing to worry about.

Do you think the size of the bank matters? I was leaning toward a local credit union, but wondering if a national bank might be better for a tax business specifically.

Size definitely matters, but there are pros and cons to both approaches. National banks typically offer more sophisticated online tools and wider ATM networks, which is helpful if you travel to meet clients. Credit unions often provide more personalized service and better rates, plus they're more likely to work with you if you have special circumstances. For a tax business where trust is paramount, having a relationship with a local banker who knows you can actually help build credibility with clients.

I switched from BoA to a local credit union last year. Best decision ever. The switch took about 2 weeks to fully transition recurring payments, but the savings and better service were totally worth it. Do it now before tax season hits and you get too busy!