So even if I explain to the IRS that I couldn't file accurately because my employer hasn't given me my W-2, they'll still charge penalties if I end up owing?

Exactly. The IRS doesn't care why you couldn't pay on time - they only care that you didn't pay by April 15. Your issue with your employer is separate from your obligation to pay taxes on time. That's why you need to make your best estimate and pay that amount by the deadline. Think of it this way: the IRS considers your taxes due as you earn income throughout the year. The April 15 deadline is already a grace period to finalize everything. So waiting on documents doesn't extend your obligation to pay what you already owe.

I went through this in 2023 and couldn't get the penalties removed despite documenting all my attempts to get my W-2 from my ex-employer. The IRS agent told me it's my responsibility to estimate and pay on time regardless of having the final documents. It really sucks but that's how they enforce it.

But if you warn them, won't they just hide the evidence better? I had a former friend who was doing something similar and when someone in our group warned him, he just got more sophisticated about hiding it. Sometimes people need to learn consequences the hard way.

That's a fair concern. If someone is determined to commit fraud, a warning might just make them better at concealing it. However, sometimes people genuinely don't realize the severity of what they're doing - they might see it as "bending the rules" rather than committing a federal offense. If you think your cousin might be receptive, a gentle approach might work: "Hey, I'm concerned about what you told me about your taxes. Those penalties can be really serious." But if they've shown they don't care about the rules or might become defensive, then you're right that a direct confrontation might not help the situation.

Is there any way to find out what happened after you submit a tip? Like do they tell you if they investigated or collected more tax? I reported an employer a few years ago who was paying people under the table but never heard anything about what happened.

This is really interesting! Do you know if he does these showcase projects in his own home or just for select customers? And does he still write off the full cost or just a portion?

He typically does these for customers, not in his own home. The key is that there's a clear business purpose that's documented - he has customers sign a marketing release allowing him to photograph, film and show the project to potential clients. He even hosts small open houses where prospective clients can see the finished work. His accountant categorizes these as marketing expenses, but only the portion that's discounted. So if a $10,000 job is done for $6,000, he can write off $4,000 as a marketing expense. He's very careful to document everything and has a written business policy about these showcase projects. I still think your own home would be much trickier to justify, but talking to a tax pro about a formal "demonstration project" policy might be worth exploring.

The mileage tracking is so crucial. I neglected this my first year and probably lost thousands in deductions. Do you know what the rate per mile is for 2025? And does MileIQ work automatically or do you have to remember to turn it on?

That's actually really good advice and something I've been considering. Did you have trouble separating your finances from the joint account holder? I'm worried that if I pull my money out suddenly it might look suspicious for tax purposes.

When I separated my finances from my dad's joint account, I opened a new account first, then gradually moved over my direct deposits and auto-payments over a period of about a month. That way there wasn't a sudden large withdrawal that could raise flags. I also kept really clear records of which money was mine versus his in the joint account, and made sure I only took my portion. For your situation, since the deposit is clearly your mom's settlement, you should have no problem leaving that untouched while taking your pre-existing balance.

This is the right answer! Keep the money separate from the beginning. My parents did this with some inheritance money and it made everything so much cleaner for taxes. Just make sure both names are on the new account.

That's actually not a bad idea. Did you have to do anything special on your taxes when reporting that $1,800? Just list it as business income on the Schedule C?

Yes, I just reported it as regular business income on my Schedule C for that final year. Nothing special required - just normal income reporting. My accountant did recommend I keep good documentation of the bulk sale with photos of the inventory and the sale listing/agreement, just in case there were any questions later about the business winding down. But the actual tax reporting was straightforward.

This is what I did too! Local theater group was thrilled to get my leftover fabric inventory. No tax benefit but serious karma points lol.

I like this idea a lot. Even if there's no tax benefit, at least the items would go to good use. Do you know if schools typically provide any kind of receipt for these donations?