This discussion has been incredibly comprehensive! As someone who's been lurking and learning from everyone's experiences, I wanted to add one more angle that might be relevant - retirement account contributions and how they interact with both FAFSA and tax filing status. When you file separately, you lose the ability to contribute to a Roth IRA if your individual income exceeds $10,000 (which sounds like it would affect the higher earner in most cases discussed here). But here's something interesting - traditional IRA contributions can actually help reduce your FAFSA income calculation while also potentially reducing your tax liability. If you're filing separately and can still contribute to a traditional IRA (or increase 401k contributions), those pre-tax contributions reduce your Adjusted Gross Income, which is what FAFSA uses for its calculations. So you might be able to optimize both your tax situation AND financial aid eligibility simultaneously. Also, for those who mentioned using various online tools and calculators - I'd recommend double-checking any major decisions with a fee-only financial planner who specializes in college planning. The interaction between taxes, financial aid, and long-term financial planning is complex enough that the cost of professional advice often pays for itself in avoided mistakes. The real-world experiences shared here have been invaluable - thank you all for being so transparent about the actual numbers and outcomes you experienced!

Great question about 529 contributions! Unfortunately, 529 contributions don't reduce your income for FAFSA purposes the way traditional IRA or 401k contributions do. The FAFSA treats 529 contributions as money you chose to save rather than money that reduces your available income. However, there are some strategic considerations with 529s and FAFSA: 1. **Ownership matters**: If the 529 is owned by the parent, only about 5.64% of the account value counts against financial aid eligibility. But if it's owned by the student, it counts as a student asset at 20%. 2. **Distribution timing**: When you take distributions from a 529, they don't count as income on the following year's FAFSA if used for qualified education expenses. So the timing of when you use 529 funds can be strategically planned. 3. **Grandparent-owned 529s**: These don't count as assets on FAFSA, but distributions DO count as untaxed income to the student, which can significantly impact aid eligibility. Some families transfer grandparent-owned 529s to parent ownership to avoid this issue. If you're considering the married filing separately strategy, you might also want to look at temporarily reducing 529 contributions during the base years that FAFSA considers, and instead maximizing traditional retirement contributions that actually do reduce your calculated income. The interplay between all these strategies really reinforces everyone's point about getting comprehensive professional advice!

This thread has been incredibly helpful in confirming what felt wrong about my tax preparer's request. As a newcomer to this community, I really appreciate everyone sharing their professional insights and personal experiences. What strikes me most is how consistently everyone - from CPAs to cybersecurity professionals to longtime tax filers - agrees that this is NOT a legitimate IRS requirement. The fact that tax software doesn't require these documents, and that other preparers are handling verification through much simpler methods, really drives home that my preparer is way out of line. I've decided I'm going to have one final conversation with him where I'll ask for the specific IRS publication he's referencing. If he can't provide it (which seems likely based on everyone's input), I'll be finding a new preparer for next year. Eight years of working together doesn't justify compromising my family's identity security. For anyone else facing similar situations - trust your instincts. If something feels excessive and you can't find any official documentation supporting it, there's probably a good reason for that. This community has shown me that legitimate tax professionals understand the difference between proper verification and unnecessary document hoarding. Thanks again to everyone who took the time to share their expertise. You've saved me from a potentially dangerous mistake!

As someone new to this community, I want to thank everyone for this incredibly informative discussion. I'm actually dealing with a very similar situation right now - my tax preparer of several years suddenly started asking for way more documentation than usual, including wanting copies of my children's school records and medical insurance cards "for IRS compliance." Reading through all these responses from tax professionals and security experts has confirmed my suspicions that this isn't legitimate. The point about tax software not requiring these documents really sealed it for me - if TurboTax and other major platforms can handle dependent verification without me uploading birth certificates and utility bills, then individual preparers shouldn't need them either. What's particularly concerning is how many people are reporting similar experiences with their long-time preparers. It makes me wonder if there's some kind of misinformation spreading through the tax preparation industry, or if some preparers are just getting overly paranoid about audits and penalties. The cybersecurity risks everyone mentioned are terrifying when you think about it. These small offices keeping filing cabinets full of families' most sensitive documents is like creating identity theft treasure chests. Even with the best intentions, one break-in or data breach could ruin dozens of lives. I'm definitely going to confront my preparer about this and ask for specific IRS documentation. If they can't provide it, I'll be shopping for someone new. Thanks for helping me trust my instincts on this!

Just to add some clarity on the estimated tax question - the IRS has a "safe harbor" rule that might help you avoid penalties even if you don't make quarterly payments. If you paid at least 100% of last year's tax liability through withholding and other payments (or 110% if your prior year AGI was over $150,000), you generally won't owe penalties even if you have a large tax bill from the inheritance. That said, if the capital gain from the estate sale is substantial, you might still want to make an estimated payment to avoid a big tax bill in April. The IRS charges interest on unpaid taxes even if you qualify for the safe harbor penalty protection. One thing I learned from my own situation - keep detailed records of the date of death value versus sale price. The trustee should provide this information, but having your own documentation (like the death certificate date and any appraisals) can be helpful if there are questions later.

One important thing to keep in mind is timing - since you received the money from the house sale recently, you'll want to act quickly if you think you might owe estimated taxes. The next quarterly estimated tax payment deadline is usually January 15th for the fourth quarter of the previous year. If there was a significant gain between your uncle's death and the sale (meaning the house sold for much more than its value when he died), you might want to calculate roughly what your share of that gain would be and consider making an estimated payment to avoid potential underpayment penalties. Also, don't stress too much about getting the exact death date value from Zillow - it's just an estimate. The trustee should have documentation of the property's fair market value at the date of death, either from an appraisal or other valuation method. This will be the official "stepped-up basis" used for tax calculations. If you're unsure about the numbers, it might be worth consulting with a tax professional who can help you determine if estimated payments are necessary based on your overall tax situation for the year.

Called the IRS yesterday about my still processing status. They said I need to verify identity. Don't wait like I did - call if ur stuck on still processing for more than 3 weeks!

This is super helpful! I've been dealing with the same confusion. My status changed from "processing" to "still processing" about 2 weeks ago and I wasn't sure if that was bad news. Based on what everyone's saying here, sounds like I should probably call the IRS soon to see if they need anything from me. Thanks for asking this question - really needed this clarification!

Has anyone used TurboTax for calculating QBI? It seems to be confusing me more than helping. The software keeps asking me about W-2 wages paid when I've already indicated I have no employees. Is there a better tax software for sole proprietors claiming QBI?

Great question about QBI! As someone who's been through this with my consulting business, here are a few key points that helped me: 1. At your income level ($85k), you're definitely below the phase-out threshold, so you get the full 20% deduction without any wage limitations. 2. For documentation, keep your Schedule C records clean and organized - that's really all you need at your income level. The W-2 wage stuff your accountant mentioned only matters for much higher earners. 3. One thing that caught me off guard: make sure you're not double-counting any expenses between your regular business deductions and anything that might affect QBI calculation. The Form 8995 (the simple version) is what you'll likely use, not the more complex 8995-A. If you're using tax software, it should handle this automatically once you enter your Schedule C information correctly. Don't overthink it - at your income level, it's pretty straightforward. Just focus on maximizing legitimate business deductions on Schedule C, and the QBI will flow naturally from there.