That's interesting - I thought state income taxes were allocated based on who paid them? Like if it came out of your paycheck, it's your deduction. Can you really just decide how to split them?

You're right that generally withholding is tied to each spouse's earnings. What I was referring to is that in community property states like California, income (and the taxes paid on that income) is considered equally owned by both spouses regardless of who earned it. So in states like CA, WA, TX, etc., you have more flexibility in how certain deductions are allocated when filing MFS. But you're absolutely correct that in non-community property states, you can only deduct the state taxes you personally paid.

This is a hugely important point that a lot of people miss. I live in NJ where property taxes alone can exceed the SALT cap, so the mortgage interest deduction becomes the main factor in whether itemizing makes sense.

Is the SALT cap different for MFJ vs MFS? Like if we file jointly do we get the full $10k, but separately we each only get $5k?

Thanks for this advice. I've been keeping everything in a folder but haven't been writing down details of phone calls. Did you use any particular system to track everything? I'm worried they'll "lose" my 4852 form somehow.

I just created a simple spreadsheet with columns for date, time, representative name/ID number, what was discussed, and any confirmation/case numbers provided. After every interaction, I'd immediately update it while the details were fresh. For documents, I always send everything certified mail with return receipt. It costs a bit more but gives you proof they received it with the exact date. I also learned to send a cover letter with every submission that clearly states what forms are enclosed and references any previous correspondence. This creates a paper trail that's invaluable if they misplace something.

This! My investment company initially reported my conversion wrong too but issued a corrected form about 2 months later. By then I'd already received an IRS notice but I just sent them the corrected form and everything was cleared up.

Do you know if there's any catch to these free bank offers? Do they try to upsell you to premium versions halfway through or something?

Nope, no catch with the bank offers I've used. You get the full version of whatever tier they offer (usually Deluxe or Premier). You access it through your banking portal, and it's fully functional without upsells for the federal return. Some banks only cover the federal filing and you'll pay extra for state returns, so check the details. Also, these deals usually apply to online versions, not desktop software. But still a huge savings - just requires being a member of that financial institution.

Wow, that's kind of eye-opening and confirms what I suspected. I always wondered how much training the seasonal folks got. Do you think I'm better off with TurboTax then for a pretty basic return with just some basic investments?

So true. My dad got sucked into one of these "we'll save you thousands" schemes a few years ago and ended up getting audited. Cost him way more in the long run with penalties and interest, not to mention the stress.

Absolutely - these aggressive tax schemes often lead to audits, and the companies that promote them typically don't offer audit protection (or if they do, the fine print makes it nearly worthless). Most legitimate CPAs approach tax planning conservatively, focusing on documented deductions that clearly follow tax code. The aftermath of an audit can be financially devastating. Beyond the immediate penalties and interest, there's often a cascade effect where the IRS expands the audit to previous tax years if they find significant issues. Then you're dealing with multiple years of amended returns, additional penalties, and potentially having to pay for professional representation during the audit process.

I wouldn't recommend H&R Block for 1099 income, especially at your combined income level. Most of their preparers aren't CPAs and have minimal training for complex situations. They're fine for very simple W-2 only returns, but with 1099 income and significant deductions, you'll want someone more specialized.

Thanks for the advice. Do you think I need someone local or would an online CPA service work just as well? Our situation seems pretty similar to the original poster - wife has 1099 income, I'm W-2, and we have a mortgage.

Thanks for the heads-up about the lifetime exemption. We did get a professional appraisal for the property to document the $675,000 value. Does the appraisal need to be attached to both of our Form 709s, or just referenced?

You should attach a copy of the appraisal to both returns. The IRS wants to see the documentation for both spouses since you're each claiming half of the gift amount against your respective lifetime exemptions. Also make sure the appraisal is dated reasonably close to the date of the gift transfer. If there's more than a 6-month gap, the IRS might question whether the valuation is still accurate.

We looked into QPRTs but decided against it. They're more complex and you have to survive the trust term to get the tax benefits. For our situation, direct gifting with gift splitting worked better, but definitely talk to an estate attorney about your specific situation.