One thing nobody's mentioned yet - if you file separately and want to take deductions like student loan interest, tuition and fees, or education credits, there are special rules. If you're married filing separately, you CANNOT claim the student loan interest deduction at all. And for some education credits, filing separately might make you ineligible too. Run the numbers both ways before deciding. In my experience, filing jointly almost always wins from a pure tax perspective. The financial aid question is separate and depends on your specific aid package.

I'm still confused about FAFSA. I thought they changed the rules recently? Something about using different years for the income verification?

For what it's worth, I've been in tax for 20+ years and consistently use 7 years for restaurant POS systems. The language in Rev. Proc. 87-56 is pretty clear if you look at Asset Class 57.0. Also, consider that franchise agreements typically last 10-20 years, and the POS systems are usually required by the franchisor as part of the agreement. The systems are designed to last substantially longer than general computer equipment.

Has anyone dealt with POS systems that have integrated payment processing hardware? Our client has those Square-type systems that combine traditional POS functions with the credit card reader. Would those components potentially be treated differently?

To get back to the original question about the Cohan rule - I'm a bookkeeper and see clients try to abuse this all the time. They'll come in with almost no records and expect to claim thousands in deductions "because of the Cohan rule." The reality is much different. In practice, the IRS is very strict about applying this rule, especially for theft losses. They typically expect: 1. A timely filed police report 2. Insurance claim documentation 3. Original purchase documentation or other proof of value 4. Evidence that you've exhausted recovery options Even with all that, they often allow only a percentage of the claimed amount when the Cohan rule is involved. And they're much more likely to scrutinize these claims during an audit. The bottom line: Can you "get away" with claiming fake theft losses? Maybe in the short term, but it's fraud, and if you're audited, you'll face serious consequences including penalties, interest, and potential criminal charges for tax evasion.

Small business owner here. I've been through two IRS audits in my 15 years of running my company. Here's my experience with the Cohan rule: The rule CAN be helpful when you have some documentation but not complete records. During my first audit, I had incomplete mileage logs but could prove my business travel through appointment calendars, receipts from destinations, etc. The auditor allowed a reasonable percentage of my claimed mileage using the Cohan principle. BUT - and this is a huge but - they will give you ZERO leeway on completely undocumented claims or things that seem fabricated. My second audit involved a contractor who gave me fake documentation for some work, and even though I genuinely paid for services, the IRS disallowed the entire deduction because they determined the documentation was not credible. Claiming fake theft losses would fall under fraud, not the Cohan rule. The rule helps honest taxpayers with imperfect records, not dishonest ones trying to create deductions.

I went through almost the exact same situation last year. The key is to NOT agree to the audit results until the withholding issue is resolved. Once you agree to the assessment, it's much harder to fix. Instead of following the auditor's advice, I submitted a formal response to the audit stating that I agreed with the tax assessment BUT noted that my W2 withholdings of $X amount hadn't been included in the calculation. I included copies of my W2s and requested that penalties be calculated only on the actual amount owed after withholdings. It took about 3 weeks longer, but they eventually sent a revised audit result that properly accounted for my withholdings and the penalties were calculated correctly from the start. Don't pay anything until this is straightened out!

Just to add another perspective - what the auditor told you is technically correct in terms of IRS procedure, but it's inefficient and potentially costly for you. The IRS often has different departments handle tax assessment (audit) and payment processing. When your audit is closed, your account should eventually reflect both the increased tax assessment AND your withholdings, but there can be timing gaps where penalties are calculated incorrectly. If you do follow the auditor's advice, make sure to follow up after paying to request a penalty abatement for the portion calculated on taxes you already paid through withholding. You can use IRS Form 843 for this. Include copies of your W2s showing the withholding.

I dealt with this exact K-1 nightmare last year. One option nobody's mentioned yet is to talk to the partnership itself. Sometimes they can make a special tax distribution just to cover the taxes on phantom income. In my case, I showed the managing partner my tax projection and they agreed to distribute enough cash to cover the extra tax burden. Also, check if your partnership agreement has any provisions about tax distributions. Some partnerships are required to distribute at least enough to cover each partner's tax liability on allocated income.

Has your accountant discussed form 8582 with you? That's the form for calculating passive activity limitations. Sometimes accountants miss opportunities to group activities together to meet material participation standards. You might also want to check if you qualify for the real estate professional exception if this is a real estate partnership.