Thanks for mentioning this! We actually did install some grab bars and a walk-in shower about two years ago but I didn't think of that as something tax-related. About how much of his care costs would qualify toward the support test? The in-home aide costs around $4,200/month and we're paying for all of it.

The in-home care costs absolutely count toward the support test! If you're paying $4,200/month, that's over $50,000 per year just for that care, which is substantial. All of that would count toward your support calculation. For the medical modifications, if they were medically necessary (prescribed or recommended by a healthcare provider), they could potentially be deductible as medical expenses if you itemize deductions. However, these would need to exceed a certain percentage of your adjusted gross income along with other medical expenses to get any tax benefit. Alternatively, those costs could be added to the basis of the home if you didn't take the medical deduction, potentially reducing any taxable gain.

What counts as a "major improvement" versus just regular maintenance? Like if he replaced the water heater, does that count?

Thank you for bringing this up! My parents do still claim him as a dependent. But he definitely had taxes taken out of his checks - I remember him complaining about it lol. So even if he's not required to file, he'd basically be giving free money to the government by not filing, right?

Exactly right! Even if he's not legally required to file, any federal income tax withheld from his paychecks is essentially an interest-free loan to the government. Filing would get that money returned to him. At $7,500 income as a dependent, he'd likely get most or all of his federal withholding back as a refund. Many young workers don't realize they're leaving hundreds of dollars on the table by not filing. Plus, getting into the habit of filing annually is a good practice for his financial future.

Is this really true? So if I'm pretty sure I'm getting a refund, I can just file whenever I want with no consequences? That seems too good to be true.

Would this apply if we never actually filed jointly though? From what I understand, he just took my W2s and never filed anything at all. Can I still claim innocent spouse if there were no joint returns?

Ah good point - Innocent Spouse Relief typically applies when joint returns were actually filed with errors or underpayment. If no returns were filed at all, that's a different situation. In your case, you'd focus more on explaining the circumstances when you file your returns and potentially requesting penalty abatement due to reasonable cause. The IRS does consider situations involving domestic abuse as potential reasonable cause for penalty relief. The most important thing is to get those returns filed now and explain your situation - they're usually willing to work with you on a payment plan for any taxes owed.

Yes, First Time Abatement (FTA) can be really helpful! However, it typically only applies to one tax year. With multiple years unfiled, you might get FTA for the earliest year but would need to request reasonable cause abatement for the others.

Thanks for this insider perspective. So if I understand correctly, as a genuine recovery startup (formed after Feb 2020), I might actually be at lower risk than established businesses? That's somewhat reassuring. About the voluntary disclosure program - would using that be essentially admitting I did something wrong? I believe my claim was legitimate based on the recovery startup provisions, but now I'm second-guessing everything because of the company I used.

Yes, recovery startups generally face less scrutiny because your eligibility was based on clear criteria (formation date, gross receipts under the threshold) rather than the more subjective "partial shutdown" or "significant decline in gross receipts" tests that established businesses had to meet. The voluntary disclosure program isn't necessarily an admission of wrongdoing - it's designed for businesses who, after review, believe their claim may not fully qualify. If you believe your claim as a recovery startup was legitimate, there's likely no need to use this program. Instead, focus on organizing your documentation. Make sure you have clear records showing: 1) formation after February 15, 2020, 2) evidence of actual business operations (not just a paper entity), 3) documentation of qualified wages paid, and 4) gross receipts under the threshold. The IRS is primarily targeting obviously fraudulent claims first, particularly those made by established businesses using aggressive interpretations of the shutdown provisions.

If the IRS disallows your ERC, you'll likely need to file amended returns for the year(s) affected. The wages you used for ERC would become fully deductible again, which could actually reduce your taxable income for that year. So there's potentially a small silver lining if you have to repay.

That's really interesting - I hadn't considered that approach. Do partnerships typically have the ability to issue W2s to partners? I thought partners were generally treated as self-employed rather than employees.

Regular partnerships can't issue W2s to partners - you're right that partners are treated as self-employed. What we did was elect to be taxed as an S-corporation while maintaining our partnership agreement internally. An S-corp can pay wages to shareholders who work in the business. This creates the W2 wages needed for QBI calculations at higher income levels. There are some additional compliance requirements and costs with this approach, but for us, the tax benefits made it worthwhile once our incomes crossed the threshold amounts.

Do you know how far back you can amend returns for this? I think I might have missed out in previous years too!