That's a really good point I hadn't considered. We're not planning to sell anytime soon, but the housing market in our area has been growing pretty rapidly. Do you know if there are any requirements about how long you need to be married to qualify for the full $500k exclusion when selling?

To qualify for the full $500K married exclusion when selling, you need to have owned and lived in the home as your primary residence for at least 2 of the last 5 years before selling. And you need to be married when you sell the house, not necessarily when you bought it. The ownership test and the residence test are separate, so you need to meet both. As long as you're married when you sell and meet those requirements, you should be eligible for the full $500K exclusion regardless of when the marriage occurred during your ownership period.

This is such a good point. My husband and I both owned properties before marriage in high-tax states and got absolutely crushed by this after getting married. We literally pay thousands more in taxes now because of the SALT cap. If you're in a high-tax state, run the numbers carefully.

Is there any way to report these places? I'm pretty sure the guy who did my brother's taxes last year put a bunch of fake business expenses that got him an extra $3000 in refunds.

Absolutely - you can report suspected tax preparation fraud to the IRS using Form 14157 (Complaint: Tax Return Preparer). There's also Form 14157-A if you believe your own tax return was prepared incorrectly. The IRS takes these reports seriously as part of their efforts to combat preparation fraud. For your brother's situation, he should be aware that even if the preparer put fake information on the return, the taxpayer is ultimately responsible for what's submitted under their signature. It might be worth having a professional review that return to see what was claimed and possibly filing an amended return to correct it before the IRS catches it themselves.

Seven years is actually not that surprising. The audit rate is so low that people can get away with fraud for years. But when they do get caught, the IRS can go back and audit multiple years. Your neighbor is building a time bomb that's going to explode eventually.

What's the actual difference between a CPA and a regular tax preparer when it comes to handling 1099 income? Is one riskier than the other if you get audited?

The main difference is credentials and scope of expertise. CPAs have to pass rigorous exams and maintain continuing education in all areas of accounting, while tax preparers specifically focus on tax preparation and might have more specialized experience with certain types of returns. For audit protection, what matters more is whether they offer audit assistance/representation, not their title. Many non-CPA tax preparers offer excellent audit support. Just make sure whoever you choose has a PTIN (Preparer Tax Identification Number) from the IRS and ask specifically about their experience with 1099 income situations like yours.

Yes!! This! I got hit with a $800 penalty for not doing quarterly payments on my 1099 income last year. I had no idea it was required. Definitely ask about this in your consultation.

Is there any way around this? I'm planning to file but expecting about $5k in refunds this year.

Some strategies exist but they're very timing-dependent. If you've already received your refund, you could spend it on necessary expenses before filing (but be careful, as the trustee can look back at recent spending). Some people delay filing until after they've received and spent their refund. Another option is to adjust your withholding now so you get more in each paycheck and less as a refund, but that only helps for future tax years. Some bankruptcy courts also allow you to exempt a portion of your refund, especially if it includes earned income credit or child tax credits.

Is that seriously true? Now I'm scared to file. I have a couple years where I didn't file because my business was losing money and I didn't think I needed to.

It's not technically an "audit" in the formal sense but yes, the bankruptcy court notifies the IRS of all filings. And at minimum, the bankruptcy trustee will review your last few years of tax returns. If you haven't filed for some years, the court may dismiss your case or require you to file those returns before proceeding. Even if your business was losing money, you were still required to file returns. Before you proceed with bankruptcy, I'd strongly recommend getting those unfiled returns completed and submitted. Most bankruptcy attorneys will insist on this anyway, as unfiled returns can seriously complicate your case and may prevent certain tax debts from being discharged.

1 Thank you for this list! The only thing that might apply to me is that I did start doing some side gig work and claimed a few business expenses, but nothing major - maybe $1,200 total on a side income of about $8,000. Could that be what she was referring to? Or is that ratio pretty normal?

18 That expense-to-income ratio is completely reasonable for side gig work and wouldn't raise any red flags by itself. 15% expenses on self-employment income is actually quite conservative by most standards. What's more likely is that your preparer may have been using scare tactics to justify their fee or to encourage you to purchase audit protection services, which is unfortunately common practice among some tax preparation businesses. Some preparers use audit warnings to upsell clients on representation services they likely won't need.

1 Oh my god, she actually did! She mentioned their "audit defense package" for $79 right after making those comments, but I declined because I was already paying quite a bit for the preparation. I didn't even make the connection until you mentioned it. That makes me feel both better and worse at the same time - less worried about an audit but annoyed I was manipulated.