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3 One thing nobody's mentioned yet is that you should look into the IRS Fresh Start program. I went through a similar situation with 3 years of unfiled returns, and there are provisions that might help reduce your penalties. The key is to file all missing returns ASAP. Once everything is filed, if you can't pay the full amount, you can apply for an installment agreement. If your total tax debt is under $50,000, it's usually pretty straightforward. For me, the penalties and interest almost doubled my original tax bill, but I qualified for First Time Penalty Abatement which saved me thousands. Don't wait any longer - the penalties just keep growing!
12 How do you qualify for this First Time Penalty Abatement thing? Is it automatic or do you have to specifically request it?
3 You need to specifically request First Time Penalty Abatement - it's not automatic. The basic qualifications are: you haven't had any significant penalties in the 3 years before the tax year you're requesting abatement for, you've filed all currently required returns (or filed extensions), and you've paid or arranged to pay any tax due. You can request it by calling the IRS after filing all your returns, or your tax professional can help you submit the request. In my case, they removed about $4,300 in failure-to-file and failure-to-pay penalties, though I still had to pay the interest. Definitely worth asking for!
22 Has anyone done this themselves without a professional? I'm in a similar situation (unfiled 2016-2018) but really can't afford to pay someone hundreds per return right now.
9 I filed 3 years of back taxes myself last year. It's definitely doable if you're organized and your situation isn't super complicated. The hardest part was getting all the right documents together. For the actual filing, I used FreeTaxUSA's prior year returns - they're only $15 per state return (federal is free) even for old years, much cheaper than TurboTax. Just make sure you're using the forms for the correct tax years and be meticulous about documentation, especially for self-employment income. Allow yourself plenty of time - each return took me about 3-4 hours.
Just want to point out that there are specific rules for athletes with sponsorships that might apply to your sister's situation. The nature of the sponsorship matters: 1) If it's a "pay-for-play" arrangement where she's compensated for specific performances, that's definitely self-employment income 2) If it's a product endorsement where she's paid to use/wear products, that's usually self-employment 3) If it's purely a product-only sponsorship (where she gets free equipment but no cash), that might be treated differently Most sponsored athletes with 1099-NEC income should report on Schedule C and pay self-employment tax, but it depends on the specific arrangement. If she's getting significant money, it might be worth consulting a tax pro who specializes in athlete income.
I work in sports marketing and can confirm this is accurate. I've seen many athletes get in trouble with the IRS for misclassifying sponsorship income. The one exception sometimes is Olympic-level athletes with certain types of grants, but that's very specific and doesn't apply to most sponsored athletes.
One thing nobody has mentioned yet - the self-employment tax might seem painful now, but remember half of it is deductible on your federal return. Also, paying self-employment tax means she's building Social Security credits for retirement. If she consistently avoids self-employment tax by using Schedule 1 incorrectly, she could find herself with reduced Social Security benefits in retirement. Plus, proper Schedule C filing allows her to deduct legitimate business expenses related to her athletic activities - equipment, travel to events, training costs, etc. This can often offset a significant portion of the self-employment tax burden.
That's a really good point about the Social Security credits and business deductions. My dad was focusing so much on reducing her current tax bill that we weren't thinking about the long-term implications or the potential deductions. I'll definitely make sure to include all her eligible expenses on Schedule C.
Anyone know which brokerages process solo 401k applications the fastest? I'm stuck between choosing Vanguard, Fidelity or Schwab for setting mine up tonight.
In my experience, Fidelity has the quickest online process for solo 401ks. I was able to complete everything in about 30 minutes online last year. Vanguard required some paperwork to be mailed in which obviously wouldn't work for your deadline tonight.
Just a heads up that "open" and "establish" mean different things for solo 401ks. You need to ADOPT the plan by signing the plan documents by Dec 31. Then you technically have until the business tax return deadline to "establish" by opening the account with a financial institution. At least that's what my accountant told me. Might be worth a quick call to verify this info.
This is actually not correct and could cause someone to miss the deadline. For a solo 401k, both adoption of the plan AND establishment of the account need to happen by December 31st. The funding can wait until the tax filing deadline, but the account itself must exist before the year ends. The confusion might be with SEP IRAs, which can be established up until the tax filing deadline. Solo 401ks have stricter timing requirements.
Oh shoot, you're right! I was mixing up SEP IRA rules with solo 401k rules. Thanks for the correction - definitely don't want to give anyone bad advice when it comes to retirement account deadlines.
One thing nobody mentioned yet - if you were married for part of the year, you might also qualify for married filing jointly IF your ex is willing to file together. This sometimes results in a better tax situation for both people, even after divorce. But obviously this depends on if you're on good terms and both agree it makes financial sense.
Thanks for mentioning this! My ex and I are actually on decent terms. Would we both have to file jointly together or could I still do head of household? I've already submitted my return as head of household based on the advice here...would I need to do an amendment if joint was better?
If you file jointly, both of you have to file together on one return. You can't have one person filing jointly and the other filing head of household - it's an all or nothing choice. Since you've already filed as head of household, you could amend if filing jointly would benefit both of you. However, you'd need to run the numbers both ways to see which is better, and your ex would need to agree. Remember that filing jointly also means you're both responsible for the entire tax liability, so there's some risk involved if you don't completely trust each other.
Does anyone know if FreeTaxUSA handles this situation well? I'm going through a divorce right now (not final yet) and was gonna use FreeTaxUSA but now I'm worried it might get confusing with the filing status questions.
FreeTaxUSA actually handles this pretty well! I used it last year after my divorce. They ask straightforward questions about your marital status as of Dec 31, whether you have dependents, etc. and guide you to the right filing status. Their help sections explain the requirements clearly too.
I would recommend you double check with a professional if your situation is complicated. My sister used FreeTaxUSA after her divorce and it seemed fine but she missed some deductions related to the kids that her accountant caught the following year.
Victoria Stark
Truck driver for 22 years here. This LLC thing is becoming super common in the industry. Here's what you should know: If your dad is using THEIR truck, driving THEIR routes, and can't work for other companies, he's an EMPLOYEE regardless of what paperwork they make him sign. California's AB5 law specifically targets the trucking industry for this exact issue. If he's based in CA, they CANNOT legally classify him as an independent contractor unless he: 1) Is free from company control 2) Does work outside the company's main business 3) Has an independently established business Big companies are just trying to shift costs to drivers. They save on taxes, insurance, benefits, and liability while the driver takes on all the risk.
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Benjamin Kim
ā¢Does this apply if the driver is in Nevada but drives through California? My cousin is in the exact same situation.
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Victoria Stark
ā¢It gets complicated with interstate travel. Generally, your employment status is based on your home terminal location and where the company is directing you from. If he's based in Nevada but just passing through California, AB5 might not directly apply to his employment status, but California could still tax income earned while physically in the state. For your cousin, the most important thing is to look at the actual working relationship regardless of what state laws apply. The IRS has its own test that applies federally. If the company controls when, where and how he works, provides the equipment, and he can't work for others, he's likely an employee under federal standards.
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Samantha Howard
A little off topic but this might save your dad some headache - if he does end up as an independent contractor, make sure he sets aside 25-30% of EVERY check for taxes. I got destroyed my first year as an "independent contractor" because nobody told me about quarterly estimated tax payments and self-employment tax. Ended up owing over $18,000 at tax time with penalties.
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Megan D'Acosta
ā¢That's great advice. Also track EVERYTHING. Every receipt, every mile, every expense. I use an app called Stride that tracks mileage automatically and categorizes business expenses. Saved me about $4,700 in deductions last year.
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Samantha Howard
ā¢Thanks for the app recommendation! I've been using a paper logbook like a caveman. And you're absolutely right about tracking everything - I even deduct a percentage of my phone bill since I use it for work calls and routing. The key is being able to prove business purpose if audited.
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