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If your income was reduced because of maternity leave, did you receive any disability or family leave payments? Some states provide these benefits, and they might count differently for tax purposes than regular wages. This could potentially affect your total "earned income" calculation for the child tax credit. Also, check if you qualify for the Earned Income Tax Credit (EITC) with your income level and two dependents - that might help offset some of the reduced child tax credit.
Yes actually I did get short-term disability for about 6 weeks, but it wasn't much (about $3,200). I didn't realize that might count differently! Does disability count as earned income for the child tax credit calculation? I did qualify for the EITC which helped, but was still counting on more from the child tax credit since I got the full amount last year.
Short-term disability payments generally don't count as earned income for purposes of the child tax credit calculation. Earned income typically includes only wages, salaries, tips, and net earnings from self-employment. That explains part of your situation. If your W-2 wages were $6,630 but some of your total income came from disability payments, then only the W-2 amount would count toward the earned income calculation for the Additional Child Tax Credit. Good that you qualified for the EITC though - with two children and your income level, that can be a significant help.
Has anyone tried amending their tax return from last year to claim missed credits? I just realized I had a similar situation with reduced income during maternity leave but didn't know about how the child tax credit calculation worked. I think I might have left money on the table.
You can definitely file an amended return using Form 1040-X, but there's a 3-year deadline from the original filing date. So if you're talking about last year's taxes, you have plenty of time. Just make sure you have documentation for everything and be prepared for a long wait - amended returns can take 16+ weeks to process right now.
One thing nobody's mentioned - you should request an Identity Protection PIN (IP PIN) from the IRS immediately. After my husband had his tax return stolen by his mom's boyfriend (long story), getting an IP PIN was the only thing that prevented it from happening again. It's a 6-digit number that the IRS issues to confirmed identity theft victims, and you'll need it to file all future tax returns. Without it, the IRS will reject any return filed with your SSN, even if it's legitimately from you. You can request one through the IRS website or when you speak with an agent.
I've never heard of an IP PIN before. Will this solve my current filing problems too or just prevent future issues? And does it expire each year or do I keep the same one?
An IP PIN won't solve your current filing issues, but it will prevent this from happening again in the future. You'll receive a new IP PIN each year - the IRS sends it by mail in December or January before the tax season starts, or you can retrieve it online through your IRS online account. For your current situation, you'll still need to follow the advice about paper filing and submitting the Identity Theft Affidavit (Form 14039). Once the IRS processes that form, they'll automatically enroll you in the IP PIN program. If you don't want to wait, you can proactively enroll through the IRS website's "Get an IP PIN" tool.
Just want to add that you should also check your credit reports ASAP. Someone who steals your tax identity might try to open credit cards or loans in your name too. Get free reports from all three bureaus at annualcreditreport.com and consider freezing your credit while you sort this out.
Something no one's mentioned yet - if you're self-employed (sounds like you are with your small business), you might consider legitimately hiring your friend for some actual work instead of just gifting money. If you have a genuine need for help (organizing inventory, marketing, website work, etc.), you could pay them as a contractor or employee, which would be a business expense for you and earned income for them. Obviously it has to be real work with reasonable compensation - you can't just fake it. But might be a win-win if there's actual work they could help with.
That's an interesting idea I hadn't considered! My friend actually has some web design experience that could help my online store. Would I need to file any special paperwork if I paid him as a contractor? And would this potentially impact any benefits he currently receives?
If you pay him as a contractor and it's $600 or more in a year, you'll need to issue a 1099-NEC form to both him and the IRS. It's pretty straightforward - you'll need to get him to fill out a W-9 form first to collect his tax information. As for benefits, that's definitely something to consider. Earned income could potentially impact certain government benefits he receives, depending on the programs and income thresholds. This is something he should look into carefully before you proceed, as the extra income might reduce benefits by more than the amount earned in some cases. He might want to check with his benefits counselor to understand exactly how additional income would affect his specific situation.
Just to clarify something I see getting mixed up in this thread - Cost of Goods Sold (COGS) isn't technically a "deduction" in the same way as business expenses. It's subtracted from your revenue to determine your gross profit BEFORE you take your business deductions. So on your Schedule C, you'll report: Revenue - COGS = Gross Profit Gross Profit - Business Expenses = Net Profit This matters because some tax limits are based on your gross profit, not your net. Also make sure you're tracking inventory properly! Beginning inventory + Purchases - Ending inventory = COGS for the year.
This is super helpful! Does inventory include shipping costs to get the products to me? Or are those separate expenses?
I'm a bookkeeper (not a tax pro) but have seen both sides of this question with different clients. Here's what I've observed: Tax relief companies: - Often charge $3k-5k upfront - Many use aggressive sales tactics - Some deliver great results, others do very little - They basically do the same paperwork you could do yourself Tax attorneys: - More expensive ($400/hr adds up fast) - Usually more thorough and knowledgeable - Better for complex situations or if you're facing criminal charges - Often overkill for straightforward payment plans For $68k in debt on $52k income, you might actually do fine with an Enrolled Agent who specializes in tax resolution. They usually charge $150-200/hr or flat fees for specific services like OIC applications.
Have you seen clients successfully do this themselves without professional help? I'm in a similar situation but really can't afford to pay someone thousands right now. Is the DIY route completely impossible?
I have seen clients successfully handle smaller tax debts themselves, especially for straightforward installment agreements. The IRS website actually has decent self-help resources for setting up payment plans. For your situation though, I'd be cautious about going completely DIY. The OIC program has a very specific formula and about 60% of applications get rejected, often for simple errors or missing documentation. If you do try the DIY route, get the IRS Form 656 Booklet which walks through the whole process. Also consider getting just 1-2 hours of consultation with a professional to review your application before submission - this middle ground approach can save you money while avoiding major mistakes.
Does anyone know if these tax relief companies can actually deliver on claims to settle "for pennies on the dollar"? I've seen those commercials for years and always wondered if they're just scamming desperate people or if they have some secret formula for getting the IRS to accept low settlements.
Those "pennies on the dollar" claims are very misleading. What they're referring to is the IRS Offer in Compromise (OIC) program, which is completely legitimate but has very specific qualifying criteria. The reality is that only a small percentage of taxpayers actually qualify for significant reductions. The IRS uses a formula based on your income, expenses, assets, and ability to pay. If you have significant income or assets relative to your tax debt, you likely won't qualify for a dramatic reduction.
Liam Sullivan
Has anyone tried using the "Get Transcript by Mail" option on the IRS website? I know it's not immediate, but it doesn't require any credit verification. I used it last year and got my transcript in about 6 days which wasn't terrible.
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Amara Okafor
ā¢I used this option back in January and it took almost 3 weeks! I think it depends on the time of year and how busy the IRS is. Right now with tax season ramping up, I wouldn't count on it being quick.
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CosmicCommander
Don't forget that public libraries often have staff who can help with navigating government websites and forms. My local library has a tax help desk and they helped my grandmother (who has no credit) get her transcript by guiding her through the ID.me process. Worth checking local resources!
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