Wait, how could this cause ME problems if they don't remit the taxes they're withholding? I thought once it's withheld from my check, it's their responsibility to send it to the IRS? Could I end up owing those taxes again?

If your W-2 at the end of the year shows that taxes were withheld but the company never actually sent those funds to the IRS, you could potentially face issues. The IRS will expect those tax payments based on what's reported on your W-2. While you can prove the withholding through your paystubs, it creates a complicated situation where you might initially appear delinquent on tax payments. It's one of those situations where you'd eventually get it sorted out, but it can cause significant headaches, potential notices from the IRS, and time spent proving that the withholding occurred. In extreme cases of employer fraud, employees sometimes have to file Form 8919 (Uncollected Social Security and Medicare Tax on Wages) to properly report and pay these taxes that should have been handled by the employer.

That's actually a good point. My company does semi-monthly (5th and 20th) and the first check of the month has different withholding than the second. But we definitely get paystubs for both! And they certainly pay overtime when applicable. The real red flag to me is the missing paystub - that's not legal anywhere I know of.

Does making those "good faith" payments actually work though? Like, do they really care about the effort or do they just calculate the penalties strictly by the numbers?

In my experience, making good faith payments absolutely helps. While the penalties are calculated mathematically, having a history of attempting to comply can help if you ever need to request penalty abatement. The IRS has a First Time Penalty Abatement policy that's easier to qualify for if you show a pattern of trying to comply. The other practical benefit is psychological - making regular smaller payments is much less painful than facing a huge tax bill plus penalties all at once. Even if you underpay somewhat each quarter, you're still reducing the base amount that penalties are calculated on, which saves money in the long run.

TurboTax Self-Employed can handle Form 2210, but it's not great at explaining the annualized income method. I used it last year and still ended up confused about whether I was doing it right. If your situation is straightforward it might be fine, but with variable income throughout the year, I'd recommend getting some help.

But how do you PROVE you sold for less than you paid when you don't have receipts for clothes you bought years ago? Seems like the IRS could just assume it was all profit.

You don't necessarily need original receipts. The IRS understands that people don't keep receipts for clothing purchases from years ago. You can make reasonable estimates based on the type and brand of clothing. For example, if you sold a Nike hoodie for $30, you could reasonably estimate you paid $60-70 for it new. Document your estimates in a spreadsheet with descriptions of each item. The burden of proof for personal items sold casually isn't as high as for business inventory. Just be reasonable and consistent in your approach.

Yep, happened to me too. But you can deduct the shipping costs as expenses on Schedule C. Just keep track of what you spent on shipping for each item. I created a simple spreadsheet with item sold, sale price, shipping cost, and estimated original purchase price.

Doesn't this still require them to charge market rate interest though? And wouldn't the OP still need to qualify for the mortgage with their limited student income? I'm curious how this would work practically.

The IRS only requires what's called the Applicable Federal Rate (AFR) for family loans, which is typically much lower than market mortgage rates - sometimes less than half. In January 2025, the long-term AFR is only around 3.4% while market mortgage rates are over 6%. Regarding qualification, that's the beauty of a private family loan - there's no formal qualification process like with a bank. The grandparents can set whatever terms they're comfortable with based on their knowledge of the grandchild's situation and future earning potential. Many families set up lower payments during school years with a balloon adjustment after graduation when income increases. The biggest tax advantage is that the grandparents can spread any capital gains across multiple years rather than recognizing it all in one tax year, potentially keeping them in a lower tax bracket. Meanwhile, the grandchild can still deduct the mortgage interest just like with a traditional mortgage.

Couldn't they just use a life estate deed? That way the grandparents retain the right to live in the property until death, but ownership transfers automatically at death - getting the step-up in basis benefit while still guaranteeing the property goes to the grandchild?

A life estate deed is definitely worth considering, but it has some limitations. While it does allow for the step-up in basis at death and avoids probate, there are a few important considerations: The grandparents in this case don't actually live in the property (OP mentioned it's their "2nd house"), so a traditional life estate might not make sense. Instead, they might consider a remainder interest deed with retained right of sale, which would still provide the step-up in basis while giving them flexibility. Another potential issue is that creating a life estate now could trigger gift tax consequences on the remainder interest (the portion effectively being given to the grandchild). The IRS has specific formulas to calculate the present value of that remainder interest based on the life expectant's age. Also worth noting that with a life estate, the original owners can't sell or mortgage the property without the remainder beneficiary's consent, which may or may not be desirable depending on the grandparents' future needs.

This is such good advice! I learned this the hard way too. I keep a spreadsheet now tracking all expenses for my dad who lives with me. I also have him pay his portion of expenses from his account directly to mine with notes like "Dad's share of utilities" so there's a paper trail.

This happened to my grandma too! She had like $20 in dividend income from some ancient account she forgot about and it caused such a headache with the IRS. They're really strict about everything being reported properly.