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Just an FYI that if you're missing documents when it's time to file, you can always file for an extension using Form 4868. Gives you until October 15 to file your return, though you still need to pay any estimated taxes by the April deadline.
But doesn't filing an extension increase your chances of being audited? I've always heard that but not sure if it's just a tax myth.
That's actually a common misconception. Filing an extension doesn't increase your audit risk at all. The IRS has officially stated this multiple times. Extensions are extremely common - millions of taxpayers file them every year. The things that typically trigger audits are reporting discrepancies, unusually large deductions relative to your income, or claiming credits you don't qualify for. A simple time extension is just an administrative matter and doesn't flag your return in any way. So if you're waiting on documents, it's much better to file an extension than to file an incomplete or incorrect return.
Has anyone tried just estimating the numbers when documents are late? My accountant told me we could file with "good faith estimates" and then amend later if the real documents show different numbers. Seems easier than waiting forever.
22 One thing to be aware of that nobody mentioned yet - if your brother was living in the house and continued to live there after your mom passed away, but before he bought you out, there might be questions about fair rental value during that period. This can sometimes complicate inheritance situations.
1 That's a good point I hadn't considered. My brother did continue living there those 6 months before buying us out. We didn't charge him rent since we were figuring out the estate. Would that create any tax issues? The executor (my older brother) just had him pay the utilities during that time.
22 In most cases, this wouldn't create significant tax issues for you as the person selling your share. The rental value question typically affects the person living in the property (your brother) or possibly the estate during administration. Since this was a relatively short period (6 months) and you were in the process of settling the estate, the IRS is unlikely to be concerned about the lack of rental payments. The main focus for your tax reporting remains the sale of your inheritance share and ensuring you correctly report the basis as the fair market value at the date of death.
8 Do you need to use a special tax software to report this correctly? I'm worried my regular tax program won't handle inheritance properly.
16 Most major tax software (TurboTax, H&R Block, TaxAct) can handle inheritance and property sales. The key is making sure you enter the correct basis information. When it asks about the sale of property and you input the 1099-S information, it should specifically ask if this was inherited property and when the person died, then calculate the stepped-up basis correctly.
My tax professor explained it like this: TIN is just the category name, while SSN, EIN, ITIN, etc. are the specific types of TINs. It's like how "vehicle" is the category, but "car," "truck," and "motorcycle" are specific types of vehicles.
This is actually really helpful! So the TIN is just the umbrella term? Are there any other types of TINs besides SSN and EIN that regular people might encounter?
Yes, TIN is exactly that - the umbrella term for various tax identification numbers. Besides SSNs and EINs, there are a few other types regular people might encounter. The most common alternative is the ITIN (Individual Taxpayer Identification Number), which is used by residents who need to file taxes but aren't eligible for an SSN, like certain visa holders or non-resident aliens. Another one is the PTIN (Preparer Tax Identification Number) which is used by professional tax preparers - you might see this on your tax return if someone else prepared it for you.
Just to add some extra info - I work at a bank and we always ask for TIN on forms, but we make it clear that "For individuals, this is your SSN." A lot of people get confused by this. You'd be surprised how many people think they need to register for a separate TIN number somewhere.
Make sure you're responding to the CP2000 by the deadline! The most important thing is to not ignore it even if you don't have all your documentation yet. For the Roth IRA portion, you need to prove your basis. The IRS assumes all distributions are earnings unless you can document your contributions. If you don't have records of your contributions, contact your IRA custodian ASAP to get historical statements. For the Traditional IRA, you're right that you'll owe taxes plus the 10% penalty since you didn't qualify for any exceptions. One thing to consider: if paying the total amount would cause financial hardship, you can request a payment plan when you respond to the CP2000. They're usually pretty reasonable about setting up installment agreements.
Thanks for the reminder about responding by the deadline. The due date is in about 3 weeks, so I have a little time. Do you know if I'll get a separate bill for the penalties and interest, or will that be included in what I pay when I agree to the CP2000 assessment?
When you agree to the CP2000 assessment, the response form will show the total additional tax amount they're proposing. This typically includes the 10% early withdrawal penalty for the Traditional IRA portion, but it does not include interest and potential late payment penalties. Those additional amounts will be calculated and included in the actual bill you receive after you've agreed to the assessment. The IRS will send you a separate notice (usually a CP22A) with the final amount including any interest and penalties. Interest continues to accrue until the amount is paid in full. If you're concerned about the total, it's definitely worth requesting an installment agreement either with your CP2000 response or when you receive the final bill. You can use Form 9465 to request a payment plan.
Make sure you're using the correct year's Form 8606! I made the mistake of using the current year form instead of the form for the tax year in question. The IRS rejected my response and it added months to the process. You can find old tax forms on the IRS website by searching for "prior year forms." For 2019 forms (which I think is what you need based on your post), go to this page: https://www.irs.gov/forms-pubs/prior-year
Freya Thomsen
I know you specifically asked about fully online solutions, but I wanted to mention that many desktop tax software providers are moving toward hybrid models. For example, I use Drake Tax which has a desktop component but also offers several cloud features: - SecureFilePro for client document exchange and signatures - Web-based client organizers - Online client portals for document sharing - Mobile app for document capture This combination gives me most of the benefits of an online system while retaining the power and reliability of desktop software. The desktop application handles the complex calculations and form generation, while the cloud components handle client interaction and document management.
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Omar Fawaz
ā¢Does Drake's cloud functionality allow multiple preparers to work on the same return simultaneously? That's one feature I really need in a cloud solution.
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Chloe Martin
Has anyone looked into Canopy recently? Last I heard they were developing a full tax preparation module to complement their practice management software. Their practice management system is already fully cloud-based and quite good.
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Diego Rojas
ā¢I'm using Canopy for practice management and client interaction, but their tax module is still very limited. They've scaled back their tax prep ambitions significantly from what they originally announced. It handles basic individual returns but is nowhere near ready for complex business returns. Great practice management system though!
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