Thanks for these suggestions! We don't have any partnership income or self-employment, but the capital loss harvesting is interesting. We do have some investments that haven't performed well. Would selling those at a loss help lower AGI this year?

Yes, capital loss harvesting would help lower your AGI. You can deduct up to $3,000 in net capital losses against ordinary income per year, which directly reduces your AGI. If you have investments that are currently at a loss, selling them would realize those losses that you can use on your tax return. Just be aware of wash sale rules - if you buy substantially identical investments within 30 days before or after selling at a loss, you can't claim the loss for tax purposes.

The student loan interest deduction phases out completely for married couples filing jointly when MAGI reaches $155,000, so that wouldn't help in their situation with $227k income unless they file separately. And if they file separately, neither spouse can claim the student loan interest deduction at all. It's one of those weird tax rules.

Do you have to wait until they assess the penalty before requesting abatement? Or can you be proactive and request it when you file?

You generally need to wait until they assess the penalty before requesting abatement. The IRS typically sends a separate notice about penalties after processing your return. When you get that notice, that's when you should call and request the First Time Penalty Abatement. You can't really request it proactively when filing because the IRS needs to calculate the penalty first. The good news is that if you qualify, they'll usually grant it without much hassle as long as you've had a clean compliance record for the previous 3 years.

This is such a good point. I'm in California and their underpayment penalties are actually worse than the federal ones. Had to pay almost 9% penalty on what I owed to the state.

Your accountant is partly right, but timing is crucial. Recharacterization was an option before the tax filing deadline (including extensions) for the year of the contribution. For 2019 contributions, that deadline would have been around July-October 2020 (extended due to COVID). Since we're in 2025 now, recharacterization is no longer an option for 2019 contributions. The OP will need to go with the Form 5329 and penalty approach. But your suggestion is definitely good advice for anyone who catches their over-contribution more quickly!

That's a really good point I hadn't considered. I haven't calculated the exact earnings on the excess portion, but given market performance since 2019, it's probably significant. If I'm using the "absorption" method by under-contributing in 2021, do I still need to worry about the earnings issue? Or does that only apply if I'm physically removing the excess contribution?

If you're using the "absorption" method by under-contributing in a later year, you don't need to worry about withdrawing the earnings. The earnings stay in your Roth IRA and continue growing tax-free, which is actually a nice benefit! The earnings only become an issue if you physically withdraw the excess contribution. In that case, you'd need to calculate and withdraw the proportional earnings as well. Since you've already effectively "fixed" the excess through your 2021 under-contribution, you just need to file Form 5329 for 2019 and 2020 to pay the penalty for those years. The earnings can stay put in your account.

Did they ever come to your house or anything? That's what I'm worried about. Also did it affect your credit score?

They never came to my house - that's pretty rare unless you're being investigated for tax fraud involving large amounts of money or criminal activity. The IRS generally handles everything through mail notices and phone calls before taking more serious collection actions. It absolutely destroyed my credit score for years. The tax liens showed up on my credit report and dropped my score by over 100 points. This affected my ability to get apartments, car loans, and credit cards. Even after I paid everything off, the damage lingered for a while. The credit reporting rules have changed somewhat since then, but tax problems can still indirectly affect your credit when they impact your financial situation.

Wait so if I file for an extension I still need to pay what I think I might owe? How do I even calculate that without my W-2??

Yes, you're expected to make a good-faith estimate of what you might owe and pay that amount when you file the extension. Without your W-2, you can estimate based on your final paystub of the year, which usually has year-to-date information. Most paystubs show how much federal tax was withheld throughout the year. If you don't have your last paystub, you could also estimate based on last year's return if your income situation was similar, or check your bank deposits to calculate approximately what you earned and estimate taxes from there. Even if your estimate isn't perfect, showing that you made a reasonable effort to comply will usually help reduce penalties.

Thanks for this suggestion! I actually tried asking if they would accept proof of application but they were pretty firm about needing the actual ITIN before finalizing the lease. I didn't think about the occupant vs. lease-holder distinction though - that's a really good idea. I'll check if my income alone meets their requirements. The only concern is that many places have rules about all adults living in the unit being on the lease. I'll definitely bring this up with them tomorrow. Really appreciate the suggestion!

They use it for identity verification and for potential collections if you break the lease. Without an ITIN or SSN, they have no way to report to credit bureaus or track you down if you skip out on rent. Some places will accept a larger security deposit instead.

That makes sense, thank you. I hadn't considered the collections angle. I wonder if offering an additional security deposit might work in the original poster's case. Seems like that would address their concern about potential risk.