Thanks! I was a bit nervous about this. I haven't had this happen before so I wasn't sure if I should be concerned. Do you know if I'll need any documentation from them explaining the difference, or is just confirming it good enough?

You generally don't need any special documentation from them. The W-2 is the official tax document, and that's what the IRS will have on file from your employer. Just getting verbal confirmation from HR about what caused the difference is usually sufficient for your own peace of mind. However, if you're really concerned, you could ask them to send you an email explaining the adjustment - that way you have something in writing if you ever need it, but it's rarely necessary for small adjustments like this.

So what was it? Did you ever find out why there was a difference?

Thank you for mentioning potential refunds! I hadn't even considered that possibility. Do you know if receiving a refund for one year could offset what I might owe for other years automatically? And what exactly is a CP2000 notice? Is that something I should be worried about?

The IRS will generally apply any refunds to outstanding tax debts automatically. So yes, if you're due a refund for 2022 but owe for 2018, they'll typically apply that refund to reduce your 2018 balance. This happens automatically in most cases. A CP2000 is a notice of proposed adjustment to your tax return. It basically means "we think you didn't report all your income." It's not an audit, but it means the IRS identified a discrepancy between what you reported and what they have on record from W-2s, 1099s, etc. Not something to panic about, but you'll need to either agree with their assessment or provide documentation showing why they're incorrect.

Plus if you lived in different states during those years you might need to file partial year returns for each state! I had to file in 3 different states for one tax year when I moved around for work. Total nightmare.

Good point! But how would you document that for the IRS? My brother bought a car in Oregon (no sales tax) but had to pay use tax when he registered it in California.

The receipt or documentation from your state's DMV or revenue department when you paid the use tax serves as your documentation. Usually when you register an out-of-state vehicle, they give you a receipt showing the use tax paid - that's what you'd keep for your records. In your brother's California case, the CA DMV would have provided documentation when he registered the vehicle and paid the use tax. That's what he'd need to keep to substantiate the deduction if he itemizes.

That's not right. The full sales tax is deductible in the year of purchase even if you financed the car. The dealer paid the full tax to the state at the time of purchase, so you get the full deduction.

2 I'm confused about the principal place of business requirement. I'm a graphic designer and I do most of my actual design work in my home office, but I meet clients at coffee shops and sometimes work at the library when I need a change of scenery. Does that disqualify me?

13 You're still likely eligible for the deduction. The key is where you perform the primary activities of your business. For a graphic designer, if your actual design work is primarily done in your home office, that would qualify as your principal place of business even if you meet clients elsewhere or occasionally work in different locations. The IRS looks at factors like where you spend the most time working and where the most important aspects of your business are performed. Since the core creative work of graphic design happens in your home office, that should satisfy the principal place of business requirement.

10 The home office deduction goes on your Schedule C (Profit or Loss from Business) if you're self-employed. The software should automatically calculate it based on the information you provide about your home office. There's no separate form specifically for the home office deduction itself. When you input your business expenses in the software, there should be a section specifically for home office. The software will ask if you want to use simplified or regular method, then either ask for square footage (simplified) or ask for all your home expenses and the percentage used for business (regular method).

Thanks for the encouragement! Did you end up owing a lot in penalties when you finally filed? That's what I'm really worried about.

For the years where I owed taxes, yes, there were penalties - but they weren't nearly as bad as I had built up in my head. The failure-to-file penalty is 5% per month up to 25% maximum, plus interest. But for the years where I was due a refund, there were no penalties at all (though I could only claim refunds for the most recent 3 years). The IRS was actually reasonable about setting up a payment plan. My monthly payment is around $120, which is manageable. The mental relief of not having this hanging over my head anymore is worth way more than what I'm paying in penalties.

THIS! I filed all my federal back taxes but completely forgot about state. Got a nasty surprise letter from my state tax agency six months later with additional penalties. Handle both at the same time if you can.