That's a good point! I went back through the whole interview process again and did find something weird. Last year I had checked that I had health insurance for the full year (which I did through my job), but somehow that setting didn't carry over correctly. After I fixed that, my amount owed went down by about $250! Unfortunately I still owe around $550, which seems to be because of the withholding issue others mentioned. But at least it's better than $800. No 1099s or anything like that - just my regular W-2.

Glad you found at least part of the issue! That health insurance question can definitely impact your taxes in some states. The withholding change is likely the main culprit for the remaining amount you owe. For the future, I recommend checking your pay stubs quarterly to make sure enough tax is being withheld. You can also use the IRS Tax Withholding Estimator midway through the year to see if you're on track. That way you won't get any unpleasant surprises at tax time!

I switched from TurboTax to FreeTaxUSA two years ago and would never go back. It's just as accurate but WAY cheaper. Federal filing is free and state is only $15. TurboTax was charging me $120+ for basically the same service. The interface isn't quite as pretty but it gets the job done and asks all the same questions.

Did your cousin also file amended returns for other years? I'm wondering if doing that proactively helps show good faith or if it just opens you up to more scrutiny for years that weren't being audited.

Yes, she did file amended returns for the two previous years after discussing it with her new CPA. Her accountant said it was much better to proactively fix the issues rather than wait for the IRS to find them. It definitely helped show good faith effort in her case. The IRS agent specifically mentioned that her voluntary correction of prior years was viewed favorably when determining penalties. There were still some penalties applied, but they were reduced because of her cooperation and initiative. The agent told her that if they had discovered those other years' problems themselves through expanded audits, the penalties would have been substantially higher.

That's a really good point about the state taxes that I hadn't even thought about. We're in California, which I'm guessing will definitely follow up once the federal audit is complete. I'm going to start gathering our state returns too. I did save all the emails where he suggested we lie to the IRS, and I have the records showing he tried to divert our refund to his account. Hopefully that helps show we were victims rather than accomplices in this.

California will absolutely follow up - they're actually more aggressive than the IRS in many cases. Having those emails ready for both federal and state authorities will be incredibly helpful. One more thing I forgot to mention - if your preparer was licensed (CPA, EA, etc.), report them to their professional board as well, not just the IRS. My preparer had his license suspended after I reported him to the state board of accountancy, which helped prevent him from doing this to others.

That's really helpful advice about just doing a temporary adjustment for the rest of the year. Do you think I should do that additional withholding for both our W-4s or just mine? And do I need to change anything else on the form besides putting the extra amount on line 4c?

You could do it all on just one W-4 or split it between both - the IRS doesn't care as long as the total withholding is correct. If you're paid at similar frequencies, I'd just divide it evenly for simplicity. The easiest approach is to keep everything else the same on your current W-4s and just add the additional amount on line 4c. No need to change your filing status or check any additional boxes if the only issue is making up that $1k difference. Then in January, submit new W-4s removing that extra withholding amount.

I second the TurboTax W-4 calculator recommendation. The IRS calculator is too basic for complex situations. The TurboTax one asks more detailed questions and gives more precise recommendations.

That's excellent advice I hadn't considered. Our attorneys are still drafting the initial separation agreement, so I'll make sure to include specific language about the inherited IRA tax liability. Would it be helpful to also include language about any potential future audits related to that money?

Absolutely include language about potential future audits! You want the agreement to cover not just the current known tax liability, but any future claims, audits, penalties, or interest that might arise related to that inherited IRA distribution. It's also worth specifying that your ex must provide proof of payment of these taxes as part of the divorce settlement. That way you have documentation that the tax obligation was satisfied, which can protect you if questions come up years later. Many people don't realize the IRS can look back several years, so protecting yourself long-term is important when untangling finances in a divorce.

Great point! Your tax filing status is determined by your marital status on December 31st of the tax year. If the divorce isn't finalized by then, they'll still be considered married for tax purposes and can choose either MFJ or MFS. If it is finalized by then, they'd file as single or possibly head of household.

Thanks for confirming that. I should have mentioned I went through this last year - our divorce wasn't finalized until February this year, so we had to make the MFJ vs MFS decision for last year's taxes. We ended up filing separately despite some lost deductions because my ex had some serious tax issues I wanted to avoid. Definitely worth the peace of mind even though it cost me about $800 more in taxes.

Any recommendations on where to get historical documents appraised without risking damage? I have some old property tax records from 1880s Manhattan that I've been keeping in a box.

For historical document appraisals, I'd recommend contacting a reputable auction house like Christie's or Sotheby's for high-value items, or a local auction house that specializes in historical documents if you want something less intimidating. They typically have experts who know how to handle fragile items. Another great option is to reach out to university libraries with special collections departments, particularly ones with focuses on economic or New York history. Places like NYU or Columbia have experts who can give you information about the historical significance while properly handling the documents. They often offer free consultations even if you're not planning to donate, and they use archival-quality gloves and proper lighting to prevent damage.

That's fascinating! Did traveling salesmen get any special tax treatment back then? Like deductions for being on the road?