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Something important that hasn't been mentioned - if you had employees in that old business, and there are unpaid payroll taxes (941 taxes), that's a whole different level of seriousness. The IRS is extremely aggressive about collecting those, and they can and will come after you personally regardless of business structure. The Trust Fund Recovery Penalty allows them to assess the unpaid employment taxes personally against anyone who was responsible for collecting/paying those taxes. If any portion of that $54k is payroll taxes, I would strongly advise getting professional help immediately.
Oh that's concerning. There were employees and I think a portion might be payroll taxes. Are you saying they'd come after my personal assets for that part specifically? What's considered "responsible" in their eyes?
Yes, for payroll taxes specifically, they can absolutely go after your personal assets. What makes someone "responsible" in the IRS's eyes is having had the authority to determine which creditors get paid. If you had signature authority on bank accounts, were an officer of the company, or had the ability to direct payment of bills, they'll likely consider you responsible. The IRS views the withheld portion of payroll taxes as money that belongs to the employees that was held "in trust" by the business. When a business doesn't remit those funds, they consider it a serious violation. I've seen them pursue these aggressively even decades later.
Have you looked into an Offer in Compromise? If you can prove you don't have the ability to pay the full amount, the IRS might accept a smaller settlement. I settled about $65k of business tax debt for around $12k when my last business failed. It's a lot of paperwork and they look at everything - assets, income, expenses - but if you genuinely can't pay, it might be an option. They'd rather get something than nothing.
I think everyone's missing the obvious - if your salary is 62k but W2 shows 55k, that's a 7k difference that needs explaining. Is it possible you're counting bonuses or other compensation that hasn't actually been paid yet? Or did you start the job partway through the year? That would explain why the W2 is less than your annual salary rate.
OP literally said they started the job in May. Reading comprehension ftw. That's obviously why the W2 shows less than the full salary amount.
Something nobody has mentioned yet - check if your employer is calculating your withholding correctly. I had a similar issue where HR was using the old W4 calculation method even with my new W4. When I started mid-year with a new baby, they didn't adjust for my dependent correctly. Worth asking your payroll department how they're calculating your withholding specifically.
That's actually a really good point I hadn't considered. I'll reach out to our HR department to verify they're using the current W4 calculation method. They're a fairly small company so it's possible they're using outdated processes. That could definitely explain the discrepancy. I'm realizing from all these comments that I probably did get the child tax credit benefit, just in my paychecks rather than as a lump sum at tax time. I think I need to decide whether I want more money throughout the year or a bigger refund, then adjust my W4 accordingly.
Just want to add something as someone who's been in the industry for 15+ years - start keeping a tip diary NOW. The IRS actually accepts a daily log as valid documentation. Even a simple note in your phone at the end of each shift with the date and amount will save you tons of headaches. Also, talk to your employer. Many restaurants now have systems to help you report tips properly throughout the year. Some will even withhold extra from your hourly pay to cover the taxes if you ask them to.
What exactly should I be writing down? Just the total amount or do I need to break it down by credit card vs cash tips?
Ideally you should record both your cash and credit card tips separately for each shift. Credit card tips are already tracked by the restaurant's system, but having your own record helps you verify everything's correct. For cash, just the total amount per shift is fine - you don't need to track each individual transaction. Also record the date, which shift you worked (lunch/dinner), and your total sales if possible. This helps establish the reasonableness of your reported tips if there's ever a question. Many servers use tip tracking apps now that make this super simple - just a quick entry at the end of each shift.
Quick tip - don't forget about state taxes too! Everyone's talking about federal but depending on your state you might owe there as well. I'm in California and the state was actually more aggressive than the feds about collecting on my unreported tips.
This is so true. I'm in New York and the state department of taxation came after me even though I'd settled things with the IRS. They have their own penalty structures too.
To answer your original question - yes, FreeTaxUSA will handle your situation just fine. I've used it for the past 3 tax seasons with similar income sources (W-2, 1099, and investment accounts). The step-by-step process is pretty thorough, and they cover all the major tax forms and schedules. One tip: before you start, gather all your documents and organize them. FreeTaxUSA doesn't have all the fancy import features that TurboTax advertises, but honestly I find manually entering the data makes me more aware of what's actually happening with my taxes.
Thanks! Do you know if they have a "review" feature that checks for potential mistakes or missed deductions before filing? That's one thing I did like about TurboTax.
Yes, they absolutely have a review feature! It runs through everything before you file and flags potential issues or missed opportunities. It's actually pretty thorough - last year it caught that I hadn't entered a 1099-INT from a small savings account I had forgotten about. They also have a "maximize refund" pledge similar to other tax services, so they're incentivized to help you find all eligible deductions and credits.
Just be aware that FreeTaxUSA doesn't support certain complex situations very well. If you have multi-state filings or foreign income, you might want to look elsewhere. But for your situation with a W-2, some freelance income, and retirement contributions, it'll work perfectly fine.
Amara Chukwu
I represented myself in tax court in 2022 over a $6,700 dispute. Biggest mistake ever. Thought I'd save money but the judge kept asking me about tax code sections I'd never heard of. The IRS attorney referenced cases and precedents I wasn't prepared for. Ended up losing AND had to pay the full amount plus additional penalties that accumulated during the process. If I could do it over, I would have either hired representation or worked out a payment plan with the IRS before it went to court.
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Ethan Brown
ā¢This is exactly what I'm afraid of. Did you try calling the IRS beforehand to discuss settlement options, or did you go straight to representing yourself in court?
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Amara Chukwu
ā¢I tried calling the IRS multiple times but could never get through to anyone helpful. I just got transferred around and eventually disconnected. That's part of why I decided to fight it in court. Looking back, I should have been more persistent about reaching someone at the IRS who could discuss my case before the court date. Many cases get settled before court through their appeals process if you can actually reach the right person.
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Giovanni Conti
The tax clinic at the local law school helped me with a similar issue for a fraction of what a private attorney would charge. Many law schools run tax clinics where law students supervised by tax professors represent taxpayers for free or very low cost. Google "low income taxpayer clinic" or "tax clinic law school" plus your city name. Even if you don't qualify as low income, some will still help for a reduced fee. Definitely worth checking before you go it alone.
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Fatima Al-Hashimi
ā¢This is great advice! Do you need to qualify based on income to use these services? And how did you find them - did you just call the law school directly?
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