Whoa, I had no idea about this! How do I apply for the First Time Abatement? Is that something I can do online or do I need to call them?

You'll need to call the IRS and specifically request a "First Time Penalty Abatement" for your failure to pay estimated taxes. Have your notice handy when you call. The agent will check your compliance history for the past 3 years. If calling seems daunting (which it can be), you can also write a penalty abatement letter and mail it to the address on your notice. Be sure to reference the notice number, explain that this is your first time missing estimated tax payments, and specifically request a "First Time Penalty Abatement" in your letter.

Does it work if you use a different tax software to actually file your return? I use H&R Block to file but would love something that reminds me about quarterlies.

Do you know how I figure out how much to pay for those quarterly payments? Is it just roughly 25% of what I'd expect to owe for the year?

You have a couple of options for calculating your estimated payments: You can pay 100% of your prior year tax (110% if your AGI was over $150,000), divided into four equal payments. This is the safest method to avoid penalties. Alternatively, you can estimate your current year tax and divide by four. This works better if your income fluctuates a lot or if you expect significantly lower income than last year. The IRS has a form called 1040-ES that includes a worksheet to help calculate your payments. You can also use tax software to calculate this for you. Just remember that you need to account for both income tax and self-employment tax on that K1 income.

Can you really do that? Just ask them to withhold extra? How do you figure out how much extra to withhold?

That's a smart idea. Do you know if there's any way to make an extra payment to the IRS before I file to make up for the shortage?

Yes, you can make what's called an "estimated tax payment" to the IRS before you file. Go to IRS.gov and search for Form 1040-ES, or you can pay directly through their online payment system. Just make sure you keep the confirmation for when you file your taxes so you can properly credit that payment. If your employer fixes the issue and reimburses you later, that payment you made won't go to waste - it'll either reduce what you owe next year or increase your refund when you file for 2025.

This is good advice about the additional withholding. You can also ask them to take out a specific extra amount from each check for the rest of the year to make up for the underwithholding earlier.

Did your in-laws ever get any of their money back? My parents already paid the $1,500 deposit and I'm trying to figure out if they can cancel and get that refunded.

Unfortunately no. The contract had tons of fine print saying the deposit was "non-refundable" for "services already rendered," which apparently included the initial consultation and some paperwork they filed. They threatened to send my in-laws to collections when they tried to cancel, so they ended up just walking away from the money. If your parents haven't signed anything binding yet, tell them to stop immediately. If they have, they should review the contract carefully for cancellation terms and possibly consult with a consumer protection attorney. Some states have cooling-off periods for certain contracts.

Don't most of those free file programs only work for the current tax year? I tried using one for an older return and it wouldn't let me.

You're right that most free services focus on current year returns, but some tax software lets you buy previous year versions. TurboTax, H&R Block, and TaxAct all sell prior year software. For truly free options, the IRS still provides prior year forms on their website that can be filled out manually. It's more work, but if someone has relatively simple returns, it's doable. There are also Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs that help eligible taxpayers with current and some prior year returns for free.

That's a good point. Do you think a tax attorney would be better than a CPA for my situation? I'm worried about the additional cost since I'm already struggling with the tax debt itself.

For your specific situation with stock sales and cascading tax consequences, I'd recommend a tax attorney over a CPA. While CPAs are excellent for tax preparation and general advice, attorneys have specialized knowledge of tax relief programs and negotiation with the IRS that's particularly relevant to your case. They can also represent you in Tax Court if it ever comes to that. Regarding cost concerns, many tax attorneys will work on a flat fee basis for tax resolution cases rather than hourly billing. During a free consultation, ask about their fee structure and whether they can give you a fixed quote. Often the money saved through proper representation exceeds the cost of hiring them, especially with tax debts in the six-figure range you're facing.

I actually went through this process! Innocent spouse relief is legitimate but pretty specific in when it applies. You need to show that you didn't know and had no reason to know about the underreported income or incorrect deductions when you signed the return. If you were aware of the stock sales but just didn't understand the tax implications, that typically doesn't qualify.