Is there any chance this will change? Has anyone in Congress tried to fix this recently?

There have been several attempts to create a better system. Senator Elizabeth Warren has introduced legislation called the "Tax Filing Simplification Act" multiple times that would create a free, simple filing system and ban the IRS from entering into agreements that restrict its ability to provide free online filing. Also, after ProPublica exposed how the tax prep companies were hiding their free filing options, the IRS did renegotiate its agreement with the Free File Alliance to prohibit some of these deceptive practices. But honestly, as long as these companies keep spending millions on lobbying, meaningful change is an uphill battle.

Do they support more complicated returns? I have some rental property income and usually that forces me into the premium versions of other software.

We both updated our W-4s in January 2024, but you're right - the form doesn't have allowances anymore. I guess I was using the old terminology! When we filled them out, we both selected "single" filing status (even though we're married) and didn't check the box for multiple jobs or put any additional amounts. Basically, we tried to have the maximum withheld. Should we be filling them out differently?

Ah, that explains a lot! By both selecting "single" filing status when you're actually married, you're creating an artificial situation that doesn't match your actual tax filing status. This is a common approach people use to increase withholding, but it can have inconsistent results. A better approach would be to select your actual filing status of "Married" and then use Step 4(c) to specify an additional withholding amount if you want more taken out. The IRS has a Tax Withholding Estimator tool on their website that can help you determine the exact amount to withhold for your desired refund size.

This is actually a really good point! My spouse and I had this exact situation - same company, same W-4 settings, but I was salary (semi-monthly) and she was hourly (bi-weekly). The tax withholding formulas are different for these pay schedules!

I tried doing my own back taxes and it was a nightmare because older tax software versions are hard to find and the rules change every year. How would someone even get the right forms for tax years from 5-6 years ago?

You're right that finding older tax software can be challenging. The IRS website actually maintains PDFs of prior year forms that can be downloaded and filled out manually. For someone comfortable with basic math and following instructions, this is completely doable. Alternatively, professional tax software used by CPAs and EAs can prepare returns for prior years much more easily. That's why having a professional handle this might be worth the money (just not $9,500 worth). There are also some online services specifically designed for back taxes that cost much less than hiring a full-service tax resolution firm.

Thanks so much for this insider information! I suspected as much but having confirmation from someone who worked there is really helpful. I'll definitely look for an Enrolled Agent in our area to help him out. One last question - would there be any benefit to him going through the IRS Voluntary Disclosure program I've heard about, or is that only for more serious cases?

The IRS Voluntary Disclosure Program is primarily designed for taxpayers with potential criminal exposure - like those who have intentionally committed tax fraud or have undisclosed foreign accounts. From what you've described, your neighbor simply fell behind on filing, which is very common and generally treated as a civil (not criminal) matter. What he should look into is the IRS "Streamlined Filing Compliance Procedures" which are specifically designed for taxpayers who have non-fraudulent reasons for falling behind on their filing obligations. An Enrolled Agent can guide him through this process, which often results in reduced penalties. Good luck to your neighbor - he's fortunate to have someone looking out for his best interests!

I did this last year! Cash App gives you a "tax summary" PDF that you print and mail to the IRS. I just added my handwritten Form 1116 to that package. In the software, I entered the credit amount in the foreign tax credit line, then included the physical form when mailing. Found a good YouTube tutorial for filling out the form manually - it's not as scary as it seems. The IRS processed my return with no issues and I got my full refund.

Thanks for sharing your experience! That's really helpful to know. Did you still have to sign and mail in the Cash App return, or were you able to e-file and just mail the Form 1116 separately? I'm trying to figure out the simplest approach. I'll look for that YouTube tutorial too. Form 1116 looks intimidating, but if others have managed it by hand, I can probably figure it out too.

That's not quite how it works though. The foreign tax credit isn't an itemized deduction - it's a credit that reduces your tax directly, dollar for dollar. So if you paid $700 in foreign taxes, you could potentially reduce your US tax by $700. That's usually much more valuable than including it as an itemized deduction. I'd reconsider this approach for future returns! You're likely leaving significant money on the table.

California registered domestic partners have to file state taxes as married, but federal taxes as unmarried. For federal purposes, you'd split the mortgage interest and property tax deductions based on what each of you actually paid (like the 60/40 split mentioned). For California state taxes, you'd need to follow the rules for married filing jointly or married filing separately.