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3 One thing nobody's mentioned yet is that you should look into the IRS Fresh Start program. I went through a similar situation with 3 years of unfiled returns, and there are provisions that might help reduce your penalties. The key is to file all missing returns ASAP. Once everything is filed, if you can't pay the full amount, you can apply for an installment agreement. If your total tax debt is under $50,000, it's usually pretty straightforward. For me, the penalties and interest almost doubled my original tax bill, but I qualified for First Time Penalty Abatement which saved me thousands. Don't wait any longer - the penalties just keep growing!
12 How do you qualify for this First Time Penalty Abatement thing? Is it automatic or do you have to specifically request it?
3 You need to specifically request First Time Penalty Abatement - it's not automatic. The basic qualifications are: you haven't had any significant penalties in the 3 years before the tax year you're requesting abatement for, you've filed all currently required returns (or filed extensions), and you've paid or arranged to pay any tax due. You can request it by calling the IRS after filing all your returns, or your tax professional can help you submit the request. In my case, they removed about $4,300 in failure-to-file and failure-to-pay penalties, though I still had to pay the interest. Definitely worth asking for!
22 Has anyone done this themselves without a professional? I'm in a similar situation (unfiled 2016-2018) but really can't afford to pay someone hundreds per return right now.
9 I filed 3 years of back taxes myself last year. It's definitely doable if you're organized and your situation isn't super complicated. The hardest part was getting all the right documents together. For the actual filing, I used FreeTaxUSA's prior year returns - they're only $15 per state return (federal is free) even for old years, much cheaper than TurboTax. Just make sure you're using the forms for the correct tax years and be meticulous about documentation, especially for self-employment income. Allow yourself plenty of time - each return took me about 3-4 hours.
After using both systems, I will say the one advantage TurboTax has is the W-2 and 1099 import feature. I have like 8 different 1099-B forms from my brokerage and manually entering all those transactions in FreeTaxUSA was a giant pain. TurboTax just pulled them all in automatically. But if you don't have a ton of forms or complicated investments, FreeTaxUSA is definitely the better value. Just my 2 cents.
Do you know if Cash App Tax has import features? I've heard mixed things but thinking about trying it this year.
Cash App Tax does have some import capabilities, but not as extensive as TurboTax. Last I checked, they could import W-2s by taking a picture, and they can import some 1099s from major brokerages like Robinhood and a few others. The coverage isn't nearly as comprehensive as TurboTax though, which can connect to hundreds of financial institutions. If you have accounts at smaller or less common brokerages, you might still need to enter things manually with Cash App Tax.
I used H&R Block for years until I realized I was paying $120+ for them to enter numbers from my W-2 into a computer... something I could literally do myself in 20 minutes lol. Switched to FreeTaxUSA and saved so much!!
The free versions often miss deductions though. My cousin works for H&R Block and says they train them to upsell because the free version is designed to be incomplete.
One thing nobody's mentioned - CHECK THE CHECK CAREFULLY! Make sure it's actually from the US Treasury and not some kind of scam. There are so many tax scams these days. Also, when you deposit it, maybe ask your bank to put a longer hold on it just to be extra sure it clears properly. I've heard horror stories of people cashing what they thought were legitimate refund checks, spending the money, and then finding out they were fraudulent.
Totally valid point! Real IRS checks have watermarks and security features. The paper should have a slight blue tint and there's usually a watermark visible when held up to light. Also, if you're not expecting a check or the amount seems off, it's another red flag. Scammers count on people being excited about surprise money and not questioning it too carefully.
The IRS is running behind on notices this year. My tax guy said they're about 3-4 weeks behind on sending out explanations for adjustments. Your extra money could be from: 1. Interest accrued during processing time (they pay interest on delayed refunds) 2. An adjustment from a previous year they found while processing your amended return 3. A math error correction in your favor 4. Some weird glitch in their system I'd cash the check but set aside the "extra" amount for a few months just in case they come asking for it back. The IRS always eventually figures out their mistakes, so better safe than sorry!
Something else to consider - if you only formed the S Corp in mid/late 2021, you might have income from early 2021 that was legitimately earned as a sole proprietor before the S Corp was formed. You need to make sure you're distinguishing between pre-S Corp income (which would go on Schedule C) and S Corp income (Form 1120-S). Also, if you didn't make a formal S Corp election with Form 2553, you might actually be a C Corp by default, which would be a whole different tax situation. Do you remember filing Form 2553?
That's a really good point. I started contracting around April 2021 and didn't form the S Corp until September. So I definitely had some income before the corporation existed. And yes, I'm pretty sure I filed the 2553 - the bookkeeper handled that paperwork and I signed it. I got something back from the IRS confirming the S election but I'd have to dig through my files to find it.
That's good you filed Form 2553 and have confirmation. Your approach should be to file two different types of returns for 2021 then: For January-August 2021, report your contracting income on Schedule C as a sole proprietor. This will be part of your personal 1040. For September-December 2021, file an 1120-S for your S Corporation. You'll need to report any reasonable salary you should have taken (even if you didn't actually run payroll) and any distributions you took from the business.
Jumping in to add another perspective - I went through something similar last year and learned that operating as an S Corp without proper salary payments can be a red flag. The IRS looks specifically for S Corps that don't pay reasonable salaries to owners to avoid payroll taxes. If you decide to keep the S Corp status and file 1120-S forms for those years, make sure you work with a tax pro to determine a reasonable salary amount. You might need to file amended payroll tax returns too.
Savannah Weiner
Look, I'm gonna be blunt. Most of those "tax relief" companies advertising on TV are borderline scams. They charge thousands upfront and often deliver very little. Your best bet is to either: 1) Contact the IRS directly to set up a payment plan. Even with $50k, they'll work with you. 2) Hire a local CPA or Enrolled Agent who specializes in tax resolution. Will be cheaper than those TV companies. Don't waste your money on the national firms with the flashy ads. They'll just take your money and do what you could do yourself.
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Levi Parker
•Is there a difference between a regular CPA and an "Enrolled Agent"? How do you find someone who specializes in tax resolution specifically?
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Savannah Weiner
•An Enrolled Agent (EA) is a tax professional who's been licensed by the IRS specifically to represent taxpayers. They've passed comprehensive exams on tax matters and often specialize in tax resolution. While many CPAs are excellent with taxes, EAs focus exclusively on tax issues and representation before the IRS. To find someone specializing in tax resolution, search for "Enrolled Agent tax resolution" in your area, or check the National Association of Enrolled Agents website. You can also search for CPAs who specifically mention tax resolution services. Always check reviews and ask about their experience with cases similar to yours. A good tax resolution specialist should offer a free initial consultation to discuss your situation before charging fees.
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Libby Hassan
Just want to add one important point nobody's mentioned. Before you try to negotiate ANY kind of settlement or payment plan, make sure all your tax returns are filed and up to date - even if you can't pay what you owe. The IRS won't discuss resolution options if you have unfiled returns. I learned this the hard way after spending months trying to set up a payment plan only to be told I needed to file the two missing returns first.
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Hunter Hampton
•This is so true! I had a similar situation where I was trying to set up a payment plan for about $30k in back taxes but kept getting rejected because I had a missing return from 3 years prior. Once I filed that last return, everything went much smoother.
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