The "pennies on the dollar" marketing is mostly hype, but Offers in Compromise are legitimate. The IRS accepts about 40% of OICs submitted, but they use a very specific formula: they look at your assets, income, and future earning potential to determine what they call your "reasonable collection potential." It's not about what percentage of the debt you're offering, but whether your offer matches what the IRS calculates they could reasonably collect from you over the remaining collection statute (usually 10 years from assessment). Some people qualify for significant reductions, while others might not qualify at all if they have substantial equity in assets or high income. The key to success is having the OIC properly prepared with thorough documentation of your financial situation. The application (Form 656) requires detailed financial disclosure, and the IRS verifies everything.

Did you have to get a specific type of letter from the doctor or just your regular medical records? I'm wondering what documentation I should ask my doctor for.

We got three things from her doctors: 1) Her regular medical records showing the history of treatments for the skin infections, 2) A specific letter from her surgeon stating that the procedure was medically necessary to prevent ongoing infections and improve mobility, and 3) Before and after photos that were taken as part of her medical record (these showed the severe skin folds and how they were affecting her posture). The letter was the most important part. It specifically stated that this was not being done for cosmetic purposes but to address specific medical conditions. Make sure your doctor includes the medical diagnosis codes related to your skin issues and any functional limitations.

I used TurboTax last year to deduct my post-weight loss skin removal surgery. You just enter it as a medical expense with all your other medical costs. The software itself doesn't specifically flag it, but it does remind you that you need documentation for all medical expenses. I kept all my documentation in a separate file just in case of an audit, but TurboTax itself was pretty straightforward about it. Just make sure you're itemizing deductions rather than taking the standard deduction, otherwise your medical expenses won't matter.

Thanks for the advice! Do you think there's any benefit to using H&R Block over TurboTax for K-1 handling? Also, roughly how much time does it take you to do all this yourself each year?

I personally find H&R Block's interface for K-1 entries more intuitive than TurboTax, but both will get the job done. H&R Block seems to provide more explanations about where each K-1 item flows on your return, which helped me understand the process better when I was learning. As for time investment, my first year doing K-1s myself took about 6-7 hours of work, including research time and double-checking everything. Now that I'm familiar with the process, it takes me about 3 hours total, spread across a couple of days. I usually do a first pass when I get my W-2s and most documents, then finish up when the K-1s finally arrive.

This is super important advice! My K-1 had passive activity losses and I thought I did everything right in TurboTax... ended up with a $3200 tax bill I wasn't expecting because of how the passive loss limitations work. Definitely the most complicated part of dealing with K-1s in my experience.

Thanks for bringing this up! So I need to calculate not just her personal expenses, but specifically the home-related costs? I pay about $1900/month in rent, and she probably spends around $600-700 on utilities and groceries. Does that sound like I'd meet the maintaining a home test?

Based on those numbers, you're likely meeting the maintaining a home test. Your annual rent contribution is about $22,800 ($1900 × 12), while her utilities and groceries total around $7,800 ($650 × 12). That puts the total home maintenance at approximately $30,600, with you covering about 75% of those costs. This looks like you're well above the 50% threshold for the maintaining a home test. Just make sure you have documentation for your rent payments throughout the year. Also, keep in mind this is separate from determining if she qualifies as your dependent, which involves looking at her total support costs and income limits.

For HOH status, the person must either be your qualifying child or qualifying relative (dependent). The only exception is if you're claiming HOH based on a qualifying dependent parent - they don't actually have to live with you. For all other qualifying relatives, they must live with you for more than half the year AND be your dependent.

That's a really good point I hadn't considered. We're planning to file jointly going forward, but should we also be updating our status with Social Security, health insurance, etc.? Are there any benefits we might lose by being considered married?

Yes, you should absolutely update your status with all agencies. Being inconsistent is a red flag. As for benefits you might lose - some income-based programs phase out at higher income levels for married couples compared to singles, and there can be a "marriage penalty" in certain tax brackets where two high earners pay more jointly than they would separately. Some people find that student loan payments increase when filing jointly if one partner has a much higher income. You might want to run calculations both ways (MFJ vs MFS) to see what works best, though in most cases MFJ provides better tax benefits.

I went through this in 2023. We claimed common law married status in Iowa and got audited. The key was having consistent documentation - joint bank accounts from when we started considering ourselves married, beneficiary designations, insurance policies listing each other as spouses, and affidavits from family and friends confirming they knew us as married.

That's really helpful to know. Did you need to get a lawyer involved during the audit process? And how far back did they want documentation? I'm just trying to understand what we might be getting ourselves into if we make this change.