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One tip that helped me with my successful offer in compromise - if possible, wait until any high earning years are at least 1-2 years in the past before applying. The IRS looks closely at your most recent income to project future earnings potential.
Does the IRS ever negotiate during the process? Like if they reject your initial amount, do they come back with a counter offer or just flat out reject you?
Yes, the IRS frequently counters with what they consider a more reasonable amount based on their calculations. If they think your offer is too low, they'll often send a letter explaining why they can't accept it and propose a higher amount they would accept. It's not like a flat rejection in most cases - it's more of a negotiation. When this happens, you can either accept their counter, submit a new offer with additional documentation to justify your original amount, or withdraw your offer entirely. This is why having your documentation solid from the start is essential.
Just a warning - make absolutely sure you continue making estimated tax payments for current years while your OIC is pending. My cousin had his offer rejected because he incurred new tax debt during the review process!
One thing nobody's mentioned yet is that having multiple jobs often means you can deduct more expenses than with a single job. With my single corporate job, I had almost no deductions. Now that I have three different gigs (rideshare, web design, and weekend retail), I can deduct mileage, home office for the web design, part of my phone bill, etc. Just make sure you keep REALLY good records of which expenses go with which job. I use different credit cards for different jobs to make it easier to track. Trust me, it's a lifesaver come tax time!
Do you need to have a dedicated space for a home office deduction, or can you use your living room/kitchen table etc. for different jobs? I'm thinking about taking on freelance work but don't have a separate room I can use exclusively.
For a home office deduction, the IRS requires that the space be used "regularly and exclusively" for business. This means you need a dedicated space - it doesn't have to be an entire room, but it needs to be a specific area used only for work. A corner of your living room can qualify, but only if that specific section is used solely for business and nothing else. If you're tight on space, even a dedicated desk that's never used for personal activities could potentially qualify. Just be aware that home office deductions can be a red flag for audits, so make sure you take photos of your setup and keep excellent records of your business use of the space.
Something no one's mentioned yet - if you go with multiple 1099 jobs instead of a W-2 position, you can potentially save on taxes by setting up an S-corp! I did this when I started juggling multiple freelance gigs that totaled about $85k. Instead of paying self-employment tax on the full amount, I paid myself a "reasonable salary" of about $55k (which is subject to FICA taxes) and took the rest as distributions which aren't subject to self-employment tax. Saved me thousands compared to straight 1099 work! Don't DIY this though - definitely talk to a tax pro first. There are costs to maintaining the S-corp that might not make it worth it if your income isn't high enough.
My company's payroll system does this too! The spacing is weird because they're using an older printing system. For Box 12 code D, just use the amount shown regardless of spacing. If you're using tax software, it will just ask you to enter the code (D) and the amount separately anyway. Last year I was confused too but my HR department confirmed it's just how their system formats the W-2. Nothing to worry about!
How do you know which code goes with which amount if there are multiple entries in Box 12? My W2 has like 4 different codes and amounts all squished together and I can't tell what goes with what.
Each code-amount pair should be separated in some way, even if it's not perfectly clear. They're usually listed in sequence like "D 2000 E 500" etc. If they're really hard to distinguish, you should contact your payroll department to clarify. The W-2 should also have a corresponding W-2 statement or earnings summary that might format this information more clearly. Sometimes these are available through your company's employee portal or payroll system.
This is something that happens with ADP payroll systems a lot. I used to work in payroll and we'd get calls about this every tax season. The "20" probably isn't part of the code - it's likely just the first digits of the amount. For example, if you contributed $2,045 to your 401k, it would show up as "D 2045" but sometimes there's weird spacing so it looks like "D 20 45" which confuses people. When entering this info in tax software, just use code D and the full amount shown.
A few other options to consider: 1. Check with your payroll provider if you use one - many offer W2 filing services even if you don't use them for regular payroll. 2. Try a local print shop that specializes in business services. Some have the official forms in stock and will sell individual copies. 3. If you use any tax software for your business (like QuickBooks), many have W2 filing capabilities built in that you might not be aware of. The electronic filing through BSO is definitely your best bet at this point though. The process is pretty straightforward once you get started.
Thanks for the additional suggestions! I actually don't use a payroll provider since it's just one employee (family member), but I'll check with the local print shop tomorrow. I do have QuickBooks but only the basic version - I'll see if it has W2 filing capabilities.
QuickBooks Basic should have W2 capabilities, but you might need to purchase their payroll add-on to access it. It's usually around $50 for a basic filing service, which might be worth it for the convenience. Local print shops that cater to businesses are often overlooked resources for tax forms. They typically understand the requirements better than the big box stores and might be willing to sell you just the forms you need rather than a bulk pack.
Don't forget! The January 31 deadline is for providing W2s TO your employees. The deadline for filing Copy A with the Social Security Administration is actually later - January 31 if filing electronically, but February 28 if filing by paper. So if you're really stuck getting the official Copy A, you have a little more time than you might think for the SSA submission.
Lucas Lindsey
For what it's worth, I think the terms "tax professional" and "tax expert" are deliberately misleading in the industry. I worked for one of these big tax prep companies years ago (won't name which one), and I can tell you the training was minimal - about two weeks of classroom time and some online modules. Most of us had no accounting background whatsoever. We were just good with the company's software and following the prompts. Simple returns were fine, but anything complicated would often get messed up. The company knew this and would push the complex returns to the few actual CPAs on staff, but during busy season, that wasn't always possible. If you have anything beyond a basic W-2 and standard deduction situation, you're much better off finding an actual CPA or EA who specializes in your specific tax needs.
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Nina Fitzgerald
ā¢This is exactly what I suspected! Did they actively tell you guys to avoid mentioning that you weren't CPAs? Or were you trained to handle questions about credentials?
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Lucas Lindsey
ā¢We were trained to say we were "certified tax preparers" which sounds impressive but really just meant we completed the company's internal training program. If directly asked if we were CPAs, we had to answer truthfully, but the script was to pivot to "I'm a trained tax professional with X years of experience using our proprietary software." Management knew most clients assumed we were CPAs or had accounting degrees, and they definitely didn't discourage that misconception. During training, they emphasized that we should highlight our "certification" and experience with the tax software rather than discussing formal credentials. It was deliberately misleading without technically lying.
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Sophie Duck
I've found a middle ground that works well. I use tax software to prepare my own return, but I pay for a one-hour consultation with an actual CPA to review it before filing. Costs me about $150-200 for the hour, but they catch things I would miss and answer my specific questions. Last year, my CPA consultant found nearly $2,000 in deductions I had missed related to my rental property and home office. The software didn't flag these because I hadn't entered certain information correctly. Having a human expert review saved me way more than the consultation cost.
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Austin Leonard
ā¢That's actually a really smart approach. How do you find a CPA willing to do just a review rather than insisting on preparing the whole return? When I've asked in the past, they all wanted to do the complete service.
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