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Just wanted to add - make sure you also check your state tax filing requirements! I caught up with federal but completely forgot about state taxes, and ended up with a nasty surprise from my state tax authority. Some states have different lookback periods and requirements than the IRS.
Good point! Do states typically have the same 3-year refund window as federal? And would penalties be similar if I did end up owing?
Many states follow the same 3-year refund window as the federal government, but there are definitely exceptions. For instance, some states like California can look back and collect for much longer periods than the IRS typically does. Regarding penalties, they vary widely by state. Some states have lower penalty rates than federal, while others can be more aggressive with collections for even small amounts. It's definitely worth checking your specific state's department of revenue website or calling them directly. In my experience, state tax agencies are actually often easier to reach by phone than the IRS.
Just a quick correction to some of the advice here - while FAFSA typically uses the prior-prior year tax info, they can sometimes request verification of tax filing status or request tax transcripts for other years if there are discrepancies or if you're selected for verification. Being compliant with all filing requirements can make the financial aid process smoother if you get flagged for additional review.
This is accurate. I work in a financial aid office, and we do occasionally request tax transcripts for verification purposes. While we primarily use the prior-prior year for determination, having unfiled taxes can sometimes create issues during verification or if there are special circumstances reviews.
Don't forget about state taxes! Everyone's talking about federal gift tax, but some states have their own gift tax rules. Connecticut is the only state with a true gift tax now, but other states might treat gifts differently or have inheritance taxes that could affect your friend. Also, if you're giving a substantial gift to help someone in need, you might want to look into setting up a more formal arrangement if this could become recurring. There are tax-advantaged ways to provide financial support through trusts or family partnerships depending on your situation.
Wait really? I've never heard of state gift taxes before. I live in California and give my kids money every year. Do I need to be filing something with the state? Now I'm worried I've been doing this wrong for years...
You don't need to worry about California - they don't have a state gift tax. Connecticut is currently the only state with a specific gift tax. Previously, Tennessee had one but they phased it out. However, some states do have inheritance taxes that the recipient might pay, though these typically exempt immediate family members and have various thresholds. For regular gifts to your kids in California, there's no additional state filing requirement beyond what's required federally (which is nothing if you're under the annual exclusion amount).
Just wanted to mention that if you're giving money to help a friend in need, there's another option worth considering. You could pay certain expenses directly rather than giving cash. If you pay medical providers or educational institutions directly, those payments are exempt from gift tax limits altogether! So if your friend has medical bills or education expenses, you could pay those directly and still give the $16,000 cash gift. The direct payments don't count toward your annual exclusion amount.
This is really helpful! My daughter is starting college next year and my parents want to help. Does this mean they could pay her tuition directly to the school AND give her gift money up to the limit without any tax issues? Would this work for her dorm costs too or just tuition?
Yes, your parents can absolutely pay your daughter's tuition directly to the educational institution AND still give her up to the annual gift exclusion amount ($17,000 for 2024) with no gift tax consequences! This is a great strategy for education funding. For the second question, the unlimited education exclusion typically covers tuition only, not room and board/dorm costs or books. Those additional expenses would need to come from either the regular cash gift (within the annual exclusion amount) or other resources. The IRS is quite specific that the education exception only applies to direct tuition payments to qualifying educational institutions.
I just called the IRS Practitioner Priority Service about this exact question last week! The agent confirmed that Form 8809 doesn't require a 2848 for preparers to sign. They explained that information return extensions are considered "ministerial acts" that don't require formal representation authorization.
For what it's worth, I've been filing 8809 extensions for clients for years without a 2848 and never had an issue. The IRS is mostly concerned that the extension gets filed on time. Just make sure you have your EFIN or PTIN on the form as required. Also, remember that Form 8809 gives an automatic 30-day extension for 1099-NEC now - you don't even need to provide a reason for the extension request!
Thanks everyone for the helpful responses! This definitely clears things up for me. I'll go ahead and file the 8809 without the 2848 since I already have a service agreement with this client. And I'll look into getting 2848 forms for all my clients going forward as a best practice. Really appreciate all the insights!
Don't forget state taxes in this equation! California is extremely aggressive about taxing worldwide income. I worked for a Japanese company remotely from CA for 3 years and my state tax bill was brutal compared to what colleagues in Nevada paid (zero state tax). If you're making $127K equivalent, CA will take roughly 9.3% of that. Have you considered relocating to a no-income-tax state before taking this position? Could save you $10K+ annually.
I actually have been thinking about that! How hard was the process of working with a foreign employer while in California? Did they handle the state tax withholding properly or did you end up with surprise tax bills?
The foreign employer had no idea how to handle California taxes. They didn't withhold anything for state taxes, so I had to make quarterly estimated tax payments to the California Franchise Tax Board to avoid penalties. I got hit with an underpayment penalty the first year because I didn't realize I needed to do this. If you stay in California, definitely set up quarterly estimated payments right away. The FTB is much more aggressive than the IRS about collecting penalties! Also, document everything about where you physically work - California has been known to audit people who claim they've moved to Nevada but still actually work in California.
Has anyone addressed the currency exchange risk yet? I worked for a UK company from the US and the salary looked great until the pound dropped 18% against the dollar over 6 months. Suddenly I was making way less than expected.
Good point. I negotiate a USD equivalent with my foreign employer that gets adjusted quarterly. Protects against big swings. Swiss franc is usually pretty stable tho.
Yara Khalil
The W-4 change in 2020 really messed a lot of people up. My wife and I had a similar issue last year. What fixed it for us was: 1) We both checked the box in Step 2(c) on our W-4s that says "If there are only two jobs total, you can check this box" 2) We each put an extra $75 per paycheck in Step 4(c) as additional withholding After making those changes mid-year, our tax situation evened out. This year we're getting a small refund of about $200, which is perfect. The IRS withholding calculator is helpful but honestly kind of confusing to use.
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Keisha Brown
β’Did both of you need to check the box in Step 2, or just one of you? I've read conflicting things about this and don't want to withhold too much either.
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Yara Khalil
β’We both checked the box, but I've since learned that was actually withholding too much. The correct approach is for only one spouse to check the box, not both. We ended up over-withholding a bit which is why we got that small refund. The safest approach is to use the IRS Tax Withholding Estimator online. It will give you specific instructions for each spouse's W-4. Usually it tells one person to check the box and the other not to, plus suggests additional withholding amounts if needed.
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Paolo Esposito
Has anyone used TurboTax's W-4 withholding calculator? My tax preparer recommended it over the IRS one but I'm not sure if its worth paying for when the IRS one is free.
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Amina Toure
β’I've used both and honestly the IRS one is better. The TurboTax one tries to upsell you on their paid tax prep services and doesn't give you as detailed instructions for filling out the W-4. Save your money and just use the free IRS Tax Withholding Estimator.
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