Thank you for the suggestion! I definitely don't want to do anything illegal. Would these credits help even if he doesn't make much money? He works part time and gets some cash jobs on the side (probably doesn't report all of that income).

Yes, these credits can definitely help people with lower incomes! The Earned Income Tax Credit (EITC) is specifically designed for lower-income workers and is refundable, meaning he could get money back even if he owes no tax. Regarding the unreported cash income - that's a separate issue, but he should know that claiming tax credits while not reporting all income could create problems if he's audited. The safest path is to report all income and claim the credits he's legally entitled to.

No, if he doesn't claim his daughter as a dependent, he can't file as head of household. He'd have to file as single, which has worse tax rates and a lower standard deduction. That would probably hurt him more financially than whatever benefit OP might share from illegally claiming the kid.

Thanks for explaining that. Makes sense why he'd want someone else to claim his kid if he's not making enough to benefit from the credits, but sounds like he'd lose the head of household status which is pretty valuable.

That's a good point! I hadn't even thought about the state tax angle. So I guess that's one benefit of living in Florida for tax purposes - not having to worry about an additional state tax return. Do most tax software programs automatically figure out whether you should itemize or take the standard deduction?

Most decent tax software will compare your potential itemized deductions against the standard deduction and recommend whichever gives you the better outcome. They'll run the calculations both ways and show you the difference. The better programs will also alert you if you're close to the threshold and might suggest ways to maximize deductions. Just be careful with the free versions of tax software - they sometimes don't include Schedule A (itemized deductions) and try to upsell you when you need it.

This bunching strategy is smart! I've done something similar with medical expenses. Had a bunch of elective procedures done in one year to cross that 7.5% AGI threshold. Got LASIK, dental work, and a couple other things I'd been putting off. Saved a decent amount overall.

This is actually a great point that hadn't occurred to me! I just checked and you're absolutely right - I apparently signed up for their "Complete Protection Bundle" for $425 which got deducted from my federal refund. The description shows it includes audit defense, tax expert assistance, and identity protection. I honestly have zero recollection of agreeing to this! Must have clicked through too quickly during the filing process. That plus the standard $75 processing fee accounts for almost exactly the missing amount. Mystery solved! Thank you so much for suggesting this - I would have continued freaking out while waiting for some explanation from the IRS that was never going to come. Lesson learned to pay more attention to those "recommended" add-ons during the filing process.

The tax prep companies are so sneaky with this stuff. They make those screens with the add-on services look like you NEED to select something, when really "none" is an option they hide or make look risky. I almost got charged $200 for their "MAX" bundle until I noticed and unchecked it.

This is incorrect information. Property taxes cannot be added to your basis for inherited property. They're either deductible in the year paid (if you itemize) or not deductible at all. Only capital improvements can be added to basis.

Omg that's terrifying! Did she try getting help from the Taxpayer Advocate Service? I've heard they can sometimes intervene in these penalty situations especially if there was genuine confusion about the requirements.

She did contact the Taxpayer Advocate Service, and they were helpful in getting the IRS to actually review her reasonable cause argument. The process is still ongoing, but they've at least gotten the collection activities paused while they review her case. The TAS representative explained that the IRS considers several factors for reasonable cause: whether she tried to learn about filing requirements, if there was a history of compliance with other tax obligations, and if this was her first time dealing with international tax issues. Having documentation of her efforts to understand the requirements has been crucial to her case.

Thank you for bringing this up. The property isn't currently being rented out, but I might want to do that in the future. Is there a good resource you found that explains all these different forms? I feel like I'm discovering new requirements every day.

The IRS has a decent publication called "U.S. Citizens and Resident Aliens Abroad" (Publication 54) that covers many of these requirements. There's also a specific section on their website about international taxpayers that lists the various forms. I found the most comprehensive help came from a tax attorney who specializes in international taxation. It was expensive, but worth it for the initial setup year. Once I understood all the requirements, I was able to handle most of it myself in subsequent years using tax software that supports international situations. Just be aware that not all tax software handles these specialized international forms well - you might need to use one of the more comprehensive packages.