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I'm confused about IRS penalty payment process - help needed!
So I really messed up and totally forgot to pay quarterly taxes on my vacation cabin that I rent out. In the past few years, I was putting so much into fixing it up that I barely broke even after all the repairs and maintenance. Fast forward to this year, and the cabin is finally in great shape and brought in a good amount of rental income. I paid all the taxes (around $12,900) when I filed in April, but then I got hit with a penalty of about $320 for not making those quarterly payments. The penalty notice says I need to pay by June 15. When I went to irs.gov/payments to take care of this penalty, I got confused at the very first screen where you have to select the reason for payment. There are all these different options and I'm not sure which one applies to my situation. I don't want to pick the wrong thing and have my payment not properly applied to the penalty. Has anyone dealt with this before? What option should I select for paying a penalty for failure to make quarterly estimated tax payments? I just want to make sure this gets resolved correctly.
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Freaking out - 31% effective tax rate on taxable income of $72k?? Am I calculating something wrong?
I'm in full panic mode right now because I can't reach my accountant. I've been trying to file my taxes and the numbers are making me feel sick. From my 1040: Single filer W2 income: $64,830 K1 Self-Employment income: $49,068 AGI: $107,255 Standard deduction of $13,850 Taxable income: $93,405 Total tax: $28,956 Taxes withheld in 2024: $8,217 Taxes paid in April: $7,516 Taxes owed today: $13,223 I went to file today expecting to maybe owe like $900 more than what I already paid in April, so imagine my shock finding out I owe ANOTHER $13k+. I literally have about $14k in my checking account and that's basically everything I have. Does this seem right to anyone? This is like a 31% effective tax rate on my taxable income! I feel like this number is way off, but all I'm inputting is the W2 and K1 info, so it should be pretty straightforward. I'm absolutely freaking out right now.
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Just a heads up, you should also look into making estimated quarterly tax payments for next year to avoid this situation again. Since you have that K1 partnership income without withholding, you're supposed to be making payments throughout the year. The IRS expects you to pay as you earn. If you don't make those quarterly payments, you might end up with underpayment penalties on top of the big tax bill next year. The due dates are April 15, June 15, September 15, and January 15 of the following year.
Do you know how I figure out how much to pay for those quarterly payments? Is it just roughly 25% of what I'd expect to owe for the year?
You have a couple of options for calculating your estimated payments: You can pay 100% of your prior year tax (110% if your AGI was over $150,000), divided into four equal payments. This is the safest method to avoid penalties. Alternatively, you can estimate your current year tax and divide by four. This works better if your income fluctuates a lot or if you expect significantly lower income than last year. The IRS has a form called 1040-ES that includes a worksheet to help calculate your payments. You can also use tax software to calculate this for you. Just remember that you need to account for both income tax and self-employment tax on that K1 income.
Besides the quarterly payments, you might want to look at increasing your W2 withholding to help cover some of that self-employment tax. I had a similar situation and asked my employer to withhold an additional $500 per paycheck. It didn't completely eliminate my quarterly payments, but it reduced them enough to make them manageable.
Can you really do that? Just ask them to withhold extra? How do you figure out how much extra to withhold?
My parents haven't filed taxes for 6 years - need urgent advice
So my parents just dropped a bomb on me that they haven't filed their tax returns for the past 6 years. I had no idea this was going on! They're freaking out about potential penalties and have started working with some company called "Financial Freedom Tax Solutions" that's supposedly going to help them get caught up with the IRS. The thing is, they're charging my parents $8,000 for their services which seems crazy expensive to me. My parents aren't super financially savvy and I'm worried they might be getting taken advantage of. They already signed some paperwork and paid a deposit of $1,500. Is this legit or are they being scammed? Has anyone dealt with unfiled taxes for multiple years and know what a reasonable price would be for this kind of service? I tried telling them they should just go to a regular CPA but they're convinced they need "specialists" because of how long it's been.
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Tell your parents to run far away from that company! My in-laws got sucked into one of those tax relief places and paid $5,000 upfront, then the company did almost nothing. They dragged everything out for months, constantly asking for more documents, and in the end my in-laws still had to hire a regular CPA to fix the mess. These companies prey on people's fear of the IRS.
Did your in-laws ever get any of their money back? My parents already paid the $1,500 deposit and I'm trying to figure out if they can cancel and get that refunded.
Unfortunately no. The contract had tons of fine print saying the deposit was "non-refundable" for "services already rendered," which apparently included the initial consultation and some paperwork they filed. They threatened to send my in-laws to collections when they tried to cancel, so they ended up just walking away from the money. If your parents haven't signed anything binding yet, tell them to stop immediately. If they have, they should review the contract carefully for cancellation terms and possibly consult with a consumer protection attorney. Some states have cooling-off periods for certain contracts.
Just a tip - your parents might qualify for the IRS Free File program depending on their income level. My mom hadn't filed for 3 years and was able to use it to file all her back taxes herself for free. Even if they don't qualify, tax software like TurboTax or H&R Block is pretty affordable and guides you through everything step by step.
Don't most of those free file programs only work for the current tax year? I tried using one for an older return and it wouldn't let me.
You're right that most free services focus on current year returns, but some tax software lets you buy previous year versions. TurboTax, H&R Block, and TaxAct all sell prior year software. For truly free options, the IRS still provides prior year forms on their website that can be filled out manually. It's more work, but if someone has relatively simple returns, it's doable. There are also Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs that help eligible taxpayers with current and some prior year returns for free.
Need Tax Relief Advice after Cascading Stock Sale Tax Consequences
So I'm in a pretty stressful situation with my taxes that's been snowballing for years. Back in 2021, I exercised stock options from the startup I worked at when they went public. Used that money to buy a house in the suburbs. The following year, I had to sell more company stock just to cover the massive tax bill from that first sale. Then the next year, I had to sell even MORE stock to pay the taxes on the previous stock sale. This cycle kept repeating until last year when the market completely tanked and I'm now out of stock to sell. Currently I owe about $70k to the IRS and around $35k to my state. I've heard about this "IRS Fresh Start Program" that might help people in situations like mine, but when I try to research it on the IRS website, all I find are broken links or unhelpful PDFs with basically no information. When I Google "Fresh Start Program," the top results are all these tax relief companies advertising their services. I ended up hiring one of these tax relief places but I'm starting to wonder if I made a mistake. Has anyone here gone through something similar or have advice about legitimate tax relief options? Are these companies even worth the money or am I better off trying to work directly with the IRS? I'm honestly at my wit's end with this situation.
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One thing to consider is that with tax debt that large, you might want to consult with a tax attorney rather than just a tax relief company. Attorneys have additional protections like attorney-client privilege that could be important if there's any question about whether your tax issues involve anything potentially problematic. Many tax attorneys offer free initial consultations and might give you a better sense of whether your situation requires their expertise or if you can handle it yourself with the IRS directly.
That's a good point. Do you think a tax attorney would be better than a CPA for my situation? I'm worried about the additional cost since I'm already struggling with the tax debt itself.
For your specific situation with stock sales and cascading tax consequences, I'd recommend a tax attorney over a CPA. While CPAs are excellent for tax preparation and general advice, attorneys have specialized knowledge of tax relief programs and negotiation with the IRS that's particularly relevant to your case. They can also represent you in Tax Court if it ever comes to that. Regarding cost concerns, many tax attorneys will work on a flat fee basis for tax resolution cases rather than hourly billing. During a free consultation, ask about their fee structure and whether they can give you a fixed quote. Often the money saved through proper representation exceeds the cost of hiring them, especially with tax debts in the six-figure range you're facing.
Has anyone tried getting their taxes reduced through these "innocent spouse" provisions? My husband had a similar issue with stock options and now we're on the hook for like $40k, but I had no idea about any of this when we filed jointly last year.
I actually went through this process! Innocent spouse relief is legitimate but pretty specific in when it applies. You need to show that you didn't know and had no reason to know about the underreported income or incorrect deductions when you signed the return. If you were aware of the stock sales but just didn't understand the tax implications, that typically doesn't qualify.
Can anyone help me figure out what the code in box 12 on my W-2 means?
I'm trying to do my taxes and I'm a bit confused about what I'm seeing in box 12 on my W-2. There's some kind of letter code followed by an amount, and I have no idea what it means or how I'm supposed to report it. Is this something I need to include somewhere specific on my tax return? I've never noticed this before (or maybe I just ignored it in previous years lol). Any help would be really appreciated because I'm trying to file before the deadline and this is holding me up!
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If you're looking for a quick reference, here are the most common Box 12 codes you might see: D - 401(k) contributions E - 403(b) contributions G - 457(b) contributions W - Health Savings Account contributions from your employer AA - Roth 401(k) contributions BB - Roth 403(b) contributions DD - Cost of employer-sponsored health coverage (not taxable) Your tax software should handle these correctly if you enter them exactly as shown on your W-2. If you're doing taxes by hand (why would you torture yourself lol), the 1040 instructions explain each code and where it goes.
This is helpful but you missed Code C which is for taxable cost of group-term life insurance over $50,000. That's the one I always get confused about because I have to pay taxes on that benefit even though I never saw the money!
You're absolutely right about Code C! That's an important one I should have included. For group-term life insurance over $50,000 provided by your employer, the cost of coverage over $50,000 is considered taxable income. The confusing part is that this amount is already included in your Box 1 wages, so you don't need to add it again when filing. It's basically showing you what portion of your taxable wages came from this benefit that you never actually received as cash.
One thing that isn't mentioned yet - if you have multiple W-2s from different employers, you need to report ALL of the Box 12 codes from each W-2. I messed this up last year thinking I only needed to report the largest amounts and got a letter from the IRS about it. Most tax software has sections where you enter each W-2 separately, so just make sure you're entering everything exactly as it appears on each form. Don't try to combine them yourself.
What tax software did you use? I have 3 W-2s this year (worked multiple jobs) and I'm worried about messing something up with all these codes.
Diego Fisher
Don't forget that you can also apply to have the penalty waived if this is your first time being assessed a penalty! The IRS has a First Time Abatement policy that many people don't know about. If you've had a clean tax record for the past 3 years (filed and paid on time), you can often get the penalty removed entirely. Worth a shot before you pay it!
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Carmella Fromis
AuthorWhoa, I had no idea about this! How do I apply for the First Time Abatement? Is that something I can do online or do I need to call them?
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Diego Fisher
You'll need to call the IRS and specifically request a "First Time Penalty Abatement" for your failure to pay estimated taxes. Have your notice handy when you call. The agent will check your compliance history for the past 3 years. If calling seems daunting (which it can be), you can also write a penalty abatement letter and mail it to the address on your notice. Be sure to reference the notice number, explain that this is your first time missing estimated tax payments, and specifically request a "First Time Penalty Abatement" in your letter.
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Henrietta Beasley
Just sharing my experience - I messed up my rental property quarterly payments too last year. Used TurboTax this year and they have a feature that helps you calculate your quarterly estimates for next year AND sends you reminders when payments are due. Been super helpful for keeping me on track!
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Lincoln Ramiro
Does it work if you use a different tax software to actually file your return? I use H&R Block to file but would love something that reminds me about quarterlies.
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