Thanks so much for this! Did you end up using a tax professional or just tax software to file all the back taxes? I'm trying to figure out the most cost-effective approach since I'll be filing 4 years at once.

I used tax software for all of them. I bought the previous year versions (most of the major companies sell them) and did one return at a time. It was pretty straightforward since I mostly had W-2 income. For the oldest year, I had some 1099 work that made things a bit more complicated, so I paid a bit extra for the deluxe version that year. Still came out way cheaper than hiring a professional for all four years.

That's a good point. And if you moved between states during these unfiled years, you might need to file part-year resident returns for multiple states which gets complicated fast.

This is super important! My friend had this exact situation and ended up in small claims court because she couldn't immediately refund the prepaid rent when the tenant left early. Make sure your lease specifically addresses this!

That's a really good point about small claims court! I hadn't even thought about the legal implications. I'd suggest putting a clause in the lease that clearly states the prepaid rent is non-refundable, or alternatively, spell out exactly how refunds would be calculated including any penalties for breaking the lease early. The more specific you can be in the lease, the better protected you'll be if things go south.

That's actually what I do with my tenants! Quarterly payments are much easier to manage than monthly but don't create as many tax headaches as annual payments. Plus if something goes wrong, you're only out a few months rather than a whole year.

I didn't know about first time abatement for state taxes! Do you know which states offer this? I've always filed and paid on time before this year.

Not all states offer it, but quite a few do. California, Illinois, Massachusetts, and New York are some of the larger states that have some version of penalty abatement for first-time issues. Some call it "reasonable cause" relief rather than first-time abatement. The key is to request it explicitly - they almost never offer it automatically. You typically need to have a clean compliance history for the past 3-4 years to qualify. The requirements vary by state, but it's definitely worth asking about when you call to set up your payment plan.

I did this last year. The penalties and interest only apply to the unpaid portion. So if you owe $1000 and pay $700 by the deadline, you'll only be charged penalties on the remaining $300. Definitely better than paying nothing by the deadline!

Would it be better to fax the response to the IRS rather than mailing it? I've heard mail can take forever for them to process and faxing might be faster for time-sensitive stuff like this.

Faxing can be faster for the initial response if you're up against the deadline. The IRS does accept faxed responses to CP2000 notices, and it provides immediate transmission. Just be sure to keep the fax confirmation page as proof of timely response. For the amended return itself, you'll still need to mail that through regular channels. But for the initial "I received your notice and I'm working on it" response, faxing can save you some time. Either way, make sure you're sending everything to the correct department and including all reference numbers from the CP2000 notice on your correspondence.

Innocent Spouse Relief probably won't apply here since it's just a case of forgotten income, not deliberate underreporting or fraud. It's more for situations where one spouse hid income or claimed fraudulent deductions without the other spouse's knowledge. This sounds like an honest mistake that both spouses would be responsible for correcting.

Thanks for this info! Do I need to wait until I've paid everything off before requesting the penalty abatement? And is there a specific timeframe I need to submit the form within?

You don't need to wait until everything is paid off to request penalty abatement. You can submit Form 843 after the penalties have been assessed, which typically happens after you file your return. There's generally a 3-year timeframe for requesting abatement, starting from when you filed the return or paid the tax, whichever is later. So you have some time, but I wouldn't procrastinate. It's usually best to set up your payment plan first and then submit the abatement request afterward.

The IRS calculator is good but I found it really confusing tbh. If you want something simpler, the tax withholding estimator on SmartAsset is more user friendly. Just google "smartasset tax withholding calculator" and it should come up.