I completely forgot about those monthly payments from before! That makes so much sense now. Do you think I should adjust my withholding for this year to get more back next time?

If you want a larger refund next time, you can certainly adjust your withholding. Submit a new W-4 to your employer requesting additional withholding on line 4(c). Even an extra $50 per paycheck would give you about $1,200 more in your refund next year. Just remember that a refund is essentially an interest-free loan you're giving to the government throughout the year. Some financial advisors might suggest instead putting that extra withholding into a savings account yourself each month. But I completely understand the psychological benefit of getting a larger refund - many of my clients prefer it as a form of "forced savings.

She might not qualify for the full EIC with her income level. For 2024 filing season, EIC starts phasing out around $42,000 for a single parent with 2 kids. Her $42,800 main job plus $5,300 freelance puts her at $48,100 total income, which could reduce the EIC significantly.

This is the best advice here! Companies make mistakes all the time with these forms. If you were an employee when you earned this bonus, they should be reporting it on a W-2, not a 1099-NEC. Self-employment tax is no joke - it's an extra 15.3% you shouldn't have to pay if you were an employee!

It's $8,750. So yeah, not a small amount. The self-employment tax would be around $1,300 extra from what I calculated, which feels really unfair since this was literally just a bonus for being a good employee during the transition, not me running a business or doing freelance work.

At $8,750, you're looking at approximately $1,340 in self-employment tax you wouldn't have paid if it had been properly included on a W-2. That's definitely worth addressing. Since the company won't correct the form, you have two main options: (1) File it on Schedule C as they reported it, but maximize any legitimate business deductions to reduce the taxable amount, or (2) Report it as "other income" which avoids self-employment tax but could trigger a mismatch notice from the IRS since it doesn't match how the company reported it. Option 1 is safest but most expensive, while option 2 saves money but carries some audit risk.

I actually tried that first! Form 7004 isn't available through Free File Fillable Forms for 2025 filing season. I spent an hour searching the IRS site before giving up and looking for alternatives. Seems like the IRS really wants business filers to use paid preparers or software.

Thanks for clarifying that! You're right, I just double-checked and Form 7004 isn't on the Free File Fillable Forms list this year. That's disappointing since it's such a simple form. It does seem like the IRS pushes businesses toward paid options. Their justification is probably that businesses can deduct tax preparation expenses, but that doesn't help with cash flow when you're a small partnership just starting out.

Generally the IRS doesn't send confirmation for 7004 extensions when filed by mail. Extensions are automatically approved if properly completed and filed on time. If there's an issue, they'll contact you. Keep your certified mail receipt as proof of timely filing. If you need extra reassurance, you can call the IRS business tax line (might take several attempts to get through) and ask if your extension was processed - have your EIN ready.

Can you request that transcript online or do you have to call again? This whole process gives me so much anxiety.

You can request a record of account transcript online through the IRS website if you have an online account set up. Go to irs.gov, log in to your account, and request the transcript. They usually process it within 5-10 business days. If you don't have an online account, you can also use Form 4506-T to request it by mail, but that takes longer (usually 2-3 weeks). The online method is definitely faster and easier if you're already set up with an online account.

The audit concluded about 6 months ago, and I just got the CP22 yesterday. But even with penalties and interest, it shouldn't double the amount in just 6 months. The notice does break down some penalties and interest but the base amount itself is showing as around $6,800 instead of the $3,800 we agreed on during the audit. So something is definitely wrong with their calculations.

The IRS penalty rate is nowhere near 100% for 6 months. Even with the failure to pay penalty (0.5% per month) and interest (federal short-term rate plus 3%, currently around 7% annually), the most the penalties and interest should add is maybe 10-15% to the original amount over 6 months. Doubling the amount definitely indicates an error.

Thanks for this tip! Did you end up getting any kind of confirmation that they received your reconsideration request? I'm worried about sending it and then it just disappearing into the void.

I did eventually get an acknowledgment letter about 3 weeks after sending my reconsideration request. It basically just said they received it and would respond within 90 days (which turned into 5 months, typical IRS). Make sure you send your request via certified mail with return receipt so you have proof they received it. I also included a cover letter specifically requesting an acknowledgment. If you don't hear anything after about 30 days, start calling to confirm they have your case in the system. This is where having that certified mail receipt becomes crucial - you can reference the delivery confirmation number.

Any chance you could share what kind of documentation worked for establishing "reasonable cause"? I'm in a similar situation but can't afford an attorney right now.