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Why am I owing over $1k in taxes after claiming zero allowances on my W-4?
So frustrated right now... My wife and I just did our taxes and somehow we owe over $1k to the IRS despite both of us claiming zero allowances on our W-4 forms. Last year we filed jointly too and got about $130 back, so I'm completely blindsided by this. The weird part is we actually made around $13k more this year compared to last year, but somehow paid $1.3k LESS in income taxes through our paychecks (even though our increase didn't push us into a new tax bracket). The math checks out that we owe this money, but I'm just totally confused about how this happened. If we both claimed zero allowances, shouldn't enough taxes have been withheld from our paychecks? Why would we end up paying less in withholding when making more money? It makes no sense. I know the IRS does payment plans and we'll figure something out, but more importantly - what do I need to do to make sure this doesn't happen again next year? I thought claiming zero allowances was supposed to prevent this exact situation! Anyone else run into this problem or know what might have caused it?
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Is Form 2848 required to sign a Form 8809 when filing a 1099-NEC extension for a client?
I'm preparing taxes for a small business owner who needs an extension for filing their 1099-NEC forms. As their tax preparer, I'm not sure if I need a Form 2848 (Power of Attorney) to sign the Form 8809 extension request. Can I just sign the Form 8809 as their preparer without having a 2848 on file with the IRS? This is my first time handling extensions for information returns, and I want to make sure I'm doing everything correctly. The deadline's coming up soon and I need to get this filed properly. Has anyone gone through this process before?
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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.
How long did it take you to get through to the Practitioner line? Last time I tried it took me over 2 hours of waiting...
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!
Inheritance/unclaimed funds question - establishing an estate for deceased father's money
So I'm totally confused with conflicting info from my bank and accountant about what to do with this unclaimed money situation. Last month my mom found about $62k in unclaimed funds that belonged to my dad (he passed away 3 years ago) through our state Treasury's unclaimed property department. We went through all the paperwork hoops and got a short certificate for her to claim the funds, and a few weeks ago she received a check made out to "Estate of [dad's name]" for the full amount. Here's where things get confusing - when she tried to deposit the check into her regular account, the bank told her we need to setup a separate estate account with an EIN number. But when I called our accountant about getting an EIN, he insisted it's just inheritance money and doesn't need any special account or tax ID number. I have no clue who's right here, but the bank flat out refuses to deposit the check without an estate account. If I do end up establishing an estate with an EIN and open this special account, will this suddenly create taxable income? Our accountant keeps saying inheritance isn't taxable income, but I'm worried that creating an official "estate" might change things tax-wise. Does anyone know the right approach here? The check is just sitting in my mom's drawer while we try to figure this out!
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My dad is an estate attorney and deals with this all the time. Here's what he always tells clients: The bank is following proper procedure - they literally cannot deposit a check made out to an estate into a personal account. It's not a matter of them being difficult; it's banking regulations. What you need is: 1) Apply for an EIN for the estate (free on IRS website) 2) Take EIN and death certificate to bank 3) Open estate account 4) Deposit check 5) Transfer money to heirs 6) File final 1041 for estate showing $0 tax (inheritance not taxable) 7) Close account The confusion comes from mixing up banking requirements vs tax implications. You need the estate account to deposit the check, but that doesn't make the money taxable.
Thank you so much for breaking it down like this!! This makes perfect sense now. I was getting so confused because our accountant kept saying "inheritance isn't taxable" (which seems correct) but wasn't addressing the actual problem of how to deposit the check. I just got the EIN online following your steps and have an appointment with the bank tomorrow to open the estate account. Will the final 1041 be complicated to file? Or is it pretty straightforward since there's no tax due?
The 1041 for this situation is very straightforward. Since there's no income being generated by the estate (just passing through the inheritance), it's basically just identifying information and zeros for the income portions. Many people do it themselves for simple cases like yours. The form asks for the EIN, estate name, when it was opened/closed, beneficiaries, and income details. Since inheritance isn't income, you'll show the money coming in and going out to the heir(s) with no taxable amount. It's mainly filing it to show the IRS that the estate was opened and closed properly. Your accountant can do this very simply, or there are templates online if you want to DIY.
Just wondering - has anyone used TurboTax to file the 1041 for an estate? I'm in a similar situation and trying to figure out if I need to pay an accountant or if I can DIY it.
I used TurboTax Business for my mother's estate last year. It worked fine for a simple estate situation. The software walks you through all the questions and it's pretty straightforward if you're just dealing with passing inheritance through. Make sure you get the Business version though, the regular TurboTax doesn't do 1041s.
Need consultation for US-Switzerland tax situation when working remotely for Social Security
Hey guys, I've been offered a remote job with a Swiss company but I'm a US citizen living in California. I'm super confused about the tax and social security implications of this arrangement. From what I've read, there's some kind of totalization agreement between the US and Switzerland, but I'm not sure how that affects me as a remote worker. Would I be paying into both systems? Just US? Just Swiss? I currently make about $92,000 at my job here, and the Swiss offer is for roughly 110,000 CHF (about $127,000). I'm trying to figure out if this is actually a good move financially once all the tax complications are factored in. The HR person at the Swiss company wasn't very helpful and just said I should "consult with a tax professional familiar with international taxation." Has anyone here dealt with this specific situation between US and Switzerland? Any recommendations for consultants who specialize in this area? I need to give them my decision in 2 weeks and I'm stressing out!
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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.
Do I need an LLC for event planning business? How else can I get a business bank account?
So I've been organizing these weekend parties with some friends over the past few months. We've been charging for tickets, paying vendors, and even ended up with about $500 in profit for our last event. Initially, I just ran everything through my personal accounts since I was handling most of the money stuff. The events have been getting really popular, and we're planning to do several more this year. My concern is I don't want all this income flowing through my personal accounts anymore. I definitely don't want to be personally liable if something goes wrong, and I'd rather not deal with reporting all this as personal income on my taxes. I already submitted an application for an LLC, but now I need to get an EIN to open a separate business bank account and stop mixing funds with my personal accounts. I'm stuck on whether to set this up as a single-member or multi-member LLC. There are about 10 of us involved in organizing these events. From what I understand, with a multi-member LLC, everyone would have to deal with the tax implications. But as a single-member LLC, wouldn't everything still be connected to my personal taxes anyway? I have no idea how long we'll keep doing these events - could be just a few more months or could turn into something bigger. What's the simplest approach here? Any suggestions on the best way to structure this?
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My two cents as someone who went through this last year: don't overcomplicate it. If you're only making a few hundred bucks per event, a single-member LLC is probably overkill, let alone a multi-member one with 10 people. Have you considered just operating as a sole proprietor and tracking your business income/expenses separately? You can still get a business bank account as a sole proprietor with just an EIN. Then you could just pay your friends as contractors or have an informal profit-sharing arrangement. The paperwork and annual fees for maintaining an LLC in most states might not be worth it for occasional parties. If you do decide to grow it into something bigger, you can always form an LLC later.
Wouldn't I still be personally liable as a sole proprietor though? That's my biggest worry - if someone gets hurt at one of our events or something else goes wrong, I don't want to risk my personal assets.
Yes, you would be personally liable as a sole proprietor - that's the main drawback. If liability protection is your primary concern, then an LLC does make sense. In that case, I'd still recommend keeping it as simple as possible with a single-member LLC unless your friends are insisting on being official partners. Make sure you get proper event insurance regardless of your business structure. Even with an LLC, if something goes wrong at an event, having good insurance is often more practically important than your business structure, especially for small businesses where people sometimes accidentally "pierce the corporate veil" by mixing personal and business finances.
Has anyone mentioned S-Corps yet? If this event business starts making decent money, you might want to look into an S-Corp election down the road. You can start as an LLC and then elect S-Corp status later. The advantage is potentially saving on self-employment taxes since you can pay yourself a reasonable salary and take the rest as distributions that aren't subject to SE tax. But it's only worth it once you're making enough profit to offset the additional paperwork and accounting costs.
S-Corps are so overrated for small businesses. The accounting and payroll costs eat up any tax savings unless you're clearing like $75k+ in profit. Plus you have to run actual payroll every month which is a pain.
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
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
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
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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