Thank you for this clear advice! I've been stressing about this for weeks. Do you know if there's any downside to just waiting for them to process the corrected refund? I'm worried about penalties or something if I don't respond fast enough.

There's no downside to waiting for them to process the corrected refund, but there is a time limit for responding to their notice - usually 30 days from the date on the letter. So you should definitely call them before that deadline passes. As long as you respond within the timeframe specified on the notice, you won't face any penalties for this type of correction.

Is the transcript different from the "Where's My Refund" tool? I've been checking that for weeks with no updates about my amended return.

In TurboTax, you should be able to search for "1099-C" in the search bar at the top. It'll take you to the income section where you can enter the form. After entering the basic 1099-C info, it should ask if you qualify for any exclusions. Select "insolvency" and it will walk you through the worksheet. If you're using the desktop version, it's under Federal > Income > Less Common Income > Cancellation of Debt. Make sure you're in the full interview mode, not the quick mode, or it might skip some options.

That's a really good point I hadn't thought about. My mom is on Medicare with the extra help subsidy for her prescriptions. Do you know if canceled debt that's excluded due to insolvency still affects the MAGI calculation for Medicare subsidies?

For Medicare subsidies, if you properly exclude the canceled debt from income using the insolvency exception (Form 982), then it shouldn't affect the MAGI calculation for Medicare's Extra Help or Medicare Savings Programs. The key is making sure you complete Form 982 correctly to exclude it from your gross income in the first place. However, if only part of the debt is excluded due to partial insolvency, the remaining taxable portion could potentially impact your MAGI. I'd recommend contacting your local SHIP (State Health Insurance Assistance Program) - they provide free counseling on Medicare issues and can give you specific guidance for your mom's situation.

Thank you so much for all this helpful info! Quick question - if I file and get a refund this year, will that affect my parents' ability to claim me as a dependent on their taxes?

You filing your own tax return won't affect your parents' ability to claim you as a dependent at all! These are completely separate issues. Your parents' ability to claim you depends on whether you meet the dependency tests (like if they provide more than half your support, if you're a full-time student under 24, etc.), not whether you file your own return. So go ahead and file to get that refund - it won't impact your parents' taxes in any way.

Absolutely do NOT pay H&R Block for a simple return! I used to work there - they charge like $150+ for returns that literally take 15 minutes to file. If you only made $8k and have a W-2, use the IRS Free File options or even the free version of TurboTax/FreeTaxUSA. Save your money!

Thanks for the advice! That's what I was worried about. I just heard the free versions try to trick you into upgrading halfway through. I'll check out the IRS Free File program that people mentioned.

Thank you! How much should I be setting aside for those quarterly payments? Is it just a percentage of what I make each quarter?

A good rule of thumb is to set aside about 30% of your profit for taxes. This should cover both income tax and self-employment tax for most people. But it does depend on your tax bracket and what other income you have. The payments are supposed to be based on your projected annual income, not just what you made that quarter. The IRS wants relatively even payments, not payments that fluctuate wildly from quarter to quarter. You can use Form 1040-ES to calculate the recommended amount, or many tax software programs can help you estimate this after you file this year's return.

This is super helpful info - I didn't even think about the mortgage aspect. I'm going to start gathering those bank statements now to show the deposits. Did you have to get anything special from your clients or was the paper trail enough?

The paper trail was enough in my case - bank statements showing the deposits plus my QuickBooks reports that matched those deposits. For the larger clients, I also had copies of the contracts showing the agreed payment amounts. No need to get anything special from the clients themselves. The lender just wanted to verify that the income was legitimate and consistent.

9 I think your tax preparer might have been wrong. I had the same situation and called the IRS directly (using that Claimyr service someone mentioned) and they told me the preparer was incorrect. The advance payments need to be reconciled on the return of whoever is claiming the children as dependents, regardless of who received the payments. You might have unnecessarily complicated your taxes.

16 You might be right. After reading all these responses, I looked into it more and it seems like my preparer may have been overly cautious or mistaken. According to IRS Publication 1054 (which I just looked up), the person claiming the qualifying child should report the advance payments. Looking back at our returns, we may have done it wrong and I'm going to ask about filing an amended return. Thanks for bringing this up - sometimes even paid preparers make mistakes with unusual situations.

17 I used TurboTax last year for this exact scenario. It actually handles it pretty well - there's a specific section where it asks if you or your spouse received advance Child Tax Credit payments. It then asks you to enter the amount from Form 6419 regardless of whose name is on the form, as long as you're claiming those children as dependents. It was surprisingly straightforward!