Thanks for mentioning the interest part - I wouldn't have thought of that! Do you typically include bank statements or something to prove when we called the SSA? I'm trying to figure out what kind of documentation would be most convincing.

For documentation, phone records are helpful if you have them, but emails are better since they show the content of the communication. If you have any confirmation emails from when you registered the new employee with the SSA, definitely include those. Screenshots of the registration process showing dates are also useful. The postmarked envelope that contained your PIN is excellent evidence - keep that if you still have it! What really helps is creating a simple timeline document that lines up all your actions chronologically so the IRS can easily see your good faith efforts. The clearer you make it for them, the better your chances.

I did this for a different tax issue. The online setup was pretty easy but there's a small setup fee. I think it was like $130 for the online application but would have been more if I'd done it by phone or mail. Just be aware that interest continues to accrue on the outstanding balance throughout the payment plan.

Ugh I didn't even think about state taxes! I'm in California - does anyone know how they handle capital gains? Is it just added to regular income?

California taxes all capital gains as ordinary income at your marginal tax rate, which can go as high as 13.3% for high-income earners. There's no special capital gains rate like there is federally. So your $32,000 in gains will be taxed at your regular CA income tax rate. For other readers: States vary widely in how they handle capital gains. Some like Nevada, Florida, Texas, Washington, and Wyoming have no state income tax at all, so no capital gains tax. Others like New Hampshire only tax investment income.

Absolutely worth it! You can offset capital gains completely with capital losses, and if your losses exceed your gains, you can deduct up to $3,000 against ordinary income. Any remaining losses can be carried forward to future years. Just be careful of wash sale rules if you plan to buy back similar investments within 30 days.

Wouldn't a bookkeeper be expensive for just a small tutoring income? Seems like overkill unless she's making significant money from it.

Thanks for the suggestion! I just downloaded the PDF from TurboTax and you're right - the form shows "Single" checked even though the TurboTax interface was showing "Married Filing Separately" throughout the whole process. And the dependents section only lists one of my children, not both! No wonder the refund dropped so much. Should I file an amended return now or try to contact the IRS first?

I would recommend filing an amended return (Form 1040-X) as soon as possible. The IRS won't automatically fix this kind of error, and waiting for them to contact you could take months and potentially lead to issues with your refund. When you file the amendment, make sure to clearly indicate that you're changing from Single to Married Filing Separately and adding the missing dependent. Include all required supporting documentation for the dependent claim. If you do this quickly, it might not significantly delay your refund, though amended returns typically take longer to process than original returns.

Not always true! There are situations where MFS makes more sense, like if one spouse has income-based student loan payments, certain medical deductions, or if there are liability concerns. My husband and I file separately because it significantly lowers my income-based repayment for student loans.

We chose MFS mainly because of my wife's student loan situation. She's on an income-based repayment plan, and filing jointly would increase her required payments since they'd be based on our combined income. We've run the numbers both ways and even with the tax benefits of MFJ, we still come out ahead with MFS when factoring in the loan payment savings. What's frustrating is that I carefully selected MFS but somehow TurboTax changed it to Single without clearly showing me that change was happening. I need to get this fixed ASAP!

Thats a really good point - I didnt even think about using a retirement account! Arent there penalties though if I need to take the money out before retirement age?

Yes, there are penalties if you withdraw the earnings before age 59½ - typically a 10% penalty plus taxes. However, you can always withdraw your original contributions (not the earnings) from a Roth IRA at any time without penalties or taxes. So in your example, you could always take out the original $20k anytime you want with no penalty. Only the $10k in gains would be subject to penalties for early withdrawal. This makes Roth IRAs more flexible than other retirement accounts while still giving you the tax advantages.

But be careful with wash sale rules! If you buy the same or "substantially identical" stock within 30 days before or after selling at a loss, you can't claim that loss for tax purposes. I learned this the hard way.