I didn't even think about quarterly taxes! We haven't been paying anything throughout the year. Is it too late to fix this for last year? And how do we figure out how much to pay each quarter going forward?

It's too late to fix last year's quarterly payments now, but you can avoid penalties going forward by starting them this year. For most resellers, you need to pay estimated taxes if you expect to owe $1,000+ at tax time. For calculating the amount, you can either pay 100% of last year's tax liability divided into four payments (the "safe harbor" method), or 90% of what you expect to owe this year. I personally set aside 30% of my net profit each month and make payments on the quarterly due dates (April 15, June 15, September 15, and January 15). There's a form called 1040-ES that helps with calculations, or your tax software should have an estimated tax calculator. Start now and you'll avoid the shock next tax season!

And sales tax! If you're selling online, the marketplace might collect it for you (like eBay or Amazon) but if you sell directly you might need to collect and remit sales tax depending on your state and sales volume. That tripped me up my first year.

Thank you for this advice! The preparer definitely made multiple errors - that's why I got audited in the first place. I'll definitely ask for written confirmation about the withholdings. Do I need to wait until after the audit is completely closed to request the First Time Penalty Abatement, or can I mention it to the auditor now?

You should wait until the audit is fully closed before requesting First Time Penalty Abatement. Auditors typically don't handle penalty abatement requests during the audit process. Once everything is settled and you've paid the adjusted amount, then submit your penalty abatement request. If you've had a clean compliance history for the past 3 tax years (no penalties), you have an excellent chance of getting the penalties removed. Just be aware this only applies to certain penalties like failure-to-file and failure-to-pay, not all audit-related penalties.

This is important advice. I've been through an audit where information "got lost" between departments. Always get everything in writing and create documentation trails.

But what if you really need that money in the meantime? Not everyone can afford to overpay by 20%. Wouldn't it be better to try to get it right?

That's a totally valid point. It really depends on your financial situation. If cash flow is tight, then absolutely try to be more precise with your estimate. Use your previous year's return as a guide and adjust for any major changes in income or deductions. For those who can swing it though, overpaying provides a stress-free extension. Another approach is to aim for that 90% threshold mentioned earlier - pay enough to cover 90% of your expected tax, which should protect you from the more significant penalties. Either way, the key is making a reasonable effort to estimate correctly based on the information you have at the time.

This is so important! I made this mistake with California taxes and ended up with penalties. Does anyone know a good resource that breaks down the requirements by state?

Would the IRS actually know when I "discovered" the error though? Like if I file the amendment in a month, couldn't I just say I discovered it then? Not trying to be deceptive, just wondering how they determine when you knew about a mistake.

Technically the IRS doesn't know when you discovered the error unless there's some obvious paper trail (like they sent you a notice about it). However, I always advise being honest because if you ever did face an audit or review, lying about when you discovered an error could significantly compound your problems. In practice, filing an amendment within 1-2 months is generally considered prompt enough that the timing wouldn't be questioned. The IRS is primarily concerned with willful, long-term neglect - like someone discovering an error and waiting a year or more to correct it. Your scenario of waiting a few weeks for your refund before filing the amendment is completely reasonable.

That's surprising, I thought the IRS computer systems would be smart enough to connect an amendment with the original return! Thanks for sharing - definitely reinforces the idea of waiting for the refund first.

This is such a good point. Most tax advice seems geared toward either really poor people qualifying for earned income credits or rich people with complex investments. What about us regular folks making between $60-120k? We need help too!

Exactly! The middle class gets squeezed the most it seems. We make too much to qualify for many credits but not enough to benefit from fancy tax strategies with investment properties and such. I think most people in our situation just don't know what options we have available. I'd love practical advice like "if you make X amount, here are the 3 most impactful things you can do to reduce your tax bill" with actual numbers and examples. Or even a checklist of things to consider based on your life situation (married, kids, homeowner, etc).

I switched from TurboTax to FreeTaxUSA last year and saved like $120 for basically the same service. But I'm always nervous about missing something too. Would love to know from an actual CPA what tax situations are too complex for software.