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Whatever you do, don't ignore the IRS notices or miss deadlines for responding. That's the fastest way to make the situation worse. Even if you can't pay right away, always respond to notices and requests for information. Something else to consider - you may want to file separately going forward if you have any current year income. This prevents any new tax issues from getting mixed in with resolving the past problems.
Her husband passed away so she can't file separately going forward, she'll be filing as single or qualifying widow. But your advice about responding to IRS notices is spot on! The worst thing is to ignore them.
So sorry about your situation. I'd recommend getting a free consultation with a tax resolution attorney before making any financial decisions. Many offer free initial consultations, and they can give you a realistic assessment of your options. With your health situation and age, you likely qualify for special consideration. If your husband truly handled all the finances without your knowledge, innocent spouse relief might significantly reduce your liability. Don't drain your retirement accounts before exploring this option fully. The IRS has specific provisions to protect retirement funds for seniors, especially those with health issues. Whatever you do, don't ignore the notices. Responding shows good faith even if you can't pay immediately.
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One thing nobody's mentioned yet - if you win big on certain games (slot machines, bingo, poker tournaments, etc.) and the winnings are above certain thresholds, the casino might withhold federal income tax immediately (usually 24%). This is separate from whether they issue a W-2G. Check if any of your bigger wins had taxes already withheld because you'll want to claim that on your return.
Is there a simple way to calculate how much I should set aside for taxes on my gambling winnings throughout the year? I'm worried about getting hit with a big tax bill next April.
For most people, setting aside about 30% of your net gambling profits should cover the federal taxes, but you should also account for state taxes if your state has income tax. Remember that gambling winnings are added to your other income, so they're effectively taxed at your highest marginal tax rate. If you're already in a higher tax bracket from your regular job, your gambling winnings could be taxed at 32% or higher federally. It's always better to set aside too much than too little - you can always keep the extra if you overestimated.
Just a heads up, I'm a regular poker player and one big mistake I see new players make is not tracking sessions properly. The IRS allows poker players to track by session (meaning you can combine wins and losses from the same day at the same casino/site) which is usually better than reporting each hand separately. But sports betting is different - you have to report each winning bet separately, not as a session. This tripped me up my first year.
Could you expand on what counts as a "session" for online poker? If I play multiple sit-n-gos in one day on the same site, is that all one session? Or is each tournament separate?
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13 One thing to consider is whether you can free up some cash by adjusting other financial obligations. When I was hit with an unexpected tax bill last year, I: 1) Called my mortgage company and asked to skip a payment (many allow this once per year) 2) Temporarily reduced my 401k contributions to the minimum needed for company match 3) Sold some non-retirement investments (even at a small loss) 4) Used a 0% intro APR credit card for other expenses while directing cash to the tax bill The key is to pay as much as possible upfront to minimize the interest and penalties. The IRS interest rates are lower than credit card rates, but still significant over time.
1 These are all really good ideas! I hadn't thought about the mortgage skip-payment option. I'll definitely look into that. I'm also considering selling some stock I've been holding, even though the market is down a bit right now. I guess paying the IRS has to take priority over ideal investment timing. Did you find that the IRS was generally reasonable to work with? I've been anxious about dealing with them directly.
13 In my experience, the IRS representatives were surprisingly reasonable and helpful once I actually got through to them. They've dealt with this situation thousands of times and have standard procedures in place. The key is being proactive and honest. I explained my situation clearly, had all my numbers ready, and proposed a solution rather than just asking what to do. They responded well to that approach. Most importantly, never ignore IRS notices or deadlines - that's when they become much less flexible.
4 Have you checked if your state has similar tax issues? Often federal and state tax problems go hand in hand. It might be worth doing your state taxes right away to see the complete picture before finalizing your payment strategy.
1 That's a good point. I've done a preliminary calculation for state and we actually should be getting a small refund there (about $1,200). I guess that will help offset the federal bill a tiny bit. The majority of our issue was federal withholding that didn't account for some investment income and a side business I started last year.
7 Also, don't forget to check if you qualify for state-level payment plans too. Some states offer better terms than the IRS, with lower interest rates or longer payment periods. When I had a similar issue, I was able to set up a 24-month payment plan with my state that had a much lower interest rate than the federal one.
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Have you checked your credit report? I had a similar situation where a dealership charged me double, and it turned out they had opened TWO separate financing accounts for the same vehicle! One was the agreed amount and the other was their "mistake" that they never closed. Worth looking into.
This happened to my sister too! The dealership claimed it was an "accounting error" but had been collecting both payments for 4 months before she caught it. She had to threaten legal action to get refunded.
On the tax side - if you use your vehicle for a side business, make sure you're tracking mileage with a dedicated app. You can deduct 65.5 cents per mile for business usage in 2023. With gas prices these days, that adds up! Just make sure you have proper documentation showing the business purpose of each trip.
Does this apply if you're not fully self-employed? I use my car about 30% for a side gig but have a regular W-2 job too.
Yes, it absolutely applies even if you're not fully self-employed! The business use of your vehicle for your side gig would be reported on Schedule C along with your other business expenses and income. You'd only deduct the percentage used for business - so in your case, you'd track all your mileage and then deduct 30% of it at the standard rate. Make sure you keep detailed records showing the date, starting point, destination, purpose, and mileage for each business trip. The IRS is particularly strict about vehicle deductions, so good documentation is essential. There are several good apps like MileIQ or Everlance that can help you track this automatically.
Andre Dubois
just wanna add that CP2000s often have a "respond by" date that's usually 30 days from when they sent it. make sure you don't miss this deadline!!! if u need more time u can call and ask for an extension but they're not required to give u one. speaking from experience, trust me u don't want the headache of dealing with an expired notice 😩
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CyberSamurai
•And make SURE you send it certified mail with return receipt if you're mailing your response! I learned this the hard way when the IRS claimed they never received my response to a similar notice.
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Zoe Alexopoulos
Don't overlook the possibility that this could be a scam. Real IRS notices have a notice number, info about your rights as a taxpayer, and never ask for gift cards or wire transfers. The IRS also doesn't initiate contact through email, text or social media. If you're unsure if it's legitimate, you can call the IRS directly at 800-829-1040 to verify.
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Zara Khan
•It definitely came through regular mail with all the official letterhead and notice numbers. I'm pretty sure it's legit - just confusing! Thanks for looking out though. I've heard about those scams where they call and threaten to arrest you if you don't pay with gift cards right away.
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