


Ask the community...
Just my two cents, but we amended our S-corp return in 2022 to fix a similar revenue reporting error where we had accidentally counted some deposits twice. Ended up reducing our reported income by about $22,000. We filed the amendment, got a letter acknowledging receipt about 8 weeks later, and then eventually got a small refund check. No audit, no questions, nothing complicated.
Did you use a CPA or did you handle the amendment yourself? I've heard different things about whether professional preparation makes a difference in how returns get processed.
We used the same CPA who did our original return. He basically said the same things others have mentioned here - that reducing income isn't typically as concerning to the IRS as increasing deductions would be. He did recommend we include a clear explanation letter that he drafted, which specifically explained the exact nature of the accounting error (duplicate counting of specific transactions) and referenced our supporting documentation. I think having that professional guidance did help give us peace of mind, but from what I've learned, the risk was probably low either way.
One thing nobody's mentioned - make sure you also check if you need to amend your STATE tax returns too! I amended my federal return and completely forgot that the changes would affect my state return too. Ended up getting a notice from the state about the discrepancy.
One thing nobody's mentioned yet - make sure you discuss who will claim any childcare expenses. My ex and I had a huge issue with this during our separation year. If you're the custodial parent and paid for childcare so you could work, you might qualify for the Child and Dependent Care Credit, which is significant. Also check if you're eligible for Earned Income Credit - the rules get complicated during separation years. And remember that alimony rules changed a few years back - it's no longer deductible by the payer or taxable to the recipient for divorces after 2019.
Thanks for bringing this up! I completely forgot about the childcare expenses. I've been paying for after-school care since we separated. Is there a specific form I need for the childcare credit? And does it matter if we've been splitting these costs or just whoever claims the dependent gets the credit?
You'll need Form 2441 for the Child and Dependent Care Credit. Generally, only the parent who claims the child as a dependent can claim this credit. However, there's a special rule for divorced/separated parents where the custodial parent can claim the credit even if they release the dependency exemption to the non-custodial parent. For expenses you've split, typically only the parent who claims the child can claim the credit for the expenses they personally paid. You can't both claim the same expenses. Keep good records of all payments you've made for childcare, including receipts with the provider's name, address, and tax ID number (EIN or SSN).
A word of warning - my ex and I thought we were being smart by filing separately during our separation. What we didn't realize is that if you file separately, BOTH of you have to either take the standard deduction OR itemize. You can't mix and match where one itemizes and the other takes standard. Also, if your divorce involves transferring property between you (like houses or investment accounts), don't do anything without understanding the tax implications first! Some transfers incident to divorce are tax-free, but timing matters.
Yep, ran into this exact problem. My ex itemized without telling me, so I had to itemize too even though standard would've been better for me. Ended up paying way more in taxes that year. Communication is key, even if it's just through your lawyers.
8 Don't forget about state taxes too! Depending on your state, you might owe an additional 3-6% on that income. Some states also have their own penalties for not making estimated payments.
1 Oh no, I completely forgot about state taxes. I'm in Illinois - any idea what percentage they take for self-employment income?
8 Illinois has a flat income tax rate of 4.95% for all income types, including self-employment. Unlike some states, Illinois doesn't have a separate self-employment tax (just the state income tax). You'll need to file an IL-1040 along with your federal return. Illinois does have underpayment penalties similar to the federal ones, but they're typically smaller. If you qualify for the federal first-time abatement that others mentioned, you might be able to request similar relief from Illinois by attaching a letter explaining your situation when you file.
16 Quick tip from someone who's been freelancing for years: set aside 30-35% of EVERY payment you receive immediately into a separate tax account. I do automatic transfers so I'm never tempted to touch that money. Has saved me so much stress at tax time!
20 Do you make quarterly payments from that account? I've been putting aside money but never know exactly how much to send for quarterly payments.
Someone correct me if I'm wrong, but if you received a CP2000 and you know you didn't file for that year, wouldn't you need to file a complete tax return for that year first before responding to the CP2000? The IRS is saying "hey we have info showing you made this money" but you need to properly report all income and transactions for that year, not just send the 8949 by itself. I think you need to file the original return that was missing, which would include 8949 + Schedule D + 1040, etc.
I hadn't even thought of that. So I would need to do a full late tax filing for that year first? And then respond to the CP2000 separately? That seems like a lot more work than just sending in the 8949 to prove I didn't make money.
Yes, you should file a complete tax return for that year. The 8949 by itself won't be enough because it needs to be part of a full return with Schedule D and Form 1040. The CP2000 is basically saying "we have information that doesn't match what you filed," but in your case, you didn't file at all for those transactions. So the proper response is to submit a complete return showing all your income and deductions for that year. Then you can reference that filed return in your CP2000 response, explaining that you've now properly reported everything. The IRS will then recalculate based on your filed return rather than just their incomplete information.
Don't panic! I work with these issues often. The key thing to understand is that the CP2000 is NOT a bill - it's a proposed adjustment based on information they received from third parties (in this case, Robinhood). Since you said you didn't file those transactions that year, what the IRS is seeing is income reported by Robinhood without any corresponding reporting of that income on your return. They don't have your cost basis information, so they're assuming your proceeds were all profit. First step is definitely to gather all your documents. Then you have two options: 1. File an amended return for that year including the Form 8949 and Schedule D 2. Respond directly to the CP2000 with a detailed explanation and documentation Either way, you'll need to show them your cost basis for each transaction. If it's just a few transactions, option 2 might be easier. If it was many trades, you probably need to file an amended return.
Would option 2 work if they never filed these transactions at all that year? Not an amended return but a completely missing filing for the Robinhood stuff?
Fatima Al-Rashid
If you have student loans, you might want to consider having extra withholding on your W-4. I didn't fill mine out properly at my first job and ended up having a huge tax bill because I had multiple income sources that pushed me into a higher bracket. In Step 4(c) you can add extra withholding each paycheck. Even an extra $25-50 per check can add up and prevent a surprise bill next April.
0 coins
Tyrone Hill
β’Thank you for this advice! I do have student loans that will be going into repayment soon. How do I figure out exactly how much extra to withhold? Is there like a calculator or something I can use?
0 coins
Fatima Al-Rashid
β’The IRS has a Tax Withholding Estimator tool on their website that's pretty helpful. You input your expected income, student loan interest, and other details, and it gives you a recommended amount for extra withholding. For a rough estimate, if you're early in your career making under $60k with typical student loan interest, having an extra $40-50 withheld from each biweekly paycheck often puts you in a good position. But the calculator will give you a more personalized number based on your specific situation.
0 coins
Giovanni Rossi
One thing nobody mentioned - if you don't fill out a W-4, most payroll systems automatically default to withholding as "Single with zero adjustments" which is usually the HIGHEST withholding level. So you'll have more taxes taken out of each check than you might need to. I personally prefer slightly overwithholding (I use the "single, zero" option even though I could claim some adjustments) because I like getting a refund rather than owing money, but some people prefer having more in each paycheck.
0 coins
Aaliyah Jackson
β’This is exactly what I do too! I'd rather get a nice refund than stress about possibly owing. My friends think I'm crazy for "giving the government an interest-free loan" but I see it as forced savings lol. Last year I got back almost $2,200 and used it for a vacation.
0 coins