The "pennies on the dollar" marketing is mostly hype, but Offers in Compromise are legitimate. The IRS accepts about 40% of OICs submitted, but they use a very specific formula: they look at your assets, income, and future earning potential to determine what they call your "reasonable collection potential." It's not about what percentage of the debt you're offering, but whether your offer matches what the IRS calculates they could reasonably collect from you over the remaining collection statute (usually 10 years from assessment). Some people qualify for significant reductions, while others might not qualify at all if they have substantial equity in assets or high income. The key to success is having the OIC properly prepared with thorough documentation of your financial situation. The application (Form 656) requires detailed financial disclosure, and the IRS verifies everything.

I hadn't even thought about Section 179 for the yard improvements! Would that be instead of including the square footage in my home office calculation, or could I possibly do both? The improvements cost about $4,800 total.

You generally can't double-dip by claiming the same expenses two different ways. The home office deduction would let you deduct a percentage of all household expenses including utilities, insurance, mortgage interest, etc. based on square footage used for business. If you instead use Section 179 for the improvements, you could potentially deduct the full $4,800 immediately rather than depreciating it over time, but you wouldn't include that outdoor space in your home office square footage calculation. It often comes down to which method gives you the better deduction in your specific situation.

The simplified option is definitely easier but it's generally not great for this situation. It's capped at 300 sq ft which is probably less than your combined indoor office and outdoor dog area. Plus, as you mentioned, there's no provision for including outdoor space. I'd stick with the regular Form 8829 if you want to include that yard space.

Thanks for confirming my suspicion. The simplified method seems too limiting for my situation. I'll go with Form 8829 so I can properly document all the space I'm using for business.

That's a really good point I hadn't considered. We're planning to file jointly going forward, but should we also be updating our status with Social Security, health insurance, etc.? Are there any benefits we might lose by being considered married?

Yes, you should absolutely update your status with all agencies. Being inconsistent is a red flag. As for benefits you might lose - some income-based programs phase out at higher income levels for married couples compared to singles, and there can be a "marriage penalty" in certain tax brackets where two high earners pay more jointly than they would separately. Some people find that student loan payments increase when filing jointly if one partner has a much higher income. You might want to run calculations both ways (MFJ vs MFS) to see what works best, though in most cases MFJ provides better tax benefits.

I went through this in 2023. We claimed common law married status in Iowa and got audited. The key was having consistent documentation - joint bank accounts from when we started considering ourselves married, beneficiary designations, insurance policies listing each other as spouses, and affidavits from family and friends confirming they knew us as married.

That's really helpful to know. Did you need to get a lawyer involved during the audit process? And how far back did they want documentation? I'm just trying to understand what we might be getting ourselves into if we make this change.

That's a good point about the support test. They definitely covered more than half my expenses for 2024 (rent, groceries, car insurance, etc.). I'll make sure to talk to them before we file. Do you know if there's a specific form or calculation to determine exactly what counts as "support"?

There's no specific form for calculating support, but the IRS does have guidelines. Support includes food, housing, clothing, education, medical expenses, transportation, and recreation. For housing, you calculate the fair rental value of the space provided plus utilities. Keep in mind that scholarships don't count as support you provided for yourself. Also, any loans you took out yourself do count as support you provided, but loans your parents took out count as support from them.

I used TurboTax last year when I was in a similar situation. It asks you specific questions about your living situation, income, and who provided support. It was pretty straightforward and determined my correct status. If you're still unsure after using it, they have tax pros you can talk to, though that costs extra.

Would this be the same for a situation where the insurance company sent a check for property damage rather than lost rent? I received a check for roof damage but it was made out to both me and my mortgage company.

No, that's actually quite different. Insurance payments for property damage (like your roof) are generally not taxable income - they're considered reimbursement for capital expenses. However, if the insurance payment exceeds your basis in the damaged property component, you might have to recognize gain. The situation gets more complex when the check includes your mortgage company. Typically, mortgage companies are included on insurance checks for significant property damage to ensure the repairs are actually completed. This doesn't change the tax treatment - it's still not income - but you'll need to work with your mortgage company to get the funds released for the actual repairs.

Wait so if the 1099-NEC is for lost rental income is it considered passive income? I thought anything on a 1099-NEC is automatically considered self-employment income subject to SE tax?

That's a really common misconception! The 1099-NEC form itself doesn't determine whether income is subject to self-employment tax - the nature of the income does. In this case, despite being on a 1099-NEC, the payment is essentially replacement rental income, which is generally considered passive income reported on Schedule E and not subject to self-employment tax. The insurance company probably issued a 1099-NEC because they didn't have a more appropriate form for this type of payment, but that doesn't change its fundamental nature as replacement for rental income. When you report it on Schedule E along with your other rental activities, you're correctly characterizing it based on what it actually represents rather than just the form it came on.