The married filing separately thing is interesting! I've rarely seen cases where it's beneficial. But what about separated couples who aren't legally divorced yet? Would you have some exception for them?

Good point about separated couples! I'd create a simple "legally separated" status that would essentially treat them as single filers. The current system with MFS is just too punitive with all its limitations and phase-outs. The problem is that MFS was designed to prevent gaming the system, but it's become so restrictive that it actually creates unfair outcomes for people in difficult situations, like those separating or dealing with a spouse who won't cooperate on taxes. A better-designed single status for separated individuals would be much more straightforward.

Average cost basis would be amazing! Also why are crypto transactions so complicated tax-wise? I bought and sold some Bitcoin last year and the tax calculations were insane. Each transaction created a taxable event and I had hundreds.

Thanks for mentioning this! Do you know if there's a minimum amount I need to earn from Doordash before I have to worry about quarterly payments? I might not do as much delivery work next semester when my classes get harder.

The quarterly payment requirement is based on your total tax situation, not just how much you earn from Doordash. The general rule is if you expect to owe $1,000 or more in taxes when you file your return, you should make estimated payments. If you think you'll make less next semester, you can adjust your estimates accordingly. The 1040-ES form helps you calculate this based on your projected income. Another option is to increase the withholding at your pizza job to cover the taxes on your Doordash income - you can do this by submitting a new W-4 form asking for additional withholding.

Just be careful with deductions. My brother tried to claim his entire phone bill and got audited. The IRS made him prove what percentage was actually for Doordash vs personal use. Better to be conservative and keep good records!

Does First Time Penalty Abatement work if you have multiple years unfiled? I thought it was only for a single mistake, not years of non-compliance.

First Time Penalty Abatement only applies to one tax year, but even with multiple years unfiled, they can still qualify if they didn't have any penalties in the three years before the earliest unfiled year. So if 2021 is their earliest unfiled year, they'd need a clean compliance history for 2018-2020. You're right that it's designed for isolated mistakes rather than patterns of non-compliance, but the IRS often still grants it for the first year in a multi-year situation. The remaining years wouldn't qualify for first-time abatement, but might qualify under other reasonable cause arguments depending on the circumstances.

That 30% recommendation is really smart. I used to only save 15% and kept getting surprised by how much I actually owed. Switching to 30% has made a huge difference. I even set up automatic transfers to my "tax" account whenever money hits my checking account.

Thank you for mentioning this! With the baby coming next month, I completely forgot to factor in how that would affect our taxes next year. Would you recommend we split the $2,000 child tax credit between both our W-4 forms or put the full amount on just one of our forms? Also, do you know if we qualify for the child care tax credit as well as the dependent care FSA? Or can we only use one of those options?

You can put the full $2,000 on just one W-4 form, or split it between both - the end result will be the same. Just make sure you don't claim it on both forms (which would incorrectly double-count the credit). Regarding the child care tax credit vs. dependent care FSA: You can potentially use both, but there's an important limitation. The expenses you pay through the FSA cannot also be used for the child care credit - no "double dipping." Usually, with your income level, the FSA is more beneficial because it reduces your taxable income directly. The child care credit percentage is reduced at higher income levels, making the FSA more valuable for most dual-income professional couples.

This is spot on. My wife and I have almost identical incomes to the OP, and increasing our 401k contributions made a huge difference. We each increased from 10% to 15% contributions and it dropped our tax bill by almost $3,000. Plus that money is growing tax-deferred instead of going to the IRS. Also worth noting that at their income level, they might be close to the phase-out range for some tax benefits once the baby arrives, so tax planning becomes even more important.

Omg I think that's actually what happened. Looking at the letter more carefully, it mentions something about "self-employment tax assessment" and Form SE. The tax place definitely never mentioned anything about that - they just asked for my 1099 and did the return. I definitely don't have mileage records from 7 years ago. I was just a clueless college kid taking delivery orders. Do you think the tax advocate will still be able to help even if I technically do owe this money? The amount they're asking for is seriously impossible for me to pay.

The Tax Advocate Service can absolutely still help even if you legitimately owe the money. They can help you: 1) Verify that the assessment is actually correct and made within the proper timeframe. Just because you might owe self-employment tax doesn't mean their calculation is correct. 2) Set up a payment plan with terms you can actually manage. If the amount is truly beyond your ability to pay, they might even be able to help with an Offer in Compromise to settle for less than the full amount. The most important thing is to respond and work with the IRS rather than ignoring the notice. The penalties and interest will continue to grow, and eventually, they can take more serious collection actions. The fact that you relied on a professional tax preparer who failed to properly address your self-employment tax obligations might help with penalty abatement, which could significantly reduce what you owe.

This is exactly what happened to my brother. His tax preparer included the 1099 income on his return but completely missed the Schedule SE. Four years later, he got hit with a huge bill for the self-employment taxes plus penalties and interest. He ended up having to set up a payment plan for like $80/month for years. The IRS was actually pretty reasonable about the payment terms once he got through to someone.