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.

Wait, does claiming the kid automatically make you Head of Household? I thought you had to have the child living with you for more than half the year for that? How does that work with 50/50 custody?

You're absolutely right to question that - I oversimplified. For Head of Household status, you need to have the child in your home for more than half the year AND provide more than half of the household's financial support. In true 50/50 situations, only one parent will qualify, and it's not automatically tied to who claims the Child Tax Credit. This is actually why it's so important to understand all the different tax benefits - they don't all follow the same rules. For example, the parent who has the child more nights during the year (even by just one night) might qualify for Head of Household, while the other parent might still be able to claim the Child Tax Credit with a signed Form 8332.

My ex and I do exactly this with our kids. You can actually fill out Form 8332 to cover multiple future years. We did one form for a 10-year period specifying which years each of us would claim the kids. Just be super clear about which tax years you're releasing the claims for. Also make a copy for yourself - my ex lost his copy one year and it was a whole thing.

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.

Thanks for the tip about the TurboTax tracker! Just checked and it does show a more specific estimate than the IRS site - says my refund should arrive by this Friday. That's a good point about withholding too. I've actually been thinking about adjusting mine. Do you just fill out a new W-4 with your employer to change it? Was it complicated to figure out the right amount?

Yes, you just need to submit a new W-4 to your employer. It's not too complicated - the form has a worksheet that helps you calculate the right amount. You can also use the IRS's Tax Withholding Estimator online which is pretty user-friendly. The key is to think about your tax situation for the whole year - any major life changes, additional income sources, etc. I found that even with my adjustments, I still got a small refund this year (about $500) which I prefer to potentially owing money. It's kind of a balancing act.

This is so true. I claimed EITC and my return was "accepted" on Jan 31 but my refund didn't come until March 12. The Where's My Refund tool just showed "processing" for over a month with no explanation. Super frustrating.