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Old tax debt from $55K ballooned to $190K in 10 years - what are my options now?
So about 10 years ago I had a business that was doing pretty well. Made enough to rack up about $65K in taxes for one year - roughly $53K federal and $12K state. Then the business started struggling. I made the risky choice of using tax money I owed (all 1099 self-employment taxes) to try keeping the business afloat rather than just paying the tax bill and closing up. Well, that gamble didn't work out, and I've been carrying this tax burden for over a decade now. Currently, I'm looking at owing around $85K to the feds, but what's crazy is the state is claiming I owe something like $135K... which seems impossible based on the original amount. I basically buried my head in the sand all this time. I did try talking to the IRS about 3 years after everything fell apart to set up payments, but they wanted $2,500 monthly when I wasn't even bringing in that much personally. They told me to just pay what I could, but I'd heard about this '10-year statute of limitations' where they only have a decade to collect before it becomes uncollectable. So I figured waiting it out was my best option. But here we are 10 years later, and I'm not sure where I stand. Seems weird to call the IRS like "hey it's been 10 years, are we good now?" During this time, I've scraped by (still filed and paid my current year taxes), but never touched that huge old bill. I can't keep any real money in bank accounts because tax liens occasionally hit and clean me out. They've done this twice, both times getting less than $120. They haven't hit me again recently, probably because they know there's nothing there. I'm tired of living like this. I either want to know how much longer this cloud hangs over me, or find a solution to settle and move forward. I've heard about offers in compromise, but I'm basically broke. I can't magically produce $25-35K for a settlement offer. My credit is destroyed. The only positive is I've got another business starting to gain traction, and I want to resolve this old mess so I can move forward properly. Any advice on what path I should take? Can't afford a tax attorney right now. Just looking for guidance on possible resolution options that I can research further. Thanks for any help!
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How do I handle US taxes as a US citizen working as a doctor in the UK with a small US investment account?
I'm a 32-year-old US citizen who moved to the UK when I was 13 and have been living here for nearly two decades now. I recently completed my medical residency and started working as a doctor at an NHS hospital this year. I've never actually worked in the US or for any US companies. Back in December 2023, I opened a small investment account in the US that currently has about $5,800 in it. I've had this account for a little over a year now. I'm completely confused about my US tax obligations. In the UK, my taxes are automatically deducted from my paycheck just like all my British colleagues. But I've heard that US citizens need to file taxes regardless of where they live? I haven't received any communications from the IRS or any US tax authorities about filing requirements. Do I need to submit something to the US government even though I'm paying taxes in the UK? I don't want to accidentally break any rules, but I also don't know where to begin with this process. Any advice would be greatly appreciated!
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An important thing nobody has mentioned yet - look into whether you need to file state taxes as well as federal. Some states consider you a resident even after you move abroad if you haven't established residency elsewhere. What was your last state before moving to the UK? Some states like California and Virginia are notorious for trying to claim expats as tax residents. Also, be aware of FATCA (Foreign Account Tax Compliance Act) requirements. Your UK bank may have already reported your accounts to the IRS, which is why it's important to get compliant with your filings.
This is a really good point about state taxes. I'm originally from California and they kept trying to claim me as a resident for tax purposes for years after I moved to France. I had to provide extensive documentation proving I had no intention of returning to California. Also, the FATCA thing is real - my French bank made me fill out a W-9 form once they realized I was a US citizen, and they definitely report my account information to the US authorities.
California is particularly aggressive about maintaining tax residency. They look for any connection (driver's license, voter registration, family ties, etc.) to claim you're still a resident. Other problematic states include New York, Virginia, and New Mexico. The FATCA reporting is a double-edged sword for expats. On one hand, it means the IRS likely already knows about your foreign accounts, which increases the importance of proper filing. On the other hand, it's caused some foreign banks to refuse US clients altogether due to the reporting burden. It's unfortunately part of the reality of being a US citizen abroad.
Does anyone know if the UK-US tax treaty helps with avoiding double taxation on investment income specifically? I'm also a US citizen in the UK, and while my UK employment income seems covered, I'm confused about how my US-based investments are treated.
The UK-US tax treaty does help with investment income but it's complicated. Generally, you can claim foreign tax credits in the US for taxes paid to the UK on the same income. For US-source investment income like your US investments, you'll typically pay US tax on those first, then declare them on your UK return and get credit for the US tax paid. For dividends specifically, the treaty usually reduces withholding rates. Interest and capital gains have their own rules too. I recommend keeping very clear records of all taxes paid in both countries so you can properly claim credits.
Ignored my tax obligations for years - how badly am I in trouble with the IRS?
So I've been basically burying my head in the sand for years when it comes to taxes. I'm self-employed (freelance graphic designer) and I haven't filed a return since 2021. I've been making around $65,000-$75,000 annually but never set aside money for taxes like I should have. No quarterly payments, nothing. I'm finally ready to face reality, but I'm terrified about what penalties I might be facing. I know I'll owe back taxes plus interest and penalties, but I have no idea how bad it's going to be. I don't have a lot saved up right now - maybe $8,000 total in my emergency fund. Does anyone have experience with getting caught up on multiple years of unfiled returns? Will the IRS work with me on a payment plan? I'm having nightmares about them garnishing my bank account or worse. Any advice on how to approach this mess would be appreciated.
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One thing nobody's mentioned yet - make sure you file ALL missing returns at once. Don't file just the most recent year thinking you'll do the rest later. The IRS wants to see you completely back in compliance. Also, if you can pay even part of what you owe when you file, it shows good faith and can sometimes result in reduced penalties. I was in a similar situation (3 years unfiled) and managed to pay about 30% upfront, which helped tremendously with negotiating the rest.
Is there a statute of limitations on how far back they can come after you for unfiled taxes? I'm worried they'll want returns from like 10 years ago even though I wasn't making much money back then.
The statute of limitations for the IRS to assess taxes is generally 3 years from the date you file your return. However - and this is important - there is NO statute of limitations on unfiled returns. The clock doesn't start until you actually file. For your situation, they typically focus on the last 6 years for unfiled returns, but technically they could go back further. That said, if you weren't making much money in those earlier years, it might not be worth their effort. My tax preparer advised me to focus on the last 6 years, but your situation might be different.
Don't forget about state taxes too! Everyone's talking about the IRS, but your state tax authority might be even more aggressive about collection. Make sure you're addressing both federal AND state unfiled returns.
This is so important. My brother dealt with the IRS fine on his back taxes but completely forgot about state taxes. California actually put a lien on his property before he even knew what was happening.
Job has me listed as a vendor, not 1099 contractor - tax implications?
So I've been working with 3 different companies this year and I thought I was a 1099 independent contractor with all of them. I filled out W-9 forms for each company when I started. Today I was checking in with one of them about when I'd receive my 1099 form and they told me I'm actually listed in their system as a vendor, not as a 1099 contractor. I'm totally confused now about how to handle this on my taxes. Does this change how I report the income? Am I supposed to be charging sales tax since I'm apparently a "vendor"? I still have to pay self-employment tax either way, right? The amount from this particular client is about $14,500 for the year. The other two clients haven't mentioned anything about vendor status, but now I'm wondering if I should check with them too. I don't want to mess up my taxes or end up owing a bunch of sales tax I didn't collect. Any advice would be really appreciated!
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One thing nobody's mentioned - you should double check that this client is actually going to issue you a 1099-NEC. Some companies mistakenly think that categorizing someone as a "vendor" means they don't need to issue a 1099. If they paid you $600+ they're required to, but sometimes companies mess this up. If they don't send one, you still need to report all the income anyway. Just keep good records of all payments they made to you. And you might want to politely remind them now that they need to issue you a 1099-NEC by January 31st.
Thanks for bringing this up! I'm definitely worried they won't send the 1099 now. Should I just email them and explicitly ask if they'll be sending a 1099-NEC since I'm classified as a vendor in their system? I have all my payment records but would obviously prefer to have the official form.
Yes, I'd recommend sending them a polite email asking for confirmation that they'll be issuing you a 1099-NEC for the 2024 tax year. Something like: "I understand I'm classified as a vendor in your system, and I just wanted to confirm you'll be issuing a 1099-NEC for tax purposes since the payments exceeded $600 this year." If they come back and say they don't issue 1099s to vendors, you can politely inform them that IRS rules require a 1099-NEC for independent contractors/vendors who were paid $600 or more for services. Sometimes the accounting department just needs a friendly reminder about the requirements.
Just a quick tip: Some companies incorrectly use the term "vendor" for any external service provider in their accounting system, when they actually mean independent contractor. Their terminology doesn't change your tax status. However, definitely check with the other two clients as well. And start keeping track of your business expenses carefully - office supplies, software subscriptions, home office expenses if you qualify, etc. Those can really add up and reduce your taxable self-employment income.
Do you need a different form to track expenses for a vendor vs a contractor? I always get confused about this stuff.
Can I claim my stay-at-home wife on my W-4 if she doesn't work or go to school?
Hey tax folks, I'm trying to figure out the best way to fill out my W-4 for this year. My wife is a full-time stay at home mom for our two kids (3 and 5), and she doesn't have any income at all. She's not working or taking classes currently. I've been the sole earner since our first child was born and make about $74,000 annually. I'm a little confused about how to properly claim her on my W-4. Should I be listing her as a dependent? Or is there a different way to account for her on the form that would be more beneficial for our tax situation? I want to make sure I'm getting the right amount withheld - last year we got a refund of $3,200 which seems too high, so I think I'm not filling out the W-4 correctly. Also, I've heard different things about the "married filing jointly" vs. "married filing separately" options - which would be better in our situation? Any help would be appreciated!
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One thing nobody has mentioned yet - make sure you're also taking advantage of claiming "Head of Household" status since you're supporting your family as the sole income earner. It gives you a better tax rate and higher standard deduction than just married filing jointly.
That's not correct. You can't claim Head of Household if you're married (unless you're legally separated or meet very specific requirements). If he's married and living with his wife, Married Filing Jointly is the correct status, not Head of Household.
Oh shoot, you're right - I was mixing up the requirements. For some reason I was thinking Head of Household was for anyone supporting dependents, but you're correct that married couples living together can't use it. Thanks for the correction! Married Filing Jointly would indeed be the right status in this case.
Have you considered having your wife do some kind of small side gig that earns under $600 per year? If she does that, you could potentially contribute to a spousal IRA for her which might give you some additional tax benefits. Just an idea to optimize your tax situation further!
Actually, your spouse doesn't need earned income for you to contribute to a spousal IRA as long as you file jointly and have sufficient earned income yourself. It's one of the few exceptions to the "earned income" requirement for IRA contributions.
GalacticGuardian
Have you considered bankruptcy? Tax debts CAN sometimes be discharged in bankruptcy contrary to what most people think. If the taxes are more than 3 years old, you filed the returns more than 2 years ago, and the taxes were assessed more than 240 days ago, they might be eligible for discharge in Chapter 7. Even if they can't be discharged, Chapter 13 bankruptcy could force both the IRS and state into a reasonable payment plan based on what you can actually afford.
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Dmitry Smirnov
This is actually not entirely accurate. While some taxes can be discharged in bankruptcy, there are strict requirements. Self-employment taxes specifically have additional complications because they include both income tax and what would normally be FICA taxes (Social Security and Medicare). The FICA portion is much harder to discharge. Also, filing fraudulent returns or willful evasion will prevent discharge regardless of timing. Given that OP deliberately chose not to pay the taxes to fund their business instead, a bankruptcy judge might view that as willful evasion.
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Ava Rodriguez
I worked for a state tax agency for 8 years. Here's what's happening with your state tax bill: most states have much higher penalty and interest rates than the IRS, and many states (unlike the IRS) compound interest. This is why your state bill has grown more dramatically. For state taxes, I'd recommend requesting a penalty abatement first. Many states have first-time abatement programs similar to the IRS, and some even have hardship programs if you've been in difficult financial circumstances. Don't assume the 10-year rule applies to your state. Some states like California and Kentucky have much longer collection periods (20 years and unlimited, respectively). You need to check your specific state's rules.
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