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I went through something similar in 2023. My advice: get a tax professional. I tried doing it myself and made things worse. Found a CPA who specializes in unfiled returns and IRS problems, and it was worth every penny. For the garnishment specifically, once you file those missing returns, you might qualify for a hardship reduction or removal. If you're actually owed refunds as you suspect, that will help your case tremendously. The CPA can file Form 911 (Taxpayer Advocate Service) to help expedite the garnishment release if you're experiencing financial hardship because of it. Don't beat yourself up about the delay - the pandemic was rough on everyone's mental health. Just focus on fixing it now.
How much did the CPA charge you for handling multiple years of unfiled returns? I'm in a similar situation but worried about the cost.
For three years of unfiled returns plus dealing with a lien (similar to garnishment), I paid about $1800. But honestly, it varies widely depending on your location and complexity. My situation included self-employment income and the tax pro had to reconstruct some missing records. The initial consultation was free, which helped me understand what I was getting into before committing. Many tax pros will work out payment plans too, especially if you're already in financial distress. Don't let potential costs stop you from at least talking to someone - most will give you a price estimate during the first conversation.
Don't panic! The good news is that if you've been overpaying and are due refunds, once you file those returns, you might actually come out ahead. But you need to act quickly because there's a 3-year limit on claiming refunds. For the house sale, make sure you have documentation for any improvements you made to the property while you owned it. These increase your basis and can reduce any capital gains. If it was your primary residence and you lived there at least 2 of 5 years before selling, you probably qualify for the capital gains exclusion ($250k for single, $500k for married filing jointly). I've used TurboTax to file back taxes before and it was pretty straightforward. They keep previous years' versions available. If your situation is complicated though, hiring a pro might save you money in the long run.
TurboTax is great but wouldn't a professional be better for dealing with the garnishment? That seems like the urgent problem here.
Don't forget about electricity costs! I've been mining for 3 years and the biggest deduction besides equipment is power consumption. If you're mining at home, you need to calculate what percentage of your electricity bill goes to mining. I use a Kill-A-Watt meter to measure my rigs' exact usage. For the solar panels, keep all documentation showing they're used primarily for your mining operation. The IRS might question this since solar panels are typically considered home improvement, but if you can demonstrate they're mainly for business use, you've got a stronger case for deduction.
This is super helpful! Do you track your electricity use daily or just do a sample period? And for the solar panels, would it help if I kept logs showing the power production and how much is being directed to the mining rigs versus household use?
I do a sample tracking period of about 2 weeks each quarter to establish an average, then apply that to my bills. Seasonal changes affect both mining performance and solar output, so regular monitoring helps establish a realistic business percentage. Absolutely keep detailed logs for your solar setup. Document the total production and what portion powers your mining operation. Photos of your setup can help too. I actually have my mining rigs on a separate circuit with its own meter, which makes it extremely clear what power is being used for business versus personal. That kind of separation makes audits much easier if they ever happen.
Just a warning - don't forget about state taxes too! Federal is one thing, but states have wildly different approaches to crypto. Some treat it like intangible property, others follow federal guidelines. I'm in NY and they're super strict compared to when I lived in WY where they had no income tax.
What tax software are you using? This is actually a common enough issue that some of the better tax programs have a workflow for it. I know for sure that ProSeries and Lacerte (professional software) handle this situation, but I think even TaxAct has a way to deal with incorrect 1099s.
Right now I'm using TurboTax Business for the partnership return and regular TurboTax for my personal. I looked through both and couldn't find any specific option for "incorrect 1099-NEC issued to individual instead of business." Do you know if TurboTax has this capability somewhere?
TurboTax isn't great at handling this specific situation. In TurboTax Business, you'll need to manually enter the 1099-NEC income as "income not reported on a 1099" since you technically don't have a 1099-NEC issued to the LLC. For your personal TurboTax return, you'll need to enter the 1099-NEC, but then add a negative "Other income" line on Schedule C with a description like "Income reported on Partnership Form 1065" to offset it. Make sure to include an explanation statement with both returns. If you're doing this more than one year, I'd honestly recommend switching to TaxAct or even paying a professional to use Lacerte, as they have specific workflows for this exact scenario.
Has anyone here actually gotten an AUDIT because of this issue? I'm in the same boat (with Lyft incorrectly issuing to me vs my LLC) and I'm wondering about the real-world consequences if I just report it on my Schedule C instead of going through all this offset business.
I can share what happened to me. I didn't handle an incorrect 1099 properly in 2022 (just reported it on Schedule C), and I got a CP2000 notice from the IRS about a year later because the K-1 income from my partnership didn't match what they expected based on the 1099s. Took about 4 months and several letters to resolve. Not a full audit but definitely a headache.
Something nobody's mentioned - make sure you don't file an AMENDED return (Form 1065X) just to add the missing Schedule B-2! That's overkill and could create confusion. Just send the missing schedule with a cover letter as the first commenter suggested. I made the mistake of filing an amended return for a similar situation last year and it created a huge headache.
Has anyone tried using one of the partnership tax support lines? I called the Business & Specialty Tax Line (800-829-4933) for a similar issue and they were actually pretty helpful, though I had to wait on hold for about an hour. They told me exactly where to mail my missing schedule and what to write on it.
Fatima Al-Hashemi
One thing to consider - if you just have W2 and 1099 income without complicated investments or business structures, software like FreeTaxUSA can handle past years for a fraction of what you were quoted. They charge around $15-20 per federal return for prior years. For 1099 income, you'll need to fill out Schedule C, but most tax software walks you through this with simple questions. Just make sure you have good records of your expenses to offset that 1099 income - things like home office, supplies, mileage, etc. Don't let a CPA scare you into thinking your situation is more complex than it is. The $8800 quote is appropriate for someone with seriously complicated tax issues, not basic W2 and 1099 filing.
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Dylan Mitchell
ā¢Can you still e-file past years or do you have to mail them in? And what about state returns?
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Fatima Al-Hashemi
ā¢You'll need to mail in prior year returns - the IRS doesn't allow e-filing for tax years more than 2 years past. Print everything out, sign the forms, and send them via certified mail so you have proof of filing. For state returns, it varies by state. Some states do allow e-filing for prior years, but many follow the same rule as the IRS. Most tax software can still prepare state returns for prior years for around $15-20 per state. Just make sure you're using the software version for the correct tax year - 2021 taxes need to be prepared using 2021 tax software, etc.
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Sofia Martinez
Has anyone here actually gotten a penalty abatement for filing late? I'm in a similar boat (3 years unfiled) and I'm worried about how much the penalties are going to be on top of what I owe.
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Dmitry Volkov
ā¢Yes! I got a first-time penalty abatement when I filed 2 years late. You have to specifically request it though - call the IRS after you file and explain that you had a clean compliance history before this. They waived about $1200 in penalties for me.
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