Thanks for bringing this up! I've actually been in Texas the entire time, so I think I'm ok on the state tax front. But that's a really good point for anyone else who might have moved around during their unfiled years.

That's really helpful, thanks! Did your CPA also help with negotiating penalties or setting up a payment plan, or just with preparing the actual returns?

My CPA handled both! She prepared all the back returns and then represented me in dealing with the IRS for penalty abatement and setting up a payment plan. Having her communicate directly with the IRS was huge because she knew exactly what to ask for and how to present my case for reducing penalties. She got my failure-to-file penalties completely waived under the first-time abatement provision and negotiated a reasonable monthly payment amount. Definitely worth having a professional handle that side of things if you can afford it.

Did you have to pay anything extra for the 1099 forms specifically with TaxAct? Their website isn't super clear about whether Schedule C is included in the free version.

This is so true. My parents got caught by this in Washington state. Their $3.5M estate was under the federal limit but still got hit with state estate tax. A credit shelter trust would have saved about $150k in state estate taxes when my dad passed.

As someone just starting to learn about estate planning, I really appreciate how this discussion broke down such a complex topic! I'm in a similar situation with my parents (though their estate is smaller at around $2.8M) and was completely overwhelmed by all the trust terminology before reading this thread. The point about state estate taxes really hit home - we're in New York and I had no idea they have their own exemption limits that are much lower than federal. Definitely going to look into that further. One question for the group: for someone just getting started with understanding these concepts, would you recommend starting with one of the analysis tools mentioned here, or going straight to an attorney? I'm worried about wasting money on legal consultations when I don't even know what questions to ask yet.

Great question, Megan! I'd actually recommend starting with an analysis tool first before meeting with attorneys. When I went through this with my own family's estate planning, I made the mistake of jumping straight into attorney consultations without understanding the basics. What happened was we ended up paying for expensive "education sessions" where the attorney had to explain fundamental concepts before we could even discuss our specific situation. With a $2.8M estate in New York, you're definitely in the range where state estate taxes could be a significant factor. I'd suggest using something like the taxr.ai tool mentioned earlier to get a baseline understanding of your options first. That way when you do meet with attorneys, you can focus on implementation rather than education. You'll also be able to ask much more targeted questions about things like: - Whether a QTIP trust makes sense for your parents' situation - How New York's $6.11M exemption (which phases out starting at $5.25M) affects your planning - Whether gifting strategies could help reduce the taxable estate Plus, having that analysis in hand will help you evaluate whether the attorneys you're interviewing actually understand the nuances of your situation. I've found that prepared clients tend to get much better service from professionals.

That's a great point! My son did buy some design software and a drawing tablet specifically for this work. Would those be fully deductible even though he also uses them sometimes for school projects?

You would deduct the percentage used for business purposes. So if he uses the software and tablet 70% for paid work and 30% for school, you'd deduct 70% of the cost. Make sure to keep receipts and documentation about the business use percentage in case of questions later. A good practice is to have him keep a simple log for a few weeks noting when he uses the equipment for business vs. personal use to establish a reasonable percentage. For items under $2,500, you may be able to deduct them fully in the year of purchase rather than depreciating them over several years, using the de minimis safe harbor election.

This is getting complicated fast! How would a college student even figure out estimated quarterly payments? Is there some simple calculation?

For a simple calculation, he can use Form 1040ES which has a worksheet to estimate quarterly payments. But honestly, for someone just starting out with freelance work, I'd suggest he just set aside about 25-30% of each payment he receives into a separate savings account. That should cover both income tax and self-employment tax. Then when he files his return, if he overpaid, he gets a refund. If he underpaid, he pays the difference. This approach is much simpler than trying to calculate exact quarterly amounts when his income is irregular.