Just wanted to add that even if you don't issue 1099s, those workers are still legally required to report that income on their taxes. You probably don't care about that part, but it helps explain why the IRS wants you to document expenses - they're trying to track income from all sides. I run a small construction company and what I do is keep a simple spreadsheet with each worker's name (or description if I don't know their name), date, job site, hours, and amount paid. I take a photo of each cash payment being handed over too. My accountant says this is plenty for documenting business expenses.

Remember that these aren't employees from a tax perspective - they're independent contractors. That means you don't withhold taxes, but absolutely document the payments even if under $600. I had a minor audit two years ago for my small business where I had to prove some cash labor payments, and my simple log with dates, names (when known), and services provided was sufficient. They didn't question anything because I had a consistent system.

Has anyone used TurboTax to file back taxes? I'm in this exact situation and wondering if the regular tax software works for previous years or if I need something special.

Don't beat yourself up about this - you're definitely not alone! I work as a tax preparer and see this situation all the time, especially after the past few years with all the economic uncertainty. Here's what I always tell my clients in your situation: Yes, there will be penalties and interest, but the IRS is actually pretty reasonable when you're proactive about fixing things. The failure-to-file penalty is much worse than the failure-to-pay penalty, so getting those returns submitted should be your absolute top priority even if you can't pay everything right away. A few practical tips: Start with gathering your documents for both years. If you're missing W-2s or 1099s, you can request wage and income transcripts from the IRS website for free. Once you file, you can absolutely set up a payment plan - the IRS offers installment agreements up to 72 months for balances under $50,000, and the setup fee is pretty reasonable. Also, don't assume you owe exactly what you calculated. You might be missing deductions or credits that could reduce what you owe. I've had clients who thought they owed thousands but ended up owing much less (or sometimes even getting refunds) once we properly prepared their returns. The key is just to start the process. Every day you wait, the penalties and interest keep adding up. You've got this!

Have you considered what might happen if you make financial plans based on receiving the full amount? The transcript shows what the IRS has approved, but have you verified what will actually reach your bank account? Many taxpayers are surprised when their deposit is smaller than expected due to this exact situation. Could you contact your state's child support enforcement agency directly to confirm the offset amount? They often have this information before it appears in any federal system and might give you a more accurate picture of what to expect.

I experienced this exact same situation two years ago and it was incredibly confusing at first! Your transcript is showing the full amount because that's what the IRS processed and approved - but here's the key thing everyone's touching on: the child support offset happens at the Treasury level, not the IRS level. What I learned is that you should definitely NOT count on receiving the full amount shown on your transcript. The Treasury Offset Program will intercept whatever you owe for back child support before the money reaches your bank account. The frustrating part is that this offset won't show up on your IRS transcript because it's handled by a completely different agency (Bureau of Fiscal Service). My advice? Contact your state's child support enforcement office directly - they can usually tell you exactly how much will be offset before you even receive your deposit. That way you can plan accordingly instead of being surprised when a smaller amount hits your account. The offset notice from Treasury typically arrives after your deposit, which doesn't help with planning!

Just to add another approach - sometimes you can figure out the locality name by looking at your pay stubs rather than the W2. Many pay stubs will list the specific local tax being applied, even if it's not properly carried over to the W2. Also, if you're using software like TurboTax or H&R Block, they sometimes have a dropdown menu of localities that can help you identify the right one based on your zip code or address.

Box 18-20 issues are super common! Last year my W2 had similar problems. One thing to watch out for - make sure whatever you put in box 20 actually matches a real tax locality. My tax software rejected my return the first time because I entered "North County" which wasn't a recognized locality code. I found that using the official name (like "PHILADELPHIA CITY" instead of just "Philadelphia") sometimes works better with the software validation.

Don't forget about the primary residence exclusion! If this was your brother's primary residence for at least 2 of the 5 years before the sale, he might qualify to exclude up to $250,000 of gain from his income (or $500,000 if married filing jointly). Based on what you described, he lived there for about 2 years before moving out 2 years ago, so he might just barely qualify if the timing works out exactly. This could potentially eliminate any tax liability from the sale, even if he has to report it.

This is definitely a tricky situation that requires careful documentation. From what you've described, your brother needs to report the sale even though he didn't receive proceeds from the actual sale, because he was still legally on the deed. The key is treating this as a two-part transaction: (1) the original buyout he received when they split up, and (2) the formal sale that just happened. On Schedule D, he should report the sale with his cost basis being the original purchase price plus improvements, and his proceeds being only the buyout amount he received years ago (not the recent sale proceeds). You'll definitely want to include a detailed explanation with the return describing the situation. Also, try to get documentation of the original buyout agreement if possible - this will support your position if the IRS has questions. One important thing to check: make sure you understand whether he received a 1099-S form. If he did, the IRS will be expecting to see this sale reported. If the ex-girlfriend also reports part of the sale, you want to make sure there's no double-reporting of the same income.