Has anyone actually gone through an audit with this situation? I'm wondering what documentation the IRS asked for to prove insolvency. My wife just got a 1099-C for $25k in medical debt forgiveness and she's definitely insolvent on her own, but I'm not.

This is exactly the situation I dealt with last year! My husband had about $45k in credit card debt forgiven from before we got married, and I was panicking about whether we could still file jointly. The key thing I learned is that you absolutely can file jointly while claiming insolvency just for your wife. Since the debt was entirely hers from before marriage, you only use her individual assets and liabilities for the insolvency calculation on Form 982, not your combined marital assets. I made the mistake initially of thinking I had to include all our joint assets because we were filing jointly, but that's not how it works. The insolvency test follows the debt ownership, not the filing status. Make sure you have solid documentation of her asset values and all debts as of the cancellation date shown on the 1099-C. I kept bank statements, loan statements, even photos and receipts for personal property values. The IRS wants to see that you calculated everything properly. Definitely file Form 982 with your joint return and save that $1,350! Just be thorough with your documentation in case they have questions later.

Has anyone tried using tax software like TurboTax or H&R Block to calculate their 1040ES payments? I'm wondering if it's worth paying for the self-employed versions just to figure out my quarterly estimates.

I've been dealing with 1040ES forms for a few years now and wanted to share what I learned through trial and error. The key thing that helped me was understanding that the IRS really just wants you to pay as you earn, not wait until the end of the year. For line 6 on the Self-Employment Tax worksheet that you're stuck on - that's asking for half of your self-employment tax. So if you calculated $2,000 in self-employment tax on the earlier lines, you'd put $1,000 on line 6. This represents the "employer portion" that you get to deduct. One thing that saved me a lot of stress was setting up automatic transfers to a separate tax savings account. Every time I get paid, I immediately move 25-30% into that account. Then when quarterly payments are due, I already have the money set aside and I'm not scrambling to find cash. Also, don't stress too much about getting it perfect on your first year. The IRS understands that self-employment income can be unpredictable. As long as you're making good faith efforts to pay what you owe throughout the year, they're generally reasonable about working with you.

Try calling your local taxpayer advocate office. They helped me get mine unstuck after 4 months of nothing

Same exact situation here - verified ID in March, got the 60-day letter in April, and my transcript shows the same 420/570 codes with no movement since. Called multiple times and they keep saying "wait 60 more days" every time I call. It's beyond frustrating especially when you're expecting a large refund. I've heard some people are having luck with contacting their congressman's office for help with IRS issues, might be worth a shot at this point since we're way past the timeframes they promised.

Watch out with amended returns and negative AGI situations! I tried to DIY this myself last year and ended up getting a notice from the IRS because I incorrectly tried to carry forward my entire negative AGI (which included FEIE). The IRS ended up disallowing my claimed carryforward and assessing additional tax plus interest. Make sure you're only carrying forward components that actually qualify - like business losses, not just the negative AGI that resulted from exclusions like FEIE.

Just to add another perspective here - I went through something very similar with my 2021 and 2022 returns. Had a negative AGI in 2021 due to a combination of FEIE and some business losses from freelance work that dried up during COVID. The key thing I learned (after initially getting it wrong) is that you really need to break down what specifically created that negative AGI. In my case, about $18k of the negative was from legitimate business losses that could be carried forward as an NOL, but the rest was from the FEIE which doesn't create a carryover opportunity. I ended up having to file Form 1045 to properly calculate the NOL portion and then amended my following year's return to claim it correctly. The business loss carryforward definitely helped offset some of my 2022 income, but it was way less than I initially thought I could carry forward. If you're dealing with multiple components creating the negative AGI like I was, I'd strongly recommend getting professional help or at least double-checking your work before filing the amendments. The IRS doesn't mess around with incorrectly claimed carryforwards.

Has anyone considered just leaving the money in the teacher retirement system? I did that with my account from when I taught for 4 years, and now 12 years later, it's grown quite a bit just sitting there. Some systems have decent interest rates, and you might return to teaching someday.

Important point nobody's mentioned yet - if you do withdraw instead of rollover, make sure to have taxes WITHHELD at the time of distribution! I learned this the hard way. Took out $8k from my teacher pension and didn't have them withhold taxes, and then got absolutely destroyed when filing my taxes the next year. Had to pay a penalty for underpayment too since it was a significant amount.