Questions about amending several years of taxes

[Becca143]

Hi,

I am new to the forum.I am working on becoming financially responsible after many, many years of sucking with money and credit.  I have lurked but not posted, as you can see. But today I decided that this was probably the best place to ask about my tax return situation.

I was married in 2010. My husband is an union Electrician. I stay at home now, but have worked here and there throughout the years.
I owe student loan debt that is now in default. Mainly because in the beginning, I couldn't afford a large payment (this was before the changes) and to be quite honest, I didn't care. My credit was already shot because of credit cards I had taken out when I was 18 and messed up by the time I was 19. So I allowed them to go into default. This of course triggered a garnishment on any type of tax return that I would receive. That was the situation when I got married.

I think we just filed separately in 2010. I cant remember. In 2011 our son was born. When I did our taxes, I just filed his income (mine was so nominal anyway that I knew I didn't owe. But, yes, I know that's not how it works) and filed him head of household claiming our son.  I did this because I was scared his return would be garnished and/or held up. At the time, we really needed that money to come back quick. Im usually not one to "cheat the system", but I did that time.  And because it seemed easier, I just continued to file the taxes this way. Except for last year. For 2014, I filed the Injured/Innocent Spouse form and we filed under the proper status. I filed properly last year because (1) we moved into a higher tax bracket in 2013 and are getting drilled by taxes (losing like over $1000.00 a week out of gross pay) (2) we weren't desperate for the money and could wait the 12 weeks.

However, I know I cost us money and filed incorrectly. I would like to resolve the issue without losing another year . Can anyone give me and advice on how to proceed? Do I just file the amendment changing the filing status pluse the injured spouse form? I DO need to add in my small amounts of income. Nothing I made was large enough to reduce our returns. It wouldn't have put us into different tax brackets or anything.

I know this wasn't an accident and some of you may want to attack me. Sure. I get that. But, could you also just help me out a little? I want to fix it. Im just not sure of what to do. Hiring a CPA isn't an option. We don't have the excess funds. We are just now starting to get a handle on our finances.

I would appreciate anything anyone is willing to suggest.

Thanks and I look forward to being a more active part of the community.

[Becca143]

I was mistaken. I filed correctly for last year, 2015. Not 2014.

[Heroes821]

If you are losing $1000 a week from pay in taxes alone you need to hire a CPA. It is an option that could be saving you a ton of head ache.

First most CPAs will have an introductory meeting for FREE where you can lay out your concerns and expectations.

Second, you've found MMM rejoice and have an MMM style DANCE PARTY. Then buckle down and get to self educating on here and on other finance blogs that are linked through here.

If you are interested in more detailed help, do a case study in the ask a mustacian section.  You definitely need to make sure you get sorted with the IRS though because they will find any discrepancies eventually and the longer that takes them the bigger the numbers will be when they get back to you.

[DavidAnnArbor]

A CPA might actually save you money, so I'd give this a consideration.
I don't really understand how you could have filed Head of Household for him, when the two of you were married. So my base of knowledge isn't large enough to provide much help.
I know that student debt will not be discharged in a bankruptcy, and sooner or later you'll have to pay it back.

You can amend tax returns up to 3 years back, so you can change the ones for 2015, 2014, and 2013; and you have til tax deadline in April 2017 to do this. So you have time to strategize. Knowing that you have this time to do that, then maybe you can work on trying to get a handle on your expenses, save some money, and then go hire a CPA to do things right. Make sure to get a competent CPA.

There might be a debt counselor that you can find to come up with a plan for paying down the student debt by coming up with a budget plan.

Do you have access or know how to use Google Numbers spread sheets, or Microsoft Excel?  Those are useful tools for making up expense and income budgets, in order to find a surplus to pay off the debt. Once that debt is paid off, you'll feel like a weight is removed from your shoulders, and then you can take that same surplus and apply to building up your early retirement foundation.

[DavidAnnArbor]

Regarding hiring a CPA. Don't wait til April of 2017 to find one because they will be too busy by that point. Now is the time to be seeking one out, right now they aren't quite as busy because the Oct. 15th deadline for extensions  is finally over.

[jwright]

Yes, you need to file amended returns for each year.  I'm not sure how you think you will qualify as an innocent spouse when you knowingly filed a false return; nothing innocent about that.  Unless you mean your husband is the innocent spouse?  I would be very concerned about getting these returns filed before you get a notice from the IRS.  Filing as head of household likely resulted in a greater refund and/or a greater EITC or greater child tax credits than if you had filed jointly. 

Normally the IRS has three years to go back and audit returns, but in cases in which you filed a false return under reporting income (which you did); the time frame goes up to six years and can be extended beyond that. 

[Becca143]

Let's see. I'm going to try to answer all the questions and ask a couple too.

First, Innocent spouse is incorrect in regards to what I mentioned in my original post. Injured spouse is the correct form. Every year we should have filed married filing jointly plus an INJURED spouse form. The Injured spouse form would allow him to receive his portion of a tax return without it being garnished to pay back my student loans. If I didn't work in that year, then the entire return would obviously be his. Now, technically, because I filed all of these and e signed them, he could file the Innocent Spouse form as well.

Second, the Head of Household status did not give the larger return. The standard deduction is larger for Married filing jointly.  If you calculate the same exact numbers, only changing the filing status, it would generate the greater return because the standard deduction is larger.  However, we do itemize and have always taken that instead of the standard deduction.

Third, why does the weekly income with holdings that I mentioned make you think we need a CPA? Just in general? Or for this situation? I know he has claimed all the exemptions he can on his W-4. His contributions into his retirement/pension are maxed out. Everything else like medical, dues, etc... comes out of gross pay. The $1000.00 weekly for Federal taxes is after those things are taken out. Im not sure if anything could lower that for us. Other than adopting a child, and he said we cant do that.

Honestly, its not that I need to find the money somehow to make the student loan payment. I just haven't even messed with it yet. I feel bad about it. I don't want my husband to have to pay it off for me. I feel like its unfair. And, yes, I realize that student loans cannot be discharged in a bankruptcy.I couldn't file bankruptcy if I wanted...I dont have anything else other than this.

As for debt, we have one credit card that we pay off. We have car loans that are both almost paid off. Other than that, we have our house, and basic living expenses. That's it.

And, I do know that they have six years to go back and audit in certain situaitons. Like mine. I have to hope that doesn't happen, but if it did, I would hire a lawyer and a CPA, give them all my files, go hide under a rock and pray for the best.

I greatly appreciate all of your responses and time. It was very kind of you.

[Heroes821]

Well usually losing that much per week in taxes would be a sign of the employer pulling too much out resulting in a bigger payout when you file. If all your pre-tax ducks are in a row retirement wise and you are paying 52,000 a year in taxes and you feel that a CPA won't be able to help ease that tax burden then you definitely need to post a case study.

Even if 52k was 50% of his income you should still be able to make due and cover debt. If you're tax savings are maxed out and optimized and you are still getting this much taken out you are probably bringing in a significant amount of money, where a few small changes to spending habits should be more than capable of solving your debt problems and any over due taxes or penalties that might apply once you fix those previous filings.

The biggest reason to talk to a CPA is really that you know mistakes were made in filing, and as a tax professional they are in a better position to make sure you get things sorted correctly the first time.  Also most CPAs like lawyers should sit down and do a brief "this is our situation" meeting for free even if you don't end up using them to solve the problem.

[SeattleCPA]

... Also most CPAs like lawyers should sit down and do a brief "this is our situation" meeting for free even if you don't end up using them to solve the problem.

I don't think the above statement is true very often--if ever. Sorry.

If this seems harsh, consider this analogy: Do restaurants as a general marketing approach let you come in for a free lunch on the off chance you'll later become regular?

BTW here's what I'd suggest: I think the poster ought to consult an enrolled agent (that will be cheaper) and then have them sort through the whole mess. Mostly, the EA will amend any open year returns. Poster will then know how much tax she and her spouse owe.

FWIW, it's really common at this stage to assume you've got just a terrible, terrible tax liability... but then find once someone does the tax returns correctly that you're actually owed a refund. Here's why: If the IRS calculates your taxes for you, they basically assume the worst. (If you sold some stock for $10,000 for example, they assume you got the stock for free and that you held it for less than year...)

[Heroes821]

... Also most CPAs like lawyers should sit down and do a brief "this is our situation" meeting for free even if you don't end up using them to solve the problem.

I don't think the above statement is true very often--if ever. Sorry.

If this seems harsh, consider this analogy: Do restaurants as a general marketing approach let you come in for a free lunch on the off chance you'll later become regular?

BTW here's what I'd suggest: I think the poster ought to consult an enrolled agent (that will be cheaper) and then have them sort through the whole mess. Mostly, the EA will amend any open year returns. Poster will then know how much tax she and her spouse owe.

FWIW, it's really common at this stage to assume you've got just a terrible, terrible tax liability... but then find once someone does the tax returns correctly that you're actually owed a refund. Here's why: If the IRS calculates your taxes for you, they basically assume the worst. (If you sold some stock for $10,000 for example, they assume you got the stock for free and that you held it for less than year...)

Well, darn. Thanks for correcting me, I actually look forward to your posts in general because you always seem to talk about things that I'm actually having to deal with in my life.

I guess I've been lucky that the few CPAs I've talked with have met me at a starbucks or a casual lunch spot to talk before any in depth work was done.

[SeattleCPA]

OK, so now I have to say that this morning when doing Google search I saw that some of my local peers *do* offer an initial free consultation. So, er, you may be right and I may be wrong.

Or maybe what's reasonably accurate to assume is that some CPAs will offer an initial free consultation? And some don't?

[Heroes821]

As all things in life, apparently the  answer is...both. Hah.

As for OP it looks like she can find one with a free consultation, but the more experienced CPAs probably don't need to do that to get clients.

Good luck OP, any updates?