So we've tried to be the dutiful people that you should and file your taxes and report all your earnings as you should. Well, we get a letter from the IRS saying that earnings were not reported on our return as should have been. You can imagine the panic that ensued...
After some research, we found out that three things were "wrong"-
1. Alex's savings CD had been set up incorrectly. ~ We'd taken the money from Great Grandmother to the bank and set up a savings CD with it for the start of his college fund. With the girls, the cd was set up as the child's cd and Mike put on the cd as the custodian. This is what we'd requested for Alex's cd as well, but until we received this letter, we didn't realize it'd been done differently. The cd was set up in Mike's name and as a joint with Alex on the account as well. So when tax time came, the interest reported was tied to Mike's SSN, thus by the IRS should have been reported by us.
2. Mike had some stock options that he exercised to help pay for my Hearing Aids in 2006. The hearing aids were $5k, so with the help of some family and friends, along with what we were able to get from the stock options and our own funding, we were blessed and able to buy the better ones and I thank the Lord every day for them!
However, when we exercised the stock options, we "bought" them at a set price allotted to Mike and then sold them at the current market price, which was more, so we made some income off of the sale. Apparently on our return, the earnings were reported, but the IRS requires a separate form to show the details of that sale and that was was mistakenly not completed by the tax preparer. So according to the IRS, we made X amount of money since they didnt take into account the amount of what we paid for the stocks. So they said we owed a good chunk of change for that income.
3. Then because of the said X amount of income we received (according to the IRS) that then bumped us into the next tax bracket, thus changing the amount of the % of medical deductions we were then allowed to take, so there was an amount there that was "owed" as a result.
So after digging through the files, researching all the stuff, we took our letter and the paperwork to the tax preparer to review and find out where to go from here. We met with the boss and he explained that the earnings from the stock options was reported, but because the Schedule D form wasn't there, that is why it came up. They are sending in the amendment and corrections with the schedule D as needed and we shouldnt owe anything more there. Then for Alex's savings cd, there is an accounting term that he called it, but we can respond back that the account is indeed Alex's account and not ours, even if Mike's name is on it. So we are going to do that, and at worst if the IRS wants to fight it, we may owe a whole $11 for that. Much more doable than the amount they were wanting us to pay though! And since the Stock stuff should be resolved, the medical stuff should disappear and stay what it was as we'd reported it.
Gosh you talk about making someone about have a heart attack! LOL! At least we know now what to look for and that we need to make sure the interest on Alex's cd is taken care of for our 2007 taxes, which we are to go have done next week. ;)