I'm dealing with almost the exact same situation right now! Filed as independent when I should have been claimed as a dependent by my parents. Reading through all these responses has been incredibly helpful - especially hearing from people who actually went through this process successfully. A couple of quick questions for those who have been through this: How specific should the cover letter be? Should we include the exact dollar amounts of the tax difference, or just explain the filing status change? And has anyone had issues with the IRS questioning whether you actually qualify as a dependent after the fact? My parents are really stressed about the potential interest charges, but it sounds like most people here had success paying the lower corrected amount rather than the full incorrect bill. Thanks everyone for sharing your experiences - this is way more helpful than anything I could find on the IRS website!

I went through this exact situation two years ago and want to add a few practical tips that really helped us navigate the process smoothly. First, when you're preparing your cover letters for the amendments, include a clear timeline showing when the original returns were filed, when you realized the mistake, and when you're filing the corrections. This helps the IRS understand the sequence of events. Second, make copies of EVERYTHING before mailing - not just your amended returns, but also the cover letters, supporting documents, and payment calculations. I can't stress this enough because mail can get lost, and having exact copies saved us when we had to follow up. Third, consider sending your amendments via certified mail with return receipt. Yes, it costs a bit more, but you'll have proof of delivery and timing, which can be crucial if there are any processing delays or questions later. One thing that really helped speed our process was including our phone numbers in the cover letters and explicitly stating we were available to answer questions if needed. An IRS agent actually called us to clarify a minor detail, and having that direct communication probably saved weeks of back-and-forth through the mail. The whole process took about 10 weeks for us, and paying the corrected lower amount upfront worked out fine - the small interest charge was much better than the financial stress of overpaying. Hang in there!

As someone who works in tax compliance, I want to emphasize something that's been touched on but bears repeating: the wash sale "functionality" isn't missing from FreeTaxUSA - it's working exactly as the IRS intends it to work. The wash sale rule requires brokers to adjust your cost basis and report it on your 1099-B. When you see Box 1g checked, that's your broker telling you (and the IRS) that they've already done all the wash sale calculations and factored them into the adjusted basis in Box 1e. This is actually much better than having tax software try to recalculate wash sales, because your broker has access to all your trading data throughout the year and can track the 30-day windows perfectly. If tax software tried to duplicate this calculation, there's a higher chance of errors or discrepancies with what your broker reported to the IRS. For anyone still worried: the IRS computer systems automatically match your 1099-B entries with what brokers reported. As long as you enter the exact numbers from your 1099-B into FreeTaxUSA, you're in complete compliance. No additional forms, no manual calculations needed. You're making the right choice sticking with FreeTaxUSA and saving the money!

I went through this exact same situation last year with about $18k in wash sales from some aggressive trading on tech stocks. I was convinced FreeTaxUSA was inadequate and was ready to pay for TurboTax Premium. After doing a deep dive into how wash sales actually work, I realized I was completely misunderstanding the process. Your broker (whether it's Fidelity, Schwab, E*TRADE, etc.) is required by law to calculate wash sale adjustments and include them in the adjusted cost basis they report on your 1099-B. Here's the simple test: Look at Box 1g on your 1099-B forms. If it's checked, your broker has already done ALL the wash sale calculations for you. The adjusted basis in Box 1e already includes the wash sale adjustments. You literally just enter those numbers exactly as they appear into FreeTaxUSA - no special functionality needed. I saved the $79 TurboTax fee and my return was processed without any issues. The IRS gets the same 1099-B forms you do, so as long as your entries match exactly what your broker reported, you're golden. The only time you'd need special wash sale functionality is if your broker somehow failed to calculate wash sales properly (which would be extremely unusual for major brokerages) or if you're doing complex manual calculations for some reason. Check Box 1g first before spending extra money - you'll probably find FreeTaxUSA works perfectly fine!

One important thing to consider is organizing your records NOW before tax season gets busy. Since you mentioned shutting down the business a few months ago, this is actually perfect timing to get everything sorted while it's still fresh in your memory. Create a simple spreadsheet with columns for: Date, Item Description, Purchase Cost, Sale Price, Platform Fees, Shipping Costs, and Net Profit/Loss per transaction. Even if you don't have perfect records, try to reconstruct what you can from your bank statements, PayPal records, and any Whatnot transaction history you can download. Also consider whether you want to treat this as a sole proprietorship (Schedule C) or if there are any advantages to filing as a partnership since you mentioned this was run with your partner. The tax implications can be different, and you might want to consult a tax professional for that specific question since it involves two people and substantial income. The key thing is that high gross sales with low/no profit is actually pretty common in reselling, especially when markets get saturated like you described with Lego. The IRS understands this, but you need solid documentation to support your expense claims.

Something to keep in mind - since you mentioned your partner ran the business but you're both concerned about taxes, make sure you're clear on whose SSN/EIN the Whatnot account was registered under. Whoever's tax ID is associated with the account will receive the 1099-K and be responsible for reporting all the income, even if you both contributed to the business. If the account was under your partner's SSN but you both invested money and time, you'll need to figure out how to handle the income split. The person who gets the 1099-K will need to report the full gross income on their Schedule C, but they can potentially "expense out" payments made to you as a business partner - though this gets complicated without formal partnership agreements. Also, don't stress too much about the high gross sales number. The IRS sees this all the time with resellers, especially on platforms like Whatnot, eBay, etc. What matters is your net profit after legitimate business expenses. Just make sure you have documentation for your major expense categories: inventory costs, shipping supplies, platform fees, storage costs if you rented space, mileage for sourcing inventory, and even a portion of utilities if you used part of your home for the business. The key is being organized and honest about your record-keeping. If you lost money or barely broke even, that's a legitimate business outcome that the IRS recognizes, especially in competitive reselling markets.

I'm confused about something - doesn't the 2-year ownership and use test apply regardless of this non-qualified use issue? Like if you move back and live there for 2 years before selling, wouldn't you qualify for the exclusion anyway? I've been trying to understand this for my own situation.

This is a really complex situation, and I appreciate everyone sharing their experiences and insights. As someone who's dealt with similar Section 121 exclusion questions, I want to emphasize how important it is to get this right given the significant tax implications. From what I understand about your situation, the key issue is whether the 17 years your brother-in-law lived there would count as "non-qualified use." Based on the responses here, it sounds like since you weren't charging rent and this was a family arrangement, those years likely wouldn't count against you under the non-qualified use rules. However, given that you're looking at a $675k gain with only $500k in potential exclusion, I'd strongly recommend getting a second opinion from a tax professional who specializes in real estate transactions. The difference between 25% exclusion and full exclusion that's been discussed here could save you tens of thousands of dollars. Also, make sure to document everything about the arrangement with your brother-in-law - even informal family arrangements should be properly documented in case the IRS has questions later. The fact that he paid property taxes directly actually seems to support that this was a family care arrangement rather than a rental situation.

This appears to be a CP2000 Proposed Adjustment Notice or similar correspondence. These notices typically involve a discrepancy between income reported on your return versus information the IRS received from third parties. The processing timeframe after acceptance varies based on current IRS backlog status and submission method. Electronic submission via the IRS portal generally results in faster processing (6-12 weeks) compared to mail submission (12-16 weeks).

I went through this exact process about 18 months ago with a CP2000 notice. Here's what I learned: definitely use the upload option through the IRS website - it's much faster than mail. I submitted mine electronically and got my adjusted refund in about 7 weeks. Make sure to take screenshots of your submission confirmation and save any reference numbers they give you. Also, set up online account access at irs.gov if you haven't already so you can monitor your account transcript for updates. The transcript will show processing codes that indicate where your case stands in the system. One tip: if you're uploading, make sure your signature is clear and the document quality is good - poor scans can cause delays.