Quick question for everyone - what about cash expenses? Sometimes I pay cash for things like parking when meeting clients or small office supplies when I'm in a hurry. How do you handle documentation for those?

Great thread everyone! As someone who went through an IRS audit last year for my consulting business, I can confirm that having organized documentation makes ALL the difference. The auditor told me upfront that cases with good record-keeping typically resolve much faster. One thing I wish I'd known earlier: the IRS has a "Cohan Rule" that allows reasonable estimates for certain expenses if you can demonstrate a pattern but lost some receipts. However, this should NOT be your primary strategy - it's really a last resort and they're very strict about it. My biggest takeaway from the audit experience: consistency in your documentation system matters more than perfection. Whether you use apps, spreadsheets, or physical files, just stick to ONE system and use it religiously. The auditor was more impressed by my consistent monthly organization than by any fancy software. Also, if you're ever selected for audit, don't panic! Most business audits are correspondence audits (done by mail), not the scary in-person ones you see on TV. As long as you have reasonable documentation for your deductions, the process is much more manageable than people make it out to be.

Beware that the rules for qualifying relatives are different from qualifying children! I messed this up last year. For a qualifying relative (which is what your adult son would be), they cannot be your qualifying child or anyone else's qualifying child. The gross income test ($4,700 for 2025) is also critical - though VA benefits don't count toward this, any other income does. If he has even a part-time job that pays more than the threshold, he won't qualify regardless of how much support you provide.

This is a great question that many families with disabled veterans face. Based on what you've described, your son would likely qualify as a qualifying relative dependent if you meet the support test. Since your son is 30 and living with you due to his 100% permanent and total VA disability, you'll need to calculate whether you provide more than half of his total support. This includes not just obvious expenses like food and clothing, but also the fair market rental value of his housing, utilities, medical expenses, transportation, and any other costs you cover. The good news is that VA disability benefits are not counted toward the gross income test (which has a $4,700 limit for 2025), so that shouldn't be an issue. However, those benefits do count when determining how much he contributes to his own support versus what you provide. One important thing to consider: since your son has a permanent and total disability from the VA, you might want to check if he qualifies for the disabled adult child exception under the qualifying child rules instead. This could be more beneficial since qualifying children don't have the gross income limitation. The IRS definition of "permanently and totally disabled" might align with his VA rating. I'd recommend keeping detailed records of all expenses you pay for his support throughout the year - housing costs, food, medical expenses, utilities, transportation, etc. This documentation will be crucial for calculating the support test accurately and defending your claim if questioned.

Has anyone else noticed how poorly written the IRS instructions are for these partnership audit forms? I read the same section of the website 5 times and still couldn't figure out what they were trying to say. It's like they deliberately make things confusing.

I completely agree with everyone saying the non-BBA partnership doesn't need to issue 8985/8986 forms in this situation. I dealt with this exact scenario last year and spent way too much time second-guessing myself because the IRS guidance is so confusing. What helped me was breaking it down step by step: 1) Your client is non-BBA, 2) They received favorable adjustments with no imputed underpayment, 3) Non-BBA partnerships generally don't have push-out obligations like BBA partnerships do. They just need to account for the adjustments on their own return and flow through any partner-level changes via amended K-1s if necessary. The key thing to remember is that the 8985/8986 reporting requirements were primarily designed for the BBA partnership audit regime. Since your client is outside that regime, they're not subject to those specific reporting obligations. Save yourself the stress - document your reasoning like Ryan suggested and move on!

This entire thread has been incredibly educational! I'm just getting started with selling some of my vintage sports memorabilia collection and had no idea about most of these cost basis rules. One thing I'm still unclear on - when you sell multiple items in a single eBay listing (like a lot of 10 baseball cards), how do you handle the cost basis calculation? Do you need to break down the original purchase price for each individual card, or can you use the total lot purchase price against the total sale price? I bought a collection of 50 cards for $200 a few years ago and I'm thinking about selling them in smaller lots of 5-10 cards each. Some of the individual cards I can research what they would have cost separately, but others are pretty obscure and I have no idea what their individual values were when I bought the collection. Also, this might be a dumb question, but if I use the same bubble mailer for multiple small sales to save on shipping costs, can I split that packaging cost across the different sales, or should I just absorb it as a general expense? Thanks to everyone who's shared their experiences here - this community is amazing for breaking down these complex tax situations in ways that actually make sense!

This has been such an informative discussion! I'm dealing with a similar situation selling vintage video games from my collection. Based on everything shared here, it's clear that the IRS allows you to include direct selling costs in your cost basis calculation even for hobby sales. For your Spider-Man comic example, you're absolutely right to include all those costs - the $75 purchase price, $15 packaging materials, $22 shipping, and $25 eBay fees. Your taxable gain would be $113, not $175. One thing I'd add for anyone reading this - make sure you're consistent with your record keeping across all your sales. I learned the hard way that having some transactions well-documented and others missing receipts creates problems if you ever need to explain your reporting to the IRS. Also, don't forget to save digital copies of your eBay fee statements and PayPal transaction records. These platforms sometimes purge old data after a few years, and you'll want those records if you ever get audited. The distinction between hobby sales and business sales is important too - as long as you're just clearing out your personal collection without the intent to make a regular profit, you should be fine reporting these as hobby sales with the cost basis approach everyone's described here.

I've been through a similar PTET refund situation with entity dissolution, and here's what worked for me: Don't dissolve the S-corp until after you receive the PTET refund check. This keeps everything clean from a tax perspective. The timing works like this: File your 2023 S-corp return in early 2024 as normal, deducting the full PTET amount you actually paid in 2023. When the refund comes in Q1 2024, it goes to the still-existing S-corp. Then you file a short-period final return for 2024 (January 1 to dissolution date) that reports the refund as income. This approach avoids the complexity of trying to figure out who owns post-dissolution refunds and ensures proper flow-through treatment to shareholders. The alternative of trying to handle a refund after dissolution creates unnecessary complications with state agencies and potential issues with the final K-1s. One tip: Make sure to notify the state that issued the PTET refund about your planned dissolution date so they don't delay sending the check to a dissolved entity.

Great question about the K-1 complications! In my experience, you won't need to amend the 2023 K-1s because the PTET refund is treated as separate income in 2024, not an adjustment to the 2023 amounts. The 2023 K-1s should reflect the actual PTET deduction taken in 2023, and that doesn't change when you get the refund. For the short-period 2024 return, you'll issue new K-1s that show each shareholder's pro-rata share of the refund income. Since this is a final return, you'll want to make sure all shareholders understand they're getting a final K-1 for 2024 even though the entity was only active for a few months. One thing I learned the hard way: estimate the refund amount as closely as possible when filing the 2023 return so you can give shareholders a heads up about the 2024 income. Even though you can't know the exact amount, having a ballpark figure helps them with their tax planning. The state should provide some guidance on calculating the expected refund based on your estimated payments vs. actual liability.