I went through this verification obstacle course about three months ago! It was like being asked to prove you're not a robot, except the captcha is a 10-page tax form. 😂 In my case, they needed to verify some education credits I claimed. I called them right away (took forever to get through), gathered all my documentation, and responded within a week of getting the letter. The whole thing was resolved in about 3 weeks after that, and my refund was processed shortly after. The key was addressing it immediately rather than waiting. I really appreciate all the insights others have shared here - wish I'd had this information when I was going through it!

I experienced this exact same situation about 6 months ago! The "VERIFY TAX INFORMATION" notice appeared in my online account, and like you, I hadn't received the physical letter yet. What helped me was creating a checklist while waiting for the letter to arrive: - Gathered all my tax documents (W-2s, 1099s, receipts for deductions) - Made copies of everything for my records - Set up a dedicated folder for all correspondence related to this issue - Noted the date I first saw the online notification The letter (mine was a CP2000) arrived about 10 days later and clearly outlined which specific items they wanted me to verify - in my case, it was unreported 1099-INT income from a bank account I'd forgotten about. The process was actually much smoother than I anticipated once I had the letter with specific instructions. Just make sure to respond within their deadline (usually 30 days) and keep detailed records of everything you send them. Good luck navigating this - you've got this! 👍

One thing to keep in mind when calculating your basis - the IRS has a "safe harbor" provision for home improvements that might help with your documentation concerns. If you can show that similar improvements in your area during the same time period cost within a reasonable range of what you're claiming, that's generally acceptable even with some missing receipts. Since you mentioned getting quotes from contractors, those estimates can actually be really valuable for establishing the fair market value of materials used, even though you can't include labor. For example, if a contractor quoted $50k total for a kitchen remodel and you know labor typically represents 60-70% of renovation costs, you could reasonably estimate that $15-20k worth of materials were involved. Also worth noting - given your substantial gain even after the primary residence exclusion, you might want to consider if any of the work qualifies for energy efficiency tax credits that could offset some of your tax liability. Things like new windows, HVAC systems, or solar installations might qualify for additional benefits beyond just adding to your basis.

I went through something very similar when I sold my house last year after doing tons of DIY work over a decade. Here's what I learned from working with my CPA: You absolutely cannot include your labor value, but don't overlook these often-missed items that CAN be added to your basis: - Permits and inspection fees for all those projects - Architectural plans or design consultations you paid for - Specialty tools you had to buy specifically for permanent improvements (like a tile saw for bathroom work) - Delivery fees for materials - Dumpster rentals for construction debris - Any structural engineering reports if you had foundation work done For missing receipts from older projects, my accountant had me create a detailed log with project dates, square footage affected, and reasonable material cost estimates based on current prices adjusted for inflation. Home Depot and Lowe's can sometimes provide purchase history going back several years if you had a Pro account or used the same credit card consistently. One thing that really helped was finding old permits in our city's online database - even projects I'd forgotten about were documented there with dates and scope descriptions that helped justify our improvement timeline. Given your $1M+ gain situation, definitely consider hiring a tax professional who specializes in real estate transactions. The cost will be worth avoiding potential audit issues with such large numbers involved.

Has anyone actually calculated how much you'd save/lose by taking the lower itemized deduction? I'm trying to figure out if it's even worth my time to run the numbers.

This is such a great question that I think many taxpayers struggle with! Beyond the excellent points already mentioned about state taxes and AMT considerations, there's another scenario worth considering - charitable contribution bunching. Sometimes taxpayers will choose to itemize in a "low" year (where itemized deductions are less than standard) as part of a multi-year strategy. For example, if you typically donate $8,000 annually to charity, you might donate $16,000 every other year and $0 in the alternate years. In the $16,000 year, you'd have enough to itemize meaningfully, but in the $0 year, your itemized deductions might be lower than standard - yet you'd still choose to itemize to maintain consistency in your tax planning strategy. Also, don't forget about the "bunching" strategy for medical expenses. Since medical expenses are only deductible above 7.5% of AGI, some people time their elective medical procedures to bunch expenses into one tax year, which might require itemizing even when the total is lower than standard deduction in order to set up the following year's bigger deduction. The key is looking at your tax situation holistically across multiple years and considering both federal AND state implications!

Something no one mentioned - if this is your first year as a sole proprietor, you technically qualify for a safe harbor based on last year's taxes. If you had zero tax liability last year, you may not need to make estimated payments your first year.

As a fellow sole proprietor who went through this same confusion, here's what I wish someone had told me clearly: You need to make quarterly PAYMENTS (not file returns) if you expect to owe $1,000 or more in taxes. The deadlines are April 15, June 15, September 15, and January 15. Your 20% savings rate might not be enough - I learned the hard way that you need to account for both regular income tax AND self-employment tax (15.3%). I typically set aside 25-30% to be safe. The easiest way to start is to use Form 1040-ES to calculate your first quarter payment, then you can just make payments online through IRS Direct Pay without mailing forms each time. Keep detailed records of all business income and expenses - you'll need them for your annual Schedule C filing. Don't stress too much about getting it perfect the first year. The IRS understands learning curves, and as long as you're making good faith efforts to pay what you owe, any small penalties are manageable. The key is to start now rather than wait!

Make sure you actually set up your business properly! Don't just start buying stuff and assume the IRS will see it as a business. Get an EIN, open a separate business bank account, maybe file for an LLC depending on your situation. I made the mistake of mixing personal and business expenses my first year and got audited. Total nightmare trying to prove what was actually for business vs personal. I'm not saying you need to incorporate right away but at minimum keep EVERYTHING separate.

One thing to keep in mind is the timing of when you can actually deduct these startup costs. The IRS distinguishes between true "startup costs" (like market research, legal fees to set up the business) and regular business expenses once you've begun operations. Equipment purchases like laptops are generally considered regular business expenses once you're actively in business, not startup costs. The good news is you can typically deduct equipment immediately under Section 179 or bonus depreciation rules, but make sure you're actually "in business" when you buy it - meaning you're actively pursuing clients and revenue. If you buy everything months before you start marketing your services, the IRS might question whether you were truly in business yet. Consider timing your equipment purchases closer to when you actually begin operating. Document everything showing you're actively working toward generating income!