Just to add to what others have said - its important to understand that Form 1125-A should only include direct costs. Indirect costs like marketing, general shop utilities, office supplies etc usually go on Schedule C instead. The IRS looks closely at COGS so don't try to dump everything there!

Great thread! As someone who's been doing taxes for small manufacturers for years, I want to emphasize a few key points for your furniture business: 1. Raw materials (wood, hardware, finishes) - YES, these definitely go on Form 1125-A 2. Tools - As Dylan mentioned, expensive tools that last multiple years should be depreciated as capital assets, not included in COGS. But consumables like sandpaper, drill bits, saw blades that wear out quickly can be included. 3. Workshop space - This is tricky for home-based businesses. Generally, rent/utilities for dedicated production space can be included in COGS, but for a garage workspace that's part of your home, it's usually better to claim this as a home office deduction on Schedule C. One thing I haven't seen mentioned yet: don't forget about freight and shipping costs for materials you purchase! If you pay shipping to get lumber delivered, that's part of your material cost and belongs on Form 1125-A. Also, make sure you're tracking your inventory correctly - any unsold finished furniture or unused materials at year-end reduces your COGS. With $87k revenue and $32k in materials, you're definitely in territory where the IRS expects proper inventory accounting.

Has anyone actually done the math to see if these "green" improvements are worth it financially? I priced out a heat pump and it was going to cost me $8k AFTER the tax credit. My furnace works fine and my electric bill is only like $100/month. Seems like I'd never break even?

Just wanted to chime in as someone who actually went through this process last year. The carryforward feature is clutch! I installed a qualifying heat pump system for about $6,000, which gave me a $1,800 credit (30%). My tax liability was only $800, so I used $800 in 2023 and I'm carrying forward $1,000 to use this year. One thing to keep in mind with your $120k income - you'll likely have a decent tax liability, so you probably won't need to worry too much about the carryforward situation. But it's nice knowing it's there as a safety net. Also, make sure your contractor provides documentation showing the equipment meets the required energy efficiency standards. The IRS can ask for this during an audit, and without proper documentation, they can disallow the entire credit. My contractor knew exactly what paperwork I needed, but I've heard horror stories of people getting burned because their contractor didn't provide the right certifications.

3 Is anyone else bothered by how difficult they make this for regular people? I'm not an accountant or tax professional and it feels like the government deliberately hides this information to trip us up. All these extra steps just to figure out a number they already know!

I totally understand your frustration! I went through this exact same issue with my first rental property last year. Here's what worked for me: Check your original purchase documents more carefully - sometimes the breakdown is buried in the settlement statement or HUD-1 form under different terminology like "site value" or "structure value." If that doesn't work, try calling your real estate agent who helped with the purchase. They often have access to MLS data that includes land/improvement ratios for comparable properties in your area. Another option is to look up recent sales of similar properties in your neighborhood on your county's real estate records website. Many show the assessed land vs improvement values for recently sold homes, which you can use to estimate a reasonable ratio for your property. Don't overthink it too much - the IRS allows reasonable estimates when exact figures aren't available. Just document your methodology in case you're ever asked about it later. You're not going to get in trouble for making a good faith effort to split the values reasonably!

I'm in a similar situation and H&R Block's software is so confusing on this specific issue! Has anyone tried using a different tax software like TurboTax or TaxSlayer for the 1095-A reconciliation? I wonder if they explain the Publication 974 requirements more clearly.

I went through this exact same situation last year! The key thing to understand is that you're not actually "correcting" your 1095-A form - you're adjusting how you use those numbers in your tax calculation. When H&R Block asks about the 1095-A correction, what they really mean is that you need to enter $0 for the Second Lowest Cost Silver Plan (SLCSP) amounts in Column B for any months you could have enrolled in qualifying employer coverage. This is found in Publication 974 under the "Allocation of Policy Amounts" section. Since you were eligible for employer coverage starting in January 2024, you'll likely need to enter zeros for all 12 months in Column B when inputting your 1095-A into H&R Block. This will eliminate your premium tax credit eligibility for the entire year, meaning you'll need to repay all the advance premium tax credits you received. The silver lining is that if your income is under 400% of the federal poverty line, there are repayment caps that limit how much you actually have to pay back. Make sure to check if you qualify for those limitations - it could save you hundreds or even thousands of dollars. Don't feel too bad about this mistake - the marketplace insurance rules are incredibly confusing, and this happens to a lot of people who change jobs during the year.

Called the IRS about this exact thing last week. Was on hold for 2.5 hours just to get disconnected 😭

Had this exact same situation last year! The key thing to remember is that these are two separate review processes that can run parallel. For the 4464, you'll need to verify your identity either online through ID.me or by scheduling an appointment at a Taxpayer Assistance Center. Don't wait on this one - it has strict deadlines. The CP05 income verification will continue its own timeline regardless. Pro tip: once you complete the identity verification, call the number on your CP05 letter to let them know - sometimes it can speed up the income review process since they'll have confirmation you're legit.