According to IRS Publication 17, you are required to report all income regardless of when you receive the documentation. Per IRC §6662, failing to report income can result in accuracy-related penalties of 20% of the underpayment. The key question is whether this additional W2 will significantly change your tax situation - if it results in a refund reduction or balance due, filing an amendment is necessary. If it results in an additional refund, you have up to 3 years to claim it, though filing sooner is advisable.

I went through something similar last year and here's what I learned the hard way: definitely amend, but first check if your original return has been processed using the "Where's My Refund" tool. The IRS matching system WILL eventually catch the missing W2 - usually 12-18 months later - and when they do, you'll get a CP2000 notice with potential penalties and interest that have been accumulating. It's much better to proactively file Form 1040-X now. My amendment took about 18 weeks to process, but at least I avoided the penalties. Pro tip: keep detailed records of when you filed the amendment and track it using the "Where's My Amended Return" tool. The waiting is frustrating, but it beats dealing with an IRS notice later!

I'm probably too late but here's my 2 cents as someone who had to deal with this last tax season. Whatever you do, DO NOT use F&F for transactions that are actually purchases! PayPal watches for that pattern and will absolutely limit or freeze your account. Instead, I created two separate PayPal accounts - one strictly for business and one for personal transactions. Both are properly verified with my real info. This makes tax time so much easier because my business 1099-K actually reflects my business. I still keep records of everything, but having the natural separation makes the whole process cleaner.

I went through this exact same nightmare last year! As someone who does freelance graphic design but also buys/sells vintage camera equipment as a hobby, I totally understand the frustration. Here's what I learned after consulting with my CPA: The separate PayPal accounts approach is actually the cleanest solution, despite what some people say about the IRS tracking by SSN. Yes, they can see everything tied to your SSN, but having separate accounts makes YOUR life so much easier come tax time. I now use my business PayPal exclusively for client work, and my personal PayPal for hobby transactions. When I get my 1099-Ks, my business one actually reflects real business income, which makes Schedule C straightforward. For the personal account, I keep a simple spreadsheet showing original purchase prices vs. sale prices to document that these were personal items sold at a loss. The key thing everyone's mentioned but I want to emphasize: KEEP RECEIPTS. I scan everything into a Google Drive folder. Original purchase receipts, sale confirmations, even shipping costs. This documentation is what protects you if the IRS ever questions why you're not reporting certain transactions as income. One more tip: Don't stress too much about the inflated 1099-K numbers. Your tax software (I use FreeTaxUSA) has fields specifically for this situation now because it's become so common with the new PayPal reporting rules.

Has anyone tried adjusting the W-2 withholding instead of doing separate quarterly payments? My wife runs a small Etsy shop and I just increased my W-4 withholding at my corporate job to cover both of us. Seemed simpler than dealing with quarterly filings.

This is exactly the situation my husband and I were in when he started his consulting business! One thing that really helped us was using the "safe harbor" rule to avoid penalties. As long as you pay either 90% of the current year's tax liability OR 100% of last year's total tax (110% if your prior year AGI was over $150K), you won't face underpayment penalties. Since your W-2 withholding likely covers a significant portion already, your wife's quarterly payments might be smaller than you think. I'd recommend calculating based on just her projected business profit (including self-employment tax), then seeing if your combined payments meet the safe harbor threshold. Also, don't forget she can deduct half of her self-employment tax as a business expense, which reduces the overall tax burden. The first year is always the trickiest because you're estimating, but it gets much easier once you have actual numbers to work with!

Ok I think I have a stupid question, but I'm confused about something basic. If I'm buying directly from the partner, not from the partnership itself, why does the partnership's 754 election even matter? Isn't this just between me and the selling partner?

Just wanted to add something that might be helpful - make sure you get a written breakdown of exactly what you're buying for that $175k. In accounting firms specifically, a lot of the value is often in client relationships and work-in-progress, which can have different tax treatment. I'd also strongly recommend getting the partnership agreement reviewed before you commit. Some partnerships have "clawback" provisions where if you leave within a certain period, you might have to restore negative capital account balances or forfeit certain distributions. Since you mentioned the managing partner brought up negative capital accounts, there might be some partners in that situation already. One more thing - ask about any pending Section 199A deductions or suspended passive losses that might transfer with the interest. These can be valuable but are easy to overlook in the purchase negotiations.

Just wanted to add another option for getting your old W2s - you can also call the IRS directly at 1-800-829-1040 and request a "wage and income transcript" over the phone. This saved me when I couldn't get the online account verification to work. When you call, have your Social Security number, date of birth, and current address ready. The agent will verify your identity and can immediately send you the wage and income transcripts for the years you need. They'll mail them to your address on file, which usually takes about 5-10 business days. The transcripts show all the W2 information that was reported to the IRS - your wages, federal tax withheld, Social Security wages, etc. It's basically everything you need to file your taxes except for state withholding (as others mentioned). I had to do this for 2016-2018 myself, and while the phone wait was long (about 2 hours), the actual process once I got through was really straightforward. The IRS agent was helpful and not judgmental at all about me being behind on my filings.

I went through this exact same situation last year - hadn't filed from 2016-2019 and was completely overwhelmed by where to start. Here's what worked for me: First, definitely get those wage and income transcripts from the IRS as others mentioned. I used the online method through IRS.gov which was instant once I got my account set up. The identity verification can be tricky - you need to answer questions about your credit history, but it's worth persisting through it. One thing I wish someone had told me earlier: don't panic about the penalties and interest. Yes, they add up, but the IRS has payment plan options and sometimes even penalty relief programs if you can show reasonable cause for not filing. I was so stressed about owing thousands in penalties, but once I actually filed everything and talked to them, we worked out a manageable payment plan. Also, file your returns in order (2016 first, then 2017, etc.) because sometimes the refunds from earlier years can offset what you owe in later years. I actually got refunds for two of the years that helped cover the penalties on the others. The whole process took me about 3 months from start to finish, but honestly the relief of finally being caught up was incredible. You've got this - taking the first step by asking for help here shows you're ready to tackle it!