I work at a CPA office and we see this all the time with class action settlements. Here's a simple explanation: 1. Box 10 on the 1099-MISC is for reporting attorney fees paid directly from your settlement 2. These fees are NOT taxable to you 3. You DO need to report the full 1099-MISC including Box 10 4. You then take an adjustment to exclude the Box 10 amount from your taxable income Most tax software struggles with this because it's an unusual situation. In FreeTaxUSA, as others have mentioned, look for the option that says you received the form but didn't engage in business activity. The most common mistake people make is either paying tax on the attorney fees (which you shouldn't) or not reporting the 1099-MISC at all (which will trigger a notice from the IRS).

I went through this exact same headache with FreeTaxUSA last year! The key is knowing that Box 10 attorney fees create a "phantom income" situation - the IRS sees the full 1099-MISC amount but you're only taxable on your portion. Here's what worked for me: When FreeTaxUSA forces you into the Schedule C section because of Box 10, don't panic. Enter the 1099-MISC normally, then look for the section about "miscellaneous adjustments" or "other deductions." You'll want to create a negative adjustment equal to the Box 10 amount with a description like "Attorney fees from settlement - not taxable to recipient per IRC Section 62(a)(20)." The W-2 you received is straightforward - that's your actual taxable settlement amount with proper withholdings. The 1099-MISC Box 3 plus Box 10 should equal your gross settlement before attorney fees were deducted. One tip: Print out everything and keep good records. The IRS computer matching system will see that 1099-MISC and you want clear documentation showing you handled the attorney fees correctly. This is one of those situations where being thorough upfront saves you from potential notices later.

Just to add a data point - I did something similar last year and it took the IRS about 4 months to process both the 1040X and the 1065. Make sure your client understands the timeline and that they might get confusing notices in the meantime since the systems don't automatically connect the amendment to the new filing.

This is a complex situation that requires careful handling! A few additional considerations beyond what others have mentioned: 1. **EIN requirement**: The partnership will need its own EIN if it doesn't have one already. This should be obtained before filing the 1065. 2. **Partnership agreement**: Even though not required by law, having a written partnership agreement is crucial for determining profit/loss allocations, especially if it's not 50/50. Without one, the IRS assumes equal partnership interests. 3. **State filings**: Don't forget about state-level amendments! Most states will require their own partnership return and individual amendments. 4. **Self-employment tax**: Make sure you understand how SE tax changes. Partners in a partnership are still subject to SE tax on their distributive share, but the calculation method differs from Schedule C. 5. **Books and records**: The partnership needs to maintain separate books and records going forward, which is different from sole proprietorship record-keeping. I'd strongly recommend getting professional help for this conversion given the complexity and potential penalties involved. The IRS tends to scrutinize these types of corrections more closely.

Has anyone used TurboTax to handle this kind of situation? My wife is in a similar situation with her employer paying for her master's degree, and I'm wondering if the standard tax software can handle these educational benefit exclusions correctly or if we need a professional tax preparer this year.

This is such a stressful situation, but you're not alone! I went through something similar when my employer paid for my PA program. The most important thing to understand is that even if the full amount shows up on your W-2, you may still be able to exclude a significant portion from taxation. First, gather all documentation about your hospital's education policies, especially anything mentioning BSN requirements or preferences. Since you're working as a clinical nurse and pursuing a BSN, this likely qualifies as job-related education under the "working condition fringe benefit" rules. I'd recommend taking a two-pronged approach: 1) Contact your HR department with documentation showing this education is job-related and request a corrected W-2, and 2) If they won't cooperate, you can still claim the proper exclusion on your tax return using Form 4852. Don't panic about the tax bracket issue - remember that only the income within each bracket gets taxed at that rate, not your entire income. And there are education credits available that can help offset any additional tax burden. You've got options here!

Has anyone else noticed that Venmo's reporting isn't always accurate when it comes to separating tips from payment? I've had instances where a customer will add a note saying "includes $15 tip" but the transaction just shows as a single amount with no breakdown. How are you guys handling that for record keeping?

For tracking tips when customers don't use Venmo's built-in tip feature, I've found it helpful to create a simple spreadsheet where I log each job with the base service fee and any additional tip amount mentioned in their payment notes. This way I have my own breakdown even if Venmo just shows one lump sum. What's worked well for me is taking a screenshot of the Venmo transaction right after I receive it, especially if the customer mentions the tip amount in their note. Then I enter it into my records while it's fresh in my mind. Even though the IRS doesn't require you to separate tips from regular income for tax purposes, having that detail has been super useful for understanding my customer relationships and pricing. I also started sending customers a quick text after finishing their service with something like "Payment received - $65 service + $15 tip. Thank you!" This creates a text record for my files and lets the customer know I saw their generosity, which seems to encourage repeat tipping.

Has anyone used TurboTax to handle this kind of situation? I'm wondering if it walks you through determining whether something is a repair vs improvement or if I need to figure that out ahead of time.

I just went through this exact situation last year with a $16k roof replacement on my rental property. After doing a lot of research and consulting with my CPA, here's what I learned: The IRS has specific criteria for distinguishing repairs from improvements, and unfortunately, a complete roof replacement almost always qualifies as an improvement that must be depreciated. The key factors are: 1. **Betterment** - Does it improve the property beyond its previous condition? 2. **Adaptation** - Does it adapt the property to a new use? 3. **Restoration** - Does it restore the property to like-new condition? A full roof replacement typically hits the "restoration" criteria since you're essentially putting a brand new roof on the property. However, don't give up hope on getting some immediate deduction! If you can document that portions of the work were repairs to the existing roof structure (like fixing damaged decking, replacing a few shingles, or repairing flashing), those specific costs might be immediately deductible while the bulk of the replacement gets depreciated. The key is having detailed invoices that break down the work performed. Generic "roof replacement" invoices make it harder to argue for any immediate deductions. I ended up depreciating mine over 27.5 years, but I was able to immediately expense about $2,800 in repairs that were clearly restoration work on the existing structure. Every bit helps when you're looking at a big expense like this!