I just checked that! You're right - I accidentally selected "I can be claimed as a dependent" even though my parents and I agreed they wouldn't claim me. As soon as I fixed that, the software recalculated and now I'm eligible for the full $2,500 American Opportunity Credit with $1,000 refundable. I can't believe it was such a simple mistake. Thanks so much for pointing this out!

You only need to subtract scholarships and grants that were specifically designated for qualified education expenses (tuition, fees, course materials). If your athletic scholarship wasn't specifically earmarked for tuition, but was instead for your role as a student athlete, you may not need to subtract it from your qualified expenses. However, be careful - if your scholarship award letter or financial aid statement indicates the athletic scholarship is for "tuition and fees" or "educational expenses," then you would need to subtract it. The key is how the scholarship is officially designated by your school.

I've considered that, but the inheritance left me really overweighted in just two sectors (finance and healthcare). The financial advisor at Vanguard recommended I diversify since these stocks now make up almost 30% of my total portfolio. I'm just trying to be smart about when and how I make the transition to minimize the tax hit.

I understand wanting to diversify, but consider doing it gradually over a couple of tax years instead of all at once. You could sell enough this year to stay in a lower tax bracket, then do the rest next year. Also worth checking if any of these companies offer dividend reinvestment plans (DRIPs). If they do, you could potentially shift some portion to those programs and slowly diversify without selling and triggering capital gains.

That's actually incorrect. The wash sale rule only applies when you sell at a LOSS and then rebuy within 30 days. OP is dealing with GAINS, so the wash sale rule isn't relevant here at all. Plus, what would be the point of selling at a gain, paying taxes, and immediately rebuying? That would just create a tax bill with no benefit.

Do you think it's worth paying for audit protection when using tax software? I always skip it because it seems like a waste of money given the low audit rates, but then I worry I'm being penny-wise and pound-foolish.

I personally don't think audit protection is worth it for most people. The services typically just offer to provide representation if you're audited, not to pay any additional taxes or penalties found to be owed. If you're keeping good records and not trying to push the boundaries with questionable deductions, you can usually handle a correspondence audit (the most common type) on your own by simply providing the requested documentation. I'd rather put that money toward a good bookkeeping system that helps me maintain proper records throughout the year.

Filing status itself doesn't significantly impact audit rates. What matters more is your income level, sources of income, and deductions claimed. A change in filing status might cause a letter if there's a discrepancy in reporting between you and your ex-spouse regarding dependents or shared deductions, but it doesn't inherently increase audit risk.

Thanks for the insider perspective! Does your sister have any tips on what kinds of things the computer system typically flags? I'm wondering if having this side gig for the first time might have put me in a higher risk category.

The system mainly looks for statistical outliers compared to similar returns. So if you claimed deductions that are way higher than average for your income level, that's a red flag. Starting a Schedule C business can increase scrutiny, but it's not automatic - it's more about whether your reported expenses and income look reasonable for your type of business. Other big triggers include: not reporting income that was reported on W-2s or 1099s, claiming the Earned Income Tax Credit when the numbers don't quite add up, and home office deductions that seem disproportionate. But honestly, if you reported everything accurately and have documentation, even if you do get audited, it's usually just a matter of showing your records.

This is reassuring. Was it easy to respond to them? Did you have to mail physical documents or could you upload them somewhere?

Do you know if I need to bring my actual tax return paperwork to the appointment? I used TurboTax and don't have a printed copy of everything. Would just my W-2s and ID be enough?

For identity verification appointments, you don't need your complete tax return paperwork if you filed electronically. Your photo ID, Social Security card, and W-2s should be sufficient as they're mainly verifying you are who you claim to be. If you can access a summary of your return from TurboTax (even just on your phone), that would be helpful but not strictly necessary. They mainly need to match your ID with the person who should be receiving the refund, along with verifying your income information matches what was submitted.

Is there any way to check if your address is correct with the IRS without calling them? Their phone lines are always jammed and I'm worried I might be in the same situation.