Has your friend considered just using QuickBooks Self-Employed and doing the reconstruction themselves? I was in a similar mess with my Etsy business and managed to import the last 2 years of bank/credit statements and categorize everything retroactively. It took about a weekend per year of transactions, but I managed to create a reasonable accounting system that my tax preparer was able to work with. The software lets you split transactions, categorize them, and export reports that look professional enough for tax purposes. For the inventory issue specifically, I just created a spreadsheet showing reasonable COGS calculations based on my sales and industry standards. Wasn't perfect but it was acceptable.

I went through something very similar with my freelance graphic design business - had about 4 years of terrible recordkeeping with just bank statements and random receipts stuffed in a shoebox. Here's what I learned from the experience: First, definitely start with a CPA rather than a tax attorney unless there are signs of serious legal issues. CPAs are much more cost-effective for reconstruction work and most have dealt with this exact situation many times. The cash method is absolutely your friend's best option here. For businesses under $26 million in gross receipts, you can generally use cash accounting which means you deduct expenses when paid rather than trying to match them to specific sales. This eliminates a lot of the complexity around timing issues. For the inventory question - if your friend's business qualifies for cash method, they may also qualify for the small business exception that allows them to treat inventory as non-incidental materials and supplies, which means they can deduct costs when the items are used or sold rather than maintaining complex inventory accounting. The key is being proactive. I spent about $2,800 with a CPA who specialized in small business reconstruction, and it was worth every penny. They were able to create defensible books going back 3 years using just my bank statements, credit card records, and about 40% of my actual receipts. Most importantly - this is fixable! Your friend isn't doomed. The IRS would much rather see someone make a good faith effort to comply than ignore the problem entirely.

Has anyone actually had success approaching their nanny family about this after the fact? I'm in the same boat and worried about creating an awkward situation or even losing my job if I bring it up.

I'm dealing with a similar situation right now! Reading through all these responses has been really helpful. It sounds like the consensus is that you should definitely push for proper W2s since you're clearly an employee, not a contractor. From what I'm gathering, your best options are: 1. Approach the families with educational materials about household employment laws 2. If they refuse, file Form 8919 to report the wages and avoid overpaying self-employment tax 3. Consider Form SS-8 if there's a dispute about worker classification The point about losing $2,500+ by filing as self-employed really hit home - that's a huge amount! I think I'm going to try the educational approach first with my family, and if that doesn't work, I'll look into those IRS forms or maybe one of those services people mentioned to get proper guidance. Thanks everyone for sharing your experiences - it's reassuring to know I'm not alone in this situation and there are actual solutions available!

For anyone still wondering, I just went through this process for my visa application to the UK. Here's what worked for me: 1. For the most recent year (2024 taxes), I was able to go back into TaxAct and download the full return which included the Form 9325 equivalent. 2. For older years (2022-2023), I couldn't access my old TaxAct account, so I got Tax Return Transcripts from the IRS instead. 3. I included a brief cover letter explaining that the Tax Return Transcripts serve as official IRS confirmation that my taxes were filed and processed for those years. The visa was approved without any issues. From what the visa officer told me, they're mainly looking for proof that you've been tax compliant for the specified years, not specifically for Form 9325.

I'm dealing with this exact same situation right now! Just wanted to add that if you're using TurboTax, there's actually a specific way to find your Form 9325. After logging into your TurboTax account, go to "My Account" then "Tools" and look for "Prior Year Products." When you download your return, make sure you're downloading the "Complete PDF" version, not just the tax return itself. In my case, the Form 9325 was actually embedded in the very last pages of the complete PDF package. It wasn't a separate document but was included as part of the full filing package. The form shows your electronic filing PIN, date of acceptance, and confirmation that the IRS received your return electronically. Also, for anyone whose visa appointment is really soon - some embassies will accept a signed statement from your tax preparer (if you used one) confirming that your returns were e-filed and accepted. Obviously this won't work if you self-prepared, but it's worth checking if your embassy accepts this alternative documentation. Good luck with your visa application! I know how stressful this process can be when you're missing what seems like a critical document.

Not to complicate things more, but remember you only need to file a separate return for your child if their income exceeds the standard deduction for dependents. For 2023 that's $1,250 for unearned income.

Just want to add something important that I learned the hard way - make sure you keep detailed records of the original gift transaction and the automatic sale/reinvestment that triggered the capital gains. The IRS may want to see documentation showing that this wasn't a deliberate sale by you as the custodian. Also, since the brokerage automatically sold and reinvested without your instruction, you might want to check if they have any liability for the unexpected tax consequences. Some brokerages have been known to help cover tax impacts when their automatic processes create unintended taxable events, especially in custodial accounts for minors. One more thing - if you're going to have ongoing similar situations with gifts to the UTMA, consider asking family members to gift cash instead of appreciated securities to avoid future kiddie tax complications. Much easier to manage!

I see everyone suggesting complicated solutions, but have you tried just asking your parents? If they claimed you as a dependent last year, they could probably just help you with this whole process. That's what I did my first time.

Hey Alejandro! I went through this exact same situation last year with TaxAct and that AGI verification step. Based on what you've described, since your parents claimed you as a dependent last year and you didn't file your own return, you should definitely enter "0" for your prior year AGI like Monique mentioned. Don't feel bad about getting stuck on this - it's honestly one of the most confusing parts for first-time filers because the software doesn't explain it clearly. The good news is once you get past this step, the rest should be much smoother! If entering "0" doesn't work for some reason, you can also look for TaxAct's "forgot my AGI" option which should give you alternatives like requesting a PIN from the IRS instead. But in your situation, the "0" should definitely work since you weren't filing independently last year. You've got this! Don't give up on doing it yourself - you're so close to figuring it out.