Wait, so this is an "election" we have to specifically make? How do we do that? Is there a specific form or do we just deduct the $5k on our Schedule C?

You make the election by attaching a statement to your tax return for the year your business begins operations. The statement needs to include the amount you're electing to deduct, a description of the expenses, and the month your business began active operations. You'll also report the actual deduction on either Schedule C (for sole proprietors) or your business entity return. The remaining amount over $5,000 would then be amortized over 15 years starting with the month your business began. Most tax software will walk you through this if you indicate you have startup costs, but it's good to be aware of the requirement for the election statement.

Are there any good apps you recommend for tracking this stuff? I'm starting a small side business too and want to do it right from the beginning.

Thanks for the suggestion about Publication 544! I just pulled it up and found the exact section you mentioned. I'm going to email this to my tax preparer tonight along with a few examples. If she still doesn't get it after reading the IRS's own publication, I think I'll definitely need to find someone new to help with my taxes. Really appreciate everyone's help here. It's been driving me crazy thinking I was missing something obvious!

Glad I could help! Just to add one more resource - if you look at the actual Form 8949 instructions, there's a worksheet that clearly shows how to report transactions where the purchase and sale dates are in different years. That might be the most direct evidence to show your preparer. Good luck! And yes, if she still doesn't understand after seeing the actual IRS guidelines, it might be time to find someone with more experience in investment taxation.

That real estate comparison is perfect! Makes it super clear even for people who don't understand investments.

Do you have any suggestions for how to determine what falls into the "higher fee" category? Do you have specific criteria or is it more of a judgment call?

I've developed a pretty clear checklist that I review with clients in our initial consultation. Higher fees apply if their records show: unsorted receipts/statements, missing months of data, personal expenses mixed with business, revenues that don't match 1099s or bank deposits, or rounded numbers for most expenses (like you mentioned). I also charge more if they bring everything in last minute (less than 3 weeks before deadline) or if they have no formal bookkeeping system at all. Having clear criteria makes it less personal and more about the actual work involved. I've found being transparent about this from the start weeds out problem clients and encourages others to get organized.

How do you screen for this before taking them on? Do you have some kind of initial assessment process?

Thanks for the heads up. I was afraid of that. I just checked my credit report and there are no liens showing up yet, so maybe I caught it in time? Would the liens definitely show on my credit report or could they exist without showing up there?

Tax liens don't always show up on credit reports anymore - the credit bureaus changed their policies a few years back. The absence on your credit report doesn't guarantee there's no lien. You should request an "Account Transcript" from the IRS for each tax year to see exactly where you stand and what actions they've taken. You can request these online through the IRS website if you can create an account, or your tax professional can request them for you with proper authorization. These transcripts will show if they've filed SFRs, assessed penalties, or initiated collection actions.

The Fresh Start Initiative can definitely help in your situation. It expanded options for installment agreements and offers in compromise. One key benefit is penalty abatement - especially for first-time non-filers. You might qualify to have some penalties reduced or removed entirely.

I tried a different location yesterday and they basically said since my return wasn't prepared there, they couldn't do much to help. But they did give me a regional manager's contact info, which is more than my original office would do. Has anyone had success getting fees covered after escalating to regional management?

Getting to regional management is definitely the right move. In my experience working in customer service (not tax specific), regional managers have much more authority to make things right than local office staff. They can typically authorize penalty reimbursements up to certain amounts without higher approval. When you contact the regional manager, focus on the specific guarantee you purchased and their failure to provide the service. Avoid emotional arguments and stick to the facts: you paid for protection, they failed to mail your return as promised, and now you're facing penalties as a direct result of their failure. Be firm but professional, and make it clear you expect them to honor their guarantee by covering the full penalty amount.

Form 8275 is generally for disclosing positions taken on your return that might be challenged, not for explaining late filing due to preparer error. For penalty abatement, you'd typically write a letter explaining the situation or call the IRS directly. Just want to make sure OP has accurate info.