I tried the multiple methods approach and got different answers each time, which is making me even more confused. Does the worksheet split the $3,000 deduction between short-term and long-term losses in a specific way? My losses were all from stock sales if that makes a difference.

The worksheet does handle short-term and long-term losses differently, and that's likely why you're getting different results. For capital losses, there's a specific order of operations the IRS requires. First, short-term losses offset short-term gains. Then, long-term losses offset long-term gains. After that, if you still have net losses in either category, those net losses can offset gains in the other category. Only after all that, if you still have net losses overall, can you deduct up to $3,000 against ordinary income. The worksheet is designed to walk you through this process step by step to ensure the correct ordering. For stock sales, whether they're considered short-term or long-term depends on how long you held them before selling (less or more than a year).

Omg yes this! I was pulling my hair out last year because I was looking at the wrong form entirely when trying to do my capital loss carryover. Make sure you're using the numbers from Schedule D (the summary form) not Form 8949 (where you list all your individual transactions).

Thank you for the suggestion! I definitely don't want to do anything illegal. Would these credits help even if he doesn't make much money? He works part time and gets some cash jobs on the side (probably doesn't report all of that income).

Yes, these credits can definitely help people with lower incomes! The Earned Income Tax Credit (EITC) is specifically designed for lower-income workers and is refundable, meaning he could get money back even if he owes no tax. Regarding the unreported cash income - that's a separate issue, but he should know that claiming tax credits while not reporting all income could create problems if he's audited. The safest path is to report all income and claim the credits he's legally entitled to.

No, if he doesn't claim his daughter as a dependent, he can't file as head of household. He'd have to file as single, which has worse tax rates and a lower standard deduction. That would probably hurt him more financially than whatever benefit OP might share from illegally claiming the kid.

Thanks for explaining that. Makes sense why he'd want someone else to claim his kid if he's not making enough to benefit from the credits, but sounds like he'd lose the head of household status which is pretty valuable.

This is actually a great point that hadn't occurred to me! I just checked and you're absolutely right - I apparently signed up for their "Complete Protection Bundle" for $425 which got deducted from my federal refund. The description shows it includes audit defense, tax expert assistance, and identity protection. I honestly have zero recollection of agreeing to this! Must have clicked through too quickly during the filing process. That plus the standard $75 processing fee accounts for almost exactly the missing amount. Mystery solved! Thank you so much for suggesting this - I would have continued freaking out while waiting for some explanation from the IRS that was never going to come. Lesson learned to pay more attention to those "recommended" add-ons during the filing process.

The tax prep companies are so sneaky with this stuff. They make those screens with the add-on services look like you NEED to select something, when really "none" is an option they hide or make look risky. I almost got charged $200 for their "MAX" bundle until I noticed and unchecked it.

Wouldn't you still have to pay taxes on the traditional to Roth conversion though? How is that beneficial when the Roth investments are down?

Yes, you would pay taxes on the traditional to Roth conversion - that's always the case with Roth conversions. The benefit comes from converting when values are depressed. If you convert when market values are lower, you pay taxes on that lower amount, but when the market recovers, all that growth is tax-free in the Roth. It's like getting more future tax-free growth potential for the same tax cost. This strategy works best if you believe the investments will recover and grow over time, and if you have cash available outside the IRA to pay the conversion taxes.

I tried to claim a Roth IRA loss back in 2019 after closing all my accounts at a loss. My accountant said it had to be reported as a miscellaneous itemized deduction subject to the 2% AGI floor on Schedule A. But since the Tax Cuts and Jobs Act suspended those deductions, it didn't actually benefit me at all. He said to hold onto the documentation in case the law changes back after 2025.

Can you explain the stock basis part again? I thought the issue was the difference between original purchase price of the asset and current FMV? How does stock basis factor in?

So there are actually two separate tax events happening in a liquidation: First, the corporation is treated as selling its assets to you at FMV. Since the expensed items have $0 basis to the corporation, the entire FMV is gain that flows through to you as the S-Corp shareholder. Second, you're surrendering your stock in exchange for these assets. You recognize gain/loss based on the difference between the FMV of assets received and your stock basis. Your stock basis includes your original investment plus all income that's flowed through to you minus distributions over the years. If your stock basis is high enough (from retained earnings for example), it can offset the asset distribution value, potentially resulting in no additional gain at the shareholder level.

I did this last year. My accountant had me focus only on items that still had meaningful value and could be sold on the secondary market. We didn't bother with office supplies, furniture under $200, etc. We documented everything with photos and current marketplace listings for comparable items. For really small stuff, we did group some items together as "office equipment" with a reasonable bulk value. The IRS isn't going to audit you over a $30 stapler, but they might care about that $2,000 computer or specialized equipment.