Has anyone actually been audited by the IRS after doing crypto wash sales? I'm wondering if they might give you extra scrutiny even if it's technically allowed. I'm down about $4k on Ethereum and would love to claim the loss but not if it puts a target on my back.

I've been doing crypto tax loss harvesting for the past two years and can confirm it works as described. The key thing people miss is that you need to be strategic about timing. I typically do a review in November to identify positions that are down, then execute the sales and repurchases in December. One important detail - make sure you're using the same exchange or wallet for the repurchase if possible. It makes record-keeping much cleaner. Also, consider the transaction fees when calculating whether the tax benefit is worth it. On smaller losses, the fees might eat into your savings. I use a simple spreadsheet to track: original purchase date/price, sale date/price, loss amount, repurchase date/price, and new cost basis. This documentation has been sufficient for my tax preparer and gives me confidence if I ever get audited.

Has anyone used TurboTax Self-Employed for this kind of situation? Would it flag this issue or just let you incorrectly deduct the W2 wages on Schedule C?

This is exactly why I always recommend consulting with a tax professional BEFORE making any major payroll decisions. That said, you're not the first person to find themselves in this situation, and there are definitely paths forward. Given the substantial income amount ($135k), I'd lean toward the S-corp election route rather than trying to deduct the wages on Schedule C. The IRS has specific procedures for late S-corp elections with reasonable cause, and "lack of knowledge of the filing requirements" is often accepted if you can document it properly. Key steps I'd recommend: 1. Have your accountant prepare Form 2553 with a detailed reasonable cause statement 2. File Form 1120S for the corporate return immediately 3. Be prepared to show you acted in good faith and are now trying to comply properly The Schedule C route is risky because those wage deductions will almost certainly trigger an audit - the IRS systems will match your SSN as both the payer and recipient of those W2s. Time is critical here since there are deadlines for the S-corp election, so work with your accountant to get this filed ASAP. The sooner you address it, the better your chances of approval.

This entire thread has been incredibly valuable for someone like me who's just starting to research this situation! As a new member here, I'm amazed by how thoroughly everyone has broken down what initially seemed like an impossibly complex tax and student loan situation. I'm currently about 6 months out from a potential house sale and was completely panicking about how the capital gains would affect my income-driven repayment plan. The clarification that only the taxable portion (above the exclusion) gets included in AGI is such a relief - I was initially calculating based on the full gain amount. A few key takeaways that I'm adding to my planning checklist: - Start gathering ALL cost basis documentation now (receipts for improvements, major repairs, etc.) - Plan the closing timing strategically relative to my annual recertification date - Research my specific loan servicer's alternative documentation process before I need it - Budget for 2-3 months of potentially higher payments while alternative documentation gets processed One question for the group: has anyone dealt with this situation while also managing other major financial changes in the same tax year? We're also planning to max out retirement contributions to help offset some of the tax impact, and I'm wondering if that affects the student loan payment calculations or the alternative documentation process at all. Thanks to everyone who shared their real experiences - this community is an incredible resource for navigating these complex situations!

This thread has been absolutely incredible for someone facing this exact situation! I'm about 8 months out from selling our primary residence with an estimated $680K gain, and I was initially terrified about how it would affect our student loan payments. The clarification from multiple people (especially the tax professional) that only the taxable portion above the $500K exclusion gets included in AGI is such a huge relief. So our AGI would be our normal income plus $180K (the taxable portion), not the full $680K gain I was originally calculating. I'm definitely going to implement the proactive strategy several of you mentioned - contacting my loan servicer (Great Lakes) right after filing taxes to start the alternative documentation process before my payments automatically increase. The detailed documentation checklists people shared are going to save me so much time and stress. One thing I wanted to add that might help others - I just called Great Lakes to ask about their process for "alternative documentation of income for one-time capital gains events" and they do have a specific form called "Alternative Income Documentation Request" that's designed exactly for situations like house sales. The representative was very familiar with the process and said they typically process these requests in 4-6 weeks. Thanks to everyone who shared their real experiences - this community has turned what felt like an impossible situation into something completely manageable with proper planning!

I'm going through almost the exact same situation right now! I started my first US job in March and also accidentally marked exempt on my W4 without understanding what it meant. Like you, I panicked when I realized my mistake a few weeks ago. What's been really helpful for me is calculating exactly how much I should have had withheld so far. For someone making around your salary, you're probably looking at roughly $2,000-2,500 in missed federal withholding for those two months. It sounds like a lot, but spread across your remaining paychecks it becomes much more manageable. I ended up using the IRS withholding calculator on their website to figure out how much extra to have withheld from each remaining paycheck. It's actually pretty straightforward once you get past the initial panic. The key thing is that you caught it early in the tax year and took immediate action - that shows good faith to the IRS. One thing that gave me peace of mind was learning that the IRS really does distinguish between people who make honest mistakes versus those who intentionally try to avoid taxes. Since you're new to the US system and corrected it as soon as you realized the error, you should be in good shape!

As someone who works in tax compliance, I want to reassure you that you're handling this situation perfectly. The fact that you discovered the mistake within just two months and immediately corrected it shows exactly the kind of good faith effort the IRS looks for. Here's the reality: the IRS processes millions of tax returns and deals with withholding adjustments constantly. Your situation - a new immigrant accidentally checking exempt and then quickly fixing it - is far more common than you might think. The penalties everyone worries about are really designed for people who persistently under-withhold or try to game the system. Since you've already submitted the corrected W4, my advice would be to calculate roughly what you should have had withheld (probably around $2,200-2,800 for those two months at your salary level) and then choose whichever catch-up method feels most comfortable: either increase your withholding for the rest of the year or make an estimated payment by the September 16th deadline. The most important thing is that by year-end, your total tax payments (withholding + any estimated payments) should cover at least 90% of what you'll owe. Given that you caught this in June, you have plenty of time to get there. Try not to let the anxiety consume you - you're doing everything right!

I'm in almost the exact same situation! W-2 job making about $75k and started an LLC for freelance graphic design that brought in around $28k this year. The tax situation has been so confusing. One thing I learned the hard way is that you definitely need to make quarterly estimated payments on your LLC income. I didn't do this my first year and got hit with underpayment penalties even though I got a refund overall. The IRS wants their money throughout the year, not just at filing time. Also, make sure you're tracking EVERYTHING for business expenses - software subscriptions, equipment, even the portion of your internet bill if you work from home. These deductions can really add up and help offset some of that self-employment tax burden. The tax bracket thing is real too. My combined income pushed me into the next bracket for part of my earnings, so I ended up owing more than I expected. Now I set aside about 35% of all LLC income just to be safe. Have you considered getting a business credit card specifically for LLC expenses? It makes tracking so much easier come tax time.

I'm in a very similar situation - W-2 job plus LLC income - and wanted to share what I've learned after making some costly mistakes my first year. The biggest thing that caught me off guard was the self-employment tax calculation. Even though you're already paying FICA taxes on your W-2 income, you still owe the full 15.3% self-employment tax on your LLC profits (unless you've already hit the Social Security wage cap like others mentioned). This is on TOP of regular income tax, which is why setting aside 30-35% is so important. One mistake I made was not understanding that the LLC income gets added to your W-2 income for tax bracket purposes. So if you're already close to a bracket threshold with your day job, that extra $31k could push a significant portion into the next tax bracket. For quarterly payments, I use the safe harbor rule - pay 110% of last year's total tax liability divided by 4 quarters. This way even if I have a great year with the LLC, I won't get hit with underpayment penalties. Also, don't sleep on business deductions! Home office, business meals (50% deductible), professional development, software subscriptions, equipment depreciation - they all add up. Just make sure you can document everything properly. The complexity definitely increases once you have both income streams, but it's totally manageable with good organization and planning.