That's a great point I hadn't considered! We're in Texas, and I didn't even think about state-specific requirements. Do you know if most states have similar rules about fictitious business names?

Most states have some form of fictitious business name (DBA) requirements, but they vary significantly. In Texas, you'd file at the county level where your business operates. It's usually a simple form and modest fee ($25-50 typically). Texas doesn't have state income tax, but you may still need a sales tax permit depending on what you're selling. Even digital products can be subject to sales tax in Texas. Check the Texas Comptroller's website - they have specific guidance for partnerships using personal accounts.

I use Wave Accounting for my partnership (dog walking service with my roommate). It's free for the basic accounting features and lets you connect personal accounts but tag business transactions. You can set up multiple users so both partners can access it, which QuickBooks Self-Employed doesn't allow unless you pay for the higher tier. The reporting features make it easy to track partner distributions too.

Thanks so much for this! Did you end up using a tax professional or just tax software to file all the back taxes? I'm trying to figure out the most cost-effective approach since I'll be filing 4 years at once.

I used tax software for all of them. I bought the previous year versions (most of the major companies sell them) and did one return at a time. It was pretty straightforward since I mostly had W-2 income. For the oldest year, I had some 1099 work that made things a bit more complicated, so I paid a bit extra for the deluxe version that year. Still came out way cheaper than hiring a professional for all four years.

That's a good point. And if you moved between states during these unfiled years, you might need to file part-year resident returns for multiple states which gets complicated fast.

That's really good to know, thank you! Do you happen to know when these potential changes might go into effect if they do pass something? And would it make sense to just do this strategy now while it's definitely still allowed?

Nothing is imminent as far as I know - these things typically take time to work through Congress, then the IRS has to issue guidance, etc. We'd likely have months if not a year or more of warning before any major change like applying wash sale rules to crypto. Definitely makes sense to use strategies that are currently allowed. Just keep good records of all your transactions with timestamps. If you're doing a lot of crypto trading, consider working with a tax professional who specializes in this area, as they'll be up-to-date on any pending changes and can help you navigate the transition if/when rules do change.

I did this exact strategy last year with ETH. Sold at $2850, rebought at $2400 a few days later. I just reported both transactions normally on Form 8949 - the sale as a capital gain and then the new purchase established my new cost basis. Nothing special needed documentation-wise beyond what you'd normally track (dates, amounts, proceeds, cost basis). No issues, no audit, no questions from the IRS. As long as you're accurately reporting the transactions, the timing between them isn't relevant for crypto (for now anyway).

Thanks, that's really helpful! Did you use any particular software to track your crypto transactions or did you just use spreadsheets? I'm trying to make sure I have everything properly documented in case I ever do get audited.

Would it be better to fax the response to the IRS rather than mailing it? I've heard mail can take forever for them to process and faxing might be faster for time-sensitive stuff like this.

Faxing can be faster for the initial response if you're up against the deadline. The IRS does accept faxed responses to CP2000 notices, and it provides immediate transmission. Just be sure to keep the fax confirmation page as proof of timely response. For the amended return itself, you'll still need to mail that through regular channels. But for the initial "I received your notice and I'm working on it" response, faxing can save you some time. Either way, make sure you're sending everything to the correct department and including all reference numbers from the CP2000 notice on your correspondence.

Innocent Spouse Relief probably won't apply here since it's just a case of forgotten income, not deliberate underreporting or fraud. It's more for situations where one spouse hid income or claimed fraudulent deductions without the other spouse's knowledge. This sounds like an honest mistake that both spouses would be responsible for correcting.

Good point about state taxes. Do you know which states are better or worse for inherited annuity taxes? I'm in Texas and wondering if I should expect any state-specific issues.

Texas is actually one of the better states for this situation since they don't have a state income tax. You'll only need to worry about the federal tax implications of your inherited annuity. States like California, New York, and New Jersey tend to be more complicated because they not only have state income tax on the taxable portion but sometimes have different rules than the federal government about how much of the annuity is considered taxable.

Good news - the 10% early withdrawal penalty generally doesn't apply to inherited annuities, even if you're under 59 1/2. This is one of the exceptions in the tax code specifically for death benefits. You'll still owe regular income tax on the taxable portion, but you escape the penalty that would normally apply to early withdrawals.