Thanks for mentioning that about eBay handling the sales tax now. I didn't realize that! So I just need to focus on accurately reporting my cost basis vs. selling price on my tax return? Do you know if it matters whether these were personal items vs. items I bought with the intention to resell?

For the IRS, intent does matter. If these were truly personal items you originally bought for yourself (not with intention to resell), then you're generally not taxed on sales unless you sell for more than your purchase price. Many personal items actually sell at a loss, which isn't deductible for personal items. If you bought items specifically to resell, that's different - you'd report all profit as business income on Schedule C and could deduct legitimate business expenses. The line gets blurry when you're selling collectibles that appreciated in value while you owned them. Those can be subject to capital gains tax (usually at higher collectible rates of 28% versus normal capital gains rates).

The 1099-K thresholds are actually changing! Congress kept pushing back the $600 reporting threshold. It was supposed to start in 2022, then 2023, and now it's delayed again. So confusing to keep track of. I think we're still at $20K/200 transactions for 2023 tax year.

Thanks for sharing your sister's experience. My taxes are definitely not straightforward though - I have the photography business with lots of expenses and deductions, plus I did some contractor work with 1099s, and I have some investment income. Do you think the online services can handle that level of complexity? I'm worried about missing deductions or making mistakes.

For your situation with a photography business, contractor income, and investments, most DIY tax software might be challenging to use effectively. The business portion with Schedule C deductions can get complex, especially for correctly categorizing photography equipment, travel, home office, etc. In your case, I'd recommend using your documentation to find a new accountant ASAP. Look for someone who specializes in small business taxes and has experience with creative professionals. My brother-in-law is a musician and found an accountant through a local small business association who understands the unique deductions for creative professions.

Be careful with chargebacks though. A lot of accountants will blacklist you if you do this, and they talk to each other. Might be better to try negotiating first.

Thanks for the advice. Do you think if he files an amended return now before any investigation happens, would that help minimize the damage? Also, should he report the tax preparer?

Filing an amended return quickly will definitely help minimize the damage. The IRS is generally more lenient when taxpayers voluntarily correct errors before being contacted about an examination. He'll still have to pay back the incorrect refund amount, but may avoid or reduce the fraud penalties. And yes, he should absolutely report the tax preparer. He can file Form 14157 (Complaint: Tax Return Preparer) with the IRS. Tax preparers who knowingly file false returns can face significant penalties themselves, including potential criminal charges and being barred from preparing returns.

This is a good point. I sold some stuff on eBay last year and got a 1099-K even though it wasn't a business. Maybe his preparer is counting something like that?

What number did you call? I tried their main support line last week and was on hold for over an hour before giving up.

Really? That would be so much easier! How did you calculate the difference in what you owed? Did you still use tax software to figure out the corrected amount or just calculate it manually?

I used TurboTax to calculate the correct amounts but didn't actually file an amended return through them. I basically entered all my original tax info plus the missing crypto transactions, saw what the new tax liability was, then compared it to my original return to get the difference. On the CP2000 response form, I entered my recalculated amount which was actually less than what the IRS estimated (they always seem to assume worst-case scenario on crypto gains). I included a brief explanation letter along with my completed Schedule D and 8949 showing all the transactions with correct basis amounts.

This is super important advice. The IRS is really backed up right now, but they don't extend the same courtesy to taxpayers. I learned this the hard way last year.