What's FIFO? And how do I know which method my exchange is using? I've been using Coinbase and just downloading their tax forms.

FIFO stands for "First In, First Out" - it means when you sell crypto, the system assumes you're selling your oldest purchases first. This can result in higher taxes if your earliest purchases were at lower prices. Coinbase provides the data, but they don't actually choose your accounting method for you - that's your choice when you file your taxes. Many tax software programs default to FIFO because it's simpler, but you can usually change to specific identification method which lets you choose which specific units you're selling (like choosing to sell the ones you bought at higher prices first to minimize gains).

Yes! Exchanges are terrible with this. My Binance report was missing transactions from coins I transferred in from other wallets. You really need to track everything yourself or use dedicated crypto tax software.

7 Good point about state taxes. Which state was this in? I'm in California and wondering if they have special rules I should know about.

22 I was in New York at the time. They have a specific calculation for dependents with income over $10,000. California definitely has its own rules too - I believe they follow the federal guidelines more closely, but they have additional credits and deductions that might be affected by dependent status. Your best bet is to check the California Franchise Tax Board website or consult with someone who knows California tax law specifically. Each state has its own quirks when it comes to how they treat dependents with substantial income.

19 I thought education credits go to whoever claims you as a dependent? My parents always get those credits, not me.

That's really helpful to know! Thanks for sharing your real experience. I'll make sure to have solid documentation ready in case we get a similar notice. Did you respond to the notice yourself or have your accountant handle it?

Our accountant drafted the response, but we had to provide all the backup documentation showing these were actually rental payments. The key was having the platform statements that clearly showed these were payments for specific rental properties. Our accountant said the IRS sees this issue frequently with vacation rental partnerships using platforms like Airbnb, VRBO, etc.

Omg that's a really good point I hadn't even considered! We are on accrual basis, and we definitely have December bookings that get paid out in January. Now I'm worried about potential mismatches. How did you handle this in your case?

We included a separate reconciliation schedule that showed: 1) income per 1099s received for the tax year, 2) plus accrued income from prior year paid in current year, 3) minus income accrued in current year but paid in next year, 4) equals income reported on tax return. Basically you want to show the math of how you get from your 1099 amounts to what's on your return. We also noted which specific properties had timing differences. It's a bit more work, but it creates a clear audit trail.

Did you have any data migration issues? We have 10+ years of client data in Onesource and I'm worried about losing historical information. Were you able to bring over basis info and carryforwards?

Data migration was our biggest headache. Most basics transferred okay, but partnership basis information had to be manually verified for every partner. We lost some of the historical allocation details and had to rebuild them. Carryforwards like capital losses and charitable contributions were particularly problematic - about 25% had errors we had to fix manually. If you do switch, I highly recommend running parallel systems for a year and comparing outputs before fully committing. Budget extra staff time for data verification during the transition.

I've used both extensively. For partnerships specifically, Lacerte is significantly better - especially for complex allocations and multi-tiered partnerships. The additional cost pays for itself in time savings and reduced errors. ProSeries struggles with more complex 1065s and the data entry flow isn't as intuitive.

Do you know if the same applies to dividends on a 1099-DIV? I just found one for $18 that I missed from a small investment account I rarely check.

Yes, the same practical considerations apply to small dividend amounts on a 1099-DIV. For $18 in dividends, the tax impact would be minimal, similar to the interest example we've been discussing. The reporting threshold for 1099-DIV is also $10, just like with interest income. While all income is technically taxable, the IRS generally focuses enforcement resources on larger discrepancies. Just make sure to include all your 1099s next year to avoid this worry altogether. Setting a calendar reminder when tax season approaches can help you remember to gather all your forms before filing.

Thanks for that tip! I did use TurboTax so that's good to know. After reading all the advice here, I'm leaning toward not amending for such a small amount. Next year I'll be more careful about checking for all my 1099 forms before filing!