Do you include things like gas expenses for going to thrift stores and yard sales on this same statement? Or are those tracked separately?

I track those separately as business expenses rather than including them on the sales summary statement. The summary statement is specifically for showing your inventory's cost basis and sales prices. Transportation costs, supplies, platform fees, and other business expenses should definitely be deducted, but they belong in different sections of your tax return. I keep a separate spreadsheet for those business expenses categorized by type (transportation, office supplies, shipping materials, etc.).

This is terrible advice. The IRS absolutely can and does audit small businesses, especially with the new lower 1099-K thresholds. A summary statement needs to show your basis for claiming costs against specific income. If you get audited with just "total sales" and "total costs" with no breakdown, you're asking for trouble.

Do these Tax Topic 151 reviews usually result in reduced refunds? Or is it just a verification process and you still get your full amount if everything checks out?

It really depends on what they find during the review. If all your documentation supports your claims and everything checks out, you'll receive the full refund amount, though obviously delayed. If they determine certain deductions or credits aren't valid, they'll adjust your return and you'll receive a reduced amount. In some cases, if they find significant issues, you could even end up owing more instead of getting a refund. The vast majority of cases are just verification though, and many people do receive their full refund after providing documentation.

I waited almost 60 days last year before I got my letter. Called multiple times and kept getting told "it's in process." When the letter finally came, it was something simple they could have told me over the phone. The IRS is still dealing with backlogs from Covid even now.

This is super helpful! One question though - if you've been making deductible Traditional IRA contributions for years and then make some non-deductible contributions before converting to Roth, do you only pay tax on the deductible portion? Or is it more complicated?

It's a bit more complicated. The IRS uses what's called the "pro-rata rule" for conversions. You can't cherry-pick which dollars to convert first. If you have both deductible and non-deductible contributions in your Traditional IRAs, you must calculate the percentage of your total IRA balance that represents non-deductible contributions. That same percentage of your conversion will be tax-free. For example, if 20% of your total IRA balance across all accounts represents non-deductible contributions, then 20% of your conversion would be tax-free.

I used TurboTax last year for this exact situation. It works but you need to be careful. When you enter your 1099-R, it initially shows the full amount as taxable. Later in the process, it will ask about non-deductible contributions and previous Form 8606 filings. Make sure you don't miss that section!

Thanks for the info! I was worried I'd miss something important. I'll keep an eye out for that section about non-deductible contributions. Did you have to pay for the premium version to access Form 8606?

Thanks for the warning! I hadn't even considered that possibility. I'll check with them to confirm they're not planning to send a corrected 1099 for 2024. Would definitely complicate things if they did.

Glad I could help! It's worth a quick email to their accounting department. In my case, they had sent the corrected 1099 without telling me, and it didn't arrive until after I'd already filed. So I had to amend my return, which was a whole ordeal. Better to know their plans upfront.

I did this in TurboTax last year. When you're filling out the Schedule C section, there's a part for "Other Expenses" where you can add a custom category. I labeled mine "Income previously reported on 2023 tax return" and entered the amount. The TurboTax interview doesn't specifically ask about this situation, so you have to know to add it yourself.

I didn't know the IRS could restrict your withholding choices! Has this happened to you or someone you know? How extreme would the withholding need to be for them to do this?

It's never happened to me personally, but I've seen it happen to a colleague. In their case, they were having about 50% of their check withheld when their actual tax liability would have only required about 15-20%. The IRS typically only issues lock-in letters when there's a significant discrepancy. For your situation, wanting a $12k refund on $150k income with 3 kids isn't extreme enough to trigger concern. It would be more problematic if you were trying to have, say, $40k withheld when your likely tax liability is only $15k. They generally don't mind reasonable overwithholding - many people use tax refunds as a savings method.

Do you know which states offer tax benefits for homeschooling? I'm in Illinois and considering homeschooling next year.

Illinois doesn't currently offer specific tax benefits for homeschooling expenses, unfortunately. States that do include Louisiana (deduction up to $5,000), Indiana (deduction up to $1,000 per child), Minnesota (education tax credit), and a few others. Even without state-specific benefits, don't forget about potential federal benefits like the Lifetime Learning Credit depending on how you structure your homeschooling program. Some families also set up small educational businesses alongside their homeschooling which can provide some tax advantages if done properly.