Thanks for this - my settlement does break down different amounts. About $21k was compensatory for financial losses and about $7k was listed as "other damages." Is there a way to deduct at least the compensatory part?

Based on your breakdown, if the $21k compensatory damages were related to financial losses from a business activity or investment property, then yes, that portion would likely be deductible in the appropriate section (Schedule C for business, Schedule E for rental property, etc.). The $7k listed as "other damages" is more ambiguous and would depend on the specific nature of those damages. If they're punitive damages, those typically aren't deductible. If they're for emotional distress without physical injury, those generally aren't deductible either. But if they relate to a business loss in some way, they might be.

Do cancelled checks count as proof or do you need more than that? I paid my settlement in 3 installments and have the cancelled checks but wondering if I need more documentation.

Do you need receipts for absolutely everything? I haven't been great about keeping track so far. Also, how do you calculate the portion of internet/phone to deduct?

Yes, you should keep receipts for everything - the IRS can ask for documentation if you're ever audited. But if you've lost some, bank/credit card statements can sometimes work as backup. For internet/phone, you need to determine what percentage is used for business. For example, if you estimate 30% of your phone use is for business communications with customers, you can deduct 30% of your phone bill. Just be honest and reasonable with your estimates. Some people keep a log for a few weeks to establish a usage pattern. Same concept applies to your home office - you calculate what percentage of your home's square footage is used exclusively for business, then deduct that percentage of rent/mortgage, utilities, etc.

Omg this tax stuff is so complicated. Im making bracelets and selling them on etsy too and i had no idea about any of this!!! How do you even make quarterly payments? And what's this 199A thing?

Thank you for bringing this up! I do have a separate business account for the dance studio, but I've occasionally used my personal card for studio expenses when I forgot the business card. Is that going to be a problem? Should I be reimbursing myself officially or something?

Using your personal card occasionally isn't the end of the world as long as you properly document everything. Keep all receipts and create a formal reimbursement process - even if it's just you approving it as the director. I recommend creating a simple reimbursement form that details the expense, date, purpose, and business justification. Attach the receipt and have it "approved" (by you or ideally another board member if you have any). This creates a clear paper trail showing these were legitimate business expenses, not personal ones. The key is maintaining that clear separation with proper documentation.

This! I run a small nonprofit music education program and had to file separate forms with my state's department of revenue AND secretary of state to maintain our state-level exemptions. Each state has different requirements.

Do you have a template for this coversheet you could share? I'm trying to visualize what should be on it besides just a list of documents.

I don't have a specific template, but I include these sections: Personal Info (names, SSNs, address), Income Documents (list all W-2s, 1099s by source), Deduction Documentation (charitable contributions, home office, etc.), Credits (child tax credit info), Estimated Tax Payments (dates and amounts), and Questions (things I specifically want the CPA to address). I also add a section for "Changes from Last Year" that highlights anything new (like your new baby) so they immediately know what's different.

Smart! What app do you use for this? Just regular notes app or something specific for tracking expenses?

Did you use the IRS's online payment plan setup? I'm wondering how flexible they are with the monthly payment amounts and if they charge a lot of interest while you're paying it off.

Yes, I used the online payment plan tool on IRS.gov. It was much simpler than I expected. You can actually propose your own monthly payment amount based on what you can afford. There is a minimum (I think around $25-50) but they're pretty flexible. They do charge interest (federal short-term rate plus 3%, compounded daily) and a small failure-to-pay penalty while you're in the payment plan, but those rates are way lower than credit cards or loans. You'll also pay a setup fee ranging from around $31 to $130 depending on how you apply and pay, but low-income taxpayers can get reduced fees or even have them waived.

This is helpful! Do you know which software providers specifically offer free prior year filing? I looked at TurboTax but they wanted to charge me for going back to 2022.