I do have email correspondence outlining the scope of work and agreed payment terms, but not a formal signed contract. She sent me spreadsheets tracking which returns I completed and amounts owed, which I've saved. Would these be sufficient documentation for a small claims case? I'm in Texas, which I believe doesn't have a specific tax preparer regulatory board, but I'll definitely look into state-specific options.

Email correspondence can absolutely serve as documentation of your agreement, especially if it clearly outlines the work to be done and the payment terms. Those spreadsheets tracking completed returns will be particularly valuable evidence. For small claims court in Texas, you'd want to compile all communications about the work, evidence that you completed the work (like submission confirmations or acknowledgments from her that she received the completed forms), and documentation of any partial payments already made. Texas small claims (Justice Court) has a limit of $20,000, so your claim would fit well within their jurisdiction.

Really good point. Maybe OP should start by sending a message formally stating they still have access to all these sensitive business details through the shared drive and requesting guidance on proper deletion once payment is received? That creates a paper trail showing they're trying to handle the info responsibly.

Is there a good way to handle this if some of my freelancers were just casual friends helping out? Some of them don't have formal businesses and might get confused if I suddenly ask for W-9s and send them 1099s. Will this cause problems for them if they haven't been reporting this income?

Even casual friends need to get 1099s if you paid them $600+ for business services. It's actually doing them a favor - they legally need to report this income anyway, and having a 1099 makes it easier for them to file correctly. You can explain you're just making sure both of you stay compliant with tax laws. Yes, they might not be thrilled if they weren't planning to report the income, but that's not your problem - you're just following the law. Not issuing 1099s can result in penalties for you, while potentially leaving them exposed to issues down the road if they get audited. Just send them a simple W-9 form to fill out and explain it's required for any business that pays contractors.

Venmo Business is actually pretty decent, I've been using it for my side hustle. The 1.9% + $0.10 fee is annoying but you can write that off as a business expense too! Plus it automatically tracks everything for tax time which is super helpful. Way better than trying to sort through a personal account with mixed transactions.

That's interesting. I didn't have any extreme circumstances like that though. Just poor planning and procrastination on my part unfortunately. Do you know if the IRS ever just "forgives" these situations if I explain it was an honest mistake?

The IRS generally doesn't "forgive" missed deadlines just because it was an honest mistake. They hear that all the time. If it was truly just procrastination, you'll need to follow the pay-first-then-claim-refund route the others mentioned. However, there was actually a recent Supreme Court case (Boechler v. Commissioner) that established equitable tolling could apply for certain tax deadlines, though that was for Collection Due Process cases, not deficiency notices. Still, tax law continues to evolve on these issues.

In my experience, amended returns are taking FOREVER right now - like 6+ months. I filed one in April and it's still "processing" according to Where's My Amended Return tool. But that's separate from the Tax Court deadline issue. The amended return won't stop the deficiency assessment if you missed the petition deadline.

They actually did send me a 1099-MISC for the entire settlement amount of $78,000! I was panicking thinking I'd have to pay taxes on all of it. How do I correct this when the insurance company reported the full amount to the IRS?

Don't worry - this happens all the time with settlement payments. Even though the insurance company reported the full amount on the 1099-MISC, you don't need to report the entire amount as taxable income on your return. You'll need to file Form 8275 (Disclosure Statement) with your tax return to explain the discrepancy. On this form, you'll explain that the 1099-MISC includes non-taxable compensation for physical injuries under Section 104(a)(2) as well as the attorney fees that should be allocated proportionally. This way, the IRS will understand why your reported income doesn't match the 1099-MISC amount. Just be sure to keep all your settlement documentation in case of questions later. Many tax software programs like TurboTax have sections specifically for handling this situation.

In multi-year settlements, you generally allocate the attorney fees based on when you receive the income. So if the fees were all paid from last year's portion, but they relate to the entire settlement, you should allocate the fees proportionally across the years of payment.

That makes sense, thank you! So I should figure out what percentage of my total settlement I received last year, and then deduct that same percentage of the total attorney fees on last year's return. Then I'll deduct the remaining portion of fees on this year's return when I report the second payment. That's clearer than anything my attorney explained!

Is there an easy way to separate these out? My property tax bill has the base amount plus like 4 different "special assessments" for things like schools and flood control. Are those considered part of the deductible property tax?

Generally, special assessments for schools, flood control, and similar public improvements are deductible as property taxes as long as they're based on the assessed value of your property and apply to all properties in the jurisdiction. However, special assessments for local benefits that increase the value of your property (like sidewalks, streets, or water/sewer lines specifically for your neighborhood) are not deductible as taxes. The easiest way to separate these is to look at your property tax statement - it should itemize the different charges. If you're using tax software, it will usually ask you to enter only the deductible portions. Or if you work with a tax professional, they'll know how to properly categorize each item.

It really depends on your total itemized deductions. Remember that itemizing includes property taxes, state/local income taxes (capped together at $10k), mortgage interest, charitable contributions, and some medical expenses. If all those combined exceed your standard deduction, then itemizing is worth it. But you're right that the higher standard deduction has made itemizing less beneficial for many homeowners.