Do you think it's better to just wait until next year at this point? I'm in the same boat as OP but worried I'm causing more problems than I'm solving by trying to do this mid-year. Would it be simpler to just stay as a sole prop for 2024 and start fresh with an S-corp in January?

That really depends on your specific numbers. If you're making substantial income where the self-employment tax savings would outweigh the hassle and potential accounting costs, it might still be worth pursuing for 2024. In my experience, establishing the S-corp now and getting your systems in place (payroll, accounting separation, etc.) can be advantageous even if the tax savings are minimal for the partial year. It gives you time to work out any kinks in your process before starting a full tax year. Plus, the longer you wait, the harder it can be to get retroactive approval since "I didn't know" becomes less convincing as a reasonable cause the longer you've been in business.

Thanks for sharing your experience! That's reassuring to hear they were understanding in your case. Did you have to go back and adjust your bookkeeping for those earlier months once the election was approved? I'm wondering how complex that retroactive accounting might be.

Yes, I did have to go back and retroactively clean up my books once the election was approved. I had to reclassify some transactions and establish a clear division between business expenses, my reasonable compensation, and owner distributions. The most time-consuming part was setting up payroll retroactively and making sure I was compliant with all the payroll tax requirements. I ended up establishing what my reasonable salary should be for the full year, then calculating what I should have been paying myself each month. My accountant helped me file the necessary quarterly payroll tax forms for the quarters that had already passed. It was definitely a headache, but the tax savings made it worthwhile in my case.

Did you have to do anything special with FreeTaxUSA for options trades specifically? I've heard they're treated differently than regular stock transactions for tax purposes and want to make sure I'm doing it right.

For options in FreeTaxUSA, you just need to make sure your import file correctly identifies them as options contracts with the right expiration dates and strike prices. The software handles the different tax treatment automatically. One thing to watch for is that some brokers (especially Robinhood back in 2020) sometimes didn't properly classify certain spreads or multi-leg option strategies in their export files. If you did any complex options strategies, you might need to double-check those specific entries, but for simple buys and sells it works perfectly without any special steps.

This is the way. I'm a bookkeeper (not tax professional) and NO reasonable preparer should be charging per transaction when software can import these in bulk. Either hourly or a reasonable flat fee is standard practice for high-volume traders.

Is it safe to keep a document with your SSN saved on your computer though? I'm always paranoid about identity theft, especially with documents that have my full SSN written out.

That's a really good point about security. What I actually do is keep a mostly completed version with just the last four digits of my SSN visible, then I add the full number only when I'm ready to send it. For extra protection, I save the template as a password-protected PDF, so even if someone somehow got access to my computer, they couldn't open the file. And I never email a W-9 as an unsecured attachment - I either use a secure document sharing service or password-protect the PDF and send the password through a different channel like text.

Companies often request updated W-9s annually as a best practice, especially if it's been a while since they collected one from you. It helps them ensure they have your current information.

Thanks for mentioning this, but my 1099-C is definitely for an old credit card debt, not a home mortgage or farm debt. It was from a major bank that I definitely had an account with back then, so I think it's legitimate. The weird thing is why they waited so many years to cancel it and send the 1099-C. Is there a time limit on when they can issue these forms? The debt was from around 2012, but they just cancelled it in 2023.

There's actually no time limit on when creditors can issue a 1099-C after cancelling a debt. They're required to issue it for the tax year in which they actually cancel the debt, regardless of how old the original debt was. In your case, even though the debt originated in 2012, if the creditor officially cancelled it in 2023, then that's when the taxable event occurred. This is fairly common with old debts that have been sitting in collections for years. The good news is that insolvency is still an option regardless of how old the original debt was. Focus on your financial situation at the time of cancellation (2023) when determining if you qualify for the insolvency exclusion.

That's a great point. Most people filing basic returns won't have these tax attributes, but it's an important consideration if you have a more complex tax situation. Also worth noting that if you're using free tax filing software, some of them don't support Form 982. You might need to upgrade to a paid version to properly handle the insolvency exclusion.

Thanks for breaking it down like this - now I get why the numbers look so crazy. But how do I actually fix it in H&R Block? When I look at the forms it's just showing these huge numbers and I can't figure out where to adjust the cost basis.

In H&R Block, you should be able to go to the cryptocurrency section and view the detailed transactions. Look for a section called "Review and Edit Transactions" or something similar. For each transaction, make sure it has both a "cost basis" (what you paid) and "proceeds" (what you received when selling). If cost basis information is missing, H&R Block might be treating the entire sale as profit. You'll need to manually enter the cost basis for any transactions where it's missing. It's tedious but necessary to avoid overpaying. Alternatively, you might consider using specialized crypto tax software to generate the correct forms, then import those into H&R Block instead of using their direct Coinbase import.

This is important! Coinbase switched from 1099-K to 1099-B a couple years ago, but some users still get confused by this. The 1099-B should include your cost basis, but sometimes the data is incomplete. Always check if any transactions are marked "cost basis not reported to the IRS" because you'll need to provide that info manually.