Did you do it yourself or use a tax professional? I'm trying to figure out if I can handle an amendment myself or if I need to pay someone.

I did it myself using the same tax software I originally filed with. Most of the major tax platforms have an amendment feature that helps walk you through the process. It pre-fills a lot of the information from your original return, so you only need to focus on what's changing. I found it pretty straightforward, especially since I was just adding business expenses to my Schedule C. If your amendment is more complicated (like changing filing status or something more substantial), then getting professional help might make sense. But for adding missed deductions, you can probably handle it yourself.

File them separately! I made the mistake of trying to deal with everything at once and it created a huge mess. Do your 2023 taxes normally, then handle the 2022 amendment after. Keeps everything cleaner and prevents confusion.

We did file within the 30-day window! Our lawyers were really strict about that deadline. We didn't have any external investors at the exact time we incorporated and issued the initial shares. We did have some friends/family invest about 3 months later at a slightly higher valuation though. Would the IRS look at that later valuation and try to apply it retroactively to our founder share purchases?

Good that you filed within the 30-day window - that's a common mistake that can't be fixed later. The IRS generally wouldn't apply a later valuation retroactively if there was a legitimate basis for the initial valuation. At formation, with no product, revenue, or investment, valuing common shares at just above par value is typically reasonable. The key is whether there were any substantive negotiations or commitments from investors already in place when you incorporated, which might suggest a higher valuation already existed. The 3-month gap before your friends/family round provides decent separation, and startups often see legitimate value creation in those early months that justifies a higher valuation. Just make sure you have documentation of the company's state at incorporation versus 3 months later to show real progress that warranted the increase.

I've seen it happen. Friend was audited last year and the IRS specifically questioned the valuation used for their founder shares. They had purchased at $.001 but had term sheets from investors at $.08 in progress when they did it. IRS argued they'd undervalued by millions and owed taxes on the difference. Huge mess.

Can you still make that election now? Or was that something that had to be done on the 2020 return?

Unfortunately, the election to report the full amount in the first year had to be made on your original 2020 tax return. Since you already reported only 1/3 of the distribution as taxable in 2020, you're now locked into the three-year reporting method. The only way to change this would be to file an amended 2020 return (Form 1040-X), but that has risks and costs that likely outweigh any potential benefits at this point. You'd pay interest and possibly penalties on any additional tax from reporting the full amount in 2020, plus you'd draw additional scrutiny to your return.

You can repay a CARES Act distribution within 3 years of the date you received it to avoid taxes on the repaid amount. So if you took it out in July 2020, you have until July 2023 to put it back. You'll need to file amended returns to get back any taxes you already paid on the portions reported in 2020 and 2021.

Yikes, I'm so sorry you went through that! Thanks for the warning - this is exactly the kind of situation I'm trying to avoid. I'm definitely going to verify active licensure before moving forward. Did you end up finding a legitimate CPA after that experience?

Yes, we eventually found a great CPA through my coworker who's been using him for years. The difference was night and day - our new CPA provided all his credentials upfront without being asked and even showed us his professional liability insurance certificate. One tip: when we interviewed him, he asked US detailed questions about our situation rather than making generic promises about maximizing refunds. That level of detailed interest was a good sign he actually knew what he was doing. He also explained exactly why the previous deductions were improper and helped us file amendments. Good luck with your search!

This is a really good point. Government websites are notoriously outdated sometimes. I'd definitely ask them about it - their response will tell you a lot about how they handle client concerns.

I thought about that but was trying to save money since my income is already pretty tight. Do you think it's worth the cost even if my situation isn't super complicated? Did they find any deductions you missed or was it just for the reassurance?

Yes, I think it's worth the cost even for a relatively straightforward situation, especially in your first year or two of self-employment. The CPA actually found several deductions I had missed - part of my phone bill, a portion of my internet, some office supplies I'd forgotten about. These additional deductions saved me around $400 in taxes, so the service more than paid for itself. The peace of mind was the biggest value though. Having a professional review everything and say "this looks correct" eliminated so much anxiety. They also gave me a simple system for tracking everything this year, which has made the whole process much easier. If money is tight, you might look into VITA (Volunteer Income Tax Assistance) which offers free tax help for people who make under $60,000.

This is a good point. The IRS isn't suspicious of people who happen to be in the EIC range - they're looking for people who make up fake income or dependents. Lots of legitimate self-employed people naturally fall into this income range.