Thank you for these clear steps! Quick question - if my shares were sold at slightly different prices throughout the day (not all exactly at the FMV at exercise), does that change how I should calculate the adjustment?

No problem! If your shares were sold at slightly different prices throughout the day, that doesn't change how you calculate the basis adjustment. The adjustment is still (FMV at exercise - original option price) × number of shares sold. The selling prices will determine if you have any additional short-term capital gain or loss after the adjustment. For example, if FMV at exercise was $106.63, but some shares sold for $106.80 and others for $106.40, you'd have a small gain on some and small loss on others. But the basis adjustment calculation is the same regardless of the actual sale prices.

Yes, you'll absolutely need to make the same type of adjustment when you eventually sell. The key is that when you exercised the options, you already paid ordinary income tax on the spread between your grant price and the FMV on exercise date. That spread was included in your W-2 income for the year you exercised. Your new cost basis becomes the FMV on the date you exercised, not the original grant price. When your broker issues a 1099-B after you sell, they'll likely show the original grant price as your basis, so you'll need to make that same Form 8949 adjustment to avoid being taxed twice on the same income. Keep good records of your exercise date and the FMV on that date!

This is super helpful, especially the Google Scholar tip! I hadn't thought of using that for tax research. Do you find the search results are accurate or do you get a lot of unrelated cases to sort through?

Google Scholar works surprisingly well if you use specific terms. For instance, instead of searching "business expenses tax court," try "ordinary and necessary 162(a) tax court" to get more relevant results. You'll still get some unrelated cases, but far fewer than a general search. I usually add the specific code section in my search along with any technical tax terms. If you're looking for cases on a particular issue, adding terms like "held that" or "we conclude" can help find cases where the court actually made a ruling on your issue rather than just mentioning it in passing.

Westlaw and LexisNexis are industry standards for a reason - they have excellent search capabilities and organizing features. But they're prohibitively expensive for most individuals unless you have access through work or school.

Thanks for the input. I'll check if any local law libraries offer public access terminals. Might be worth the drive to use those resources occasionally for complex research.

Thanks for that info! I called Prudential and they were actually able to find the original basis amount my mom paid into the annuity. It was around $41,000, which means only about $26,800 should be taxable instead of the full amount. They're sending me a corrected 1099-R. One question though - do I need to file any special forms with my tax return to show this calculation or will the corrected 1099-R be enough?

The corrected 1099-R should be sufficient for your tax return. When you get it, Box 2a (the taxable amount) should show the approximately $26,800 figure instead of the full distribution amount, and Box 2b should be unchecked to indicate that the taxable amount is determined. No additional forms are typically required for reporting this on your personal tax return. TurboTax will properly handle this once you enter the corrected 1099-R information. Just be sure to wait for that corrected form before filing your taxes, and keep a copy of both the original and corrected 1099-R for your records in case of any questions later.

The 10-year rule usually applies to inherited IRAs and qualified retirement plans under the SECURE Act, not typically to non-qualified annuities (which is what the original poster seems to have). For non-qualified annuities, beneficiaries generally have options like taking a lump sum (which is what OP did), annuitizing the payments, or in some cases taking distributions over their life expectancy.

Thank you for this practical advice. I've been saving receipts but I hadn't thought about organizing them by category or keeping screenshots of the campaign itself. Did your dad's accountant recommend any specific way to document that the expenses were paid specifically from the crowdfunding money versus regular income? Should I have set up a separate bank account just for these funds?

My dad actually didn't set up a separate account, and his accountant said that was his biggest mistake. She strongly recommended having a dedicated account for crowdfunding money to create a clear paper trail. It doesn't have to be anything fancy - even just a free checking account where you deposit all the crowdfunding money. That way, if you're ever audited, you can clearly show the money coming in from crowdfunding and then going out for qualified expenses. Without that separation, it gets really muddy trying to prove which dollars went to which expenses. If possible, I'd recommend transferring the funds to a separate account now and using that for all remaining expenses.

I wasn't audited for crowdfunding specifically, but I did get flagged for an audit the same year I received about $35k from a GiveForward campaign (similar to GoFundMe) for my son's medical treatment. When I showed the IRS agent my documentation proving it was a medical crowdfunding campaign, they immediately marked that portion as non-taxable and moved on to examining my other income. They didn't question it at all once they saw what it was.

Doesn't that mean you have to pay for the tax software twice? Once for the estimate and once for actually filing?

No, you don't have to pay twice. With most tax software, you only pay when you actually file. You can go through the entire process, see your refund amount, and then just save your progress. When you're ready to file for real, you just pick up where you left off and submit. Some software even lets you create multiple scenarios without charging you. I've done this with TurboTax where I tried different filing statuses to see which gave a better refund before deciding which one to actually use.

Free File is great in theory but sometimes those "free" options hit you with fees at the last minute for state filing or certain forms.