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Something else to consider - if you do end up with taxable scholarship income, look into whether you qualify for education tax credits like the American Opportunity Credit or Lifetime Learning Credit. Sometimes these can offset the taxes you'd owe on that excess scholarship money. For instance, with the American Opportunity Credit, you might get up to $2,500 back, which could potentially cover whatever taxes you'd owe on that excess scholarship income plus your part-time job earnings. Just make sure you understand which expenses you can and can't claim for the credit if you've paid them with tax-free scholarship funds.
That's super helpful! Can I claim these education credits even though my tuition is already fully covered by scholarships? I wasn't sure if I'd be eligible since I'm not personally paying anything out of pocket for classes.
That's a great question. You can't "double-dip" by claiming education credits for expenses already covered by tax-free scholarships. However, you might still qualify if you have some educational expenses that weren't covered. For the American Opportunity Credit specifically, you can claim expenses for required books, supplies, and equipment even if you buy them from somewhere other than your school's bookstore. So if you paid for any of those out-of-pocket (not with scholarship money), you might be able to claim the credit. Also, if you have to include some scholarship money as taxable income, you can treat that amount as if you paid it out-of-pocket for qualified expenses, potentially making you eligible for credits.
Don't forget that your filing status matters too! Are your parents still claiming you as a dependent? If they are, that affects both your standard deduction and eligibility for certain credits. If your parents claim you as a dependent, your standard deduction is limited to either $1,250 or your earned income plus $400, whichever is greater (but not more than the standard deduction amount of $13,850). Scholarship money that exceeds qualified education expenses doesn't count as "earned income" for this calculation - only income from actual work does. So that part-time job could be really important for your standard deduction calculation!
Something similar happened to me in 2020. My suggestion is to immediately get a tax pro who specializes in crypto. Regular CPAs often don't understand the complexities of crypto transactions. I used a crypto tax attorney who charged me $1,500 but saved me over $30k in incorrect tax assessments. They responded to the CP2000 with a detailed explanation and transaction history showing my actual gains/losses. The IRS accepted it without any further questions. Don't try to do this yourself unless you've kept immaculate records of every single transaction with cost basis. The complexity of calculating correct basis across multiple exchanges, especially with transfers between wallets, is extremely difficult to get right.
$1500 is a lot to pay when there are software solutions that do the same thing for way less. I used CoinTracker for my CP2000 response and it worked fine.
You're right that software can work for simpler situations. My case was particularly complex with DeFi staking, liquidity pools, and cross-chain transactions that most software couldn't handle correctly at the time. For someone with straightforward trades on major exchanges, software might be sufficient. But when you're facing a $40k tax bill and have complex transactions, sometimes the expertise and representation of a professional is worth the cost. They can also help if you need to negotiate a payment plan or have other complicating factors in your tax situation.
Quick question - what happens if I really can't find all my transaction records? I used some sketchy exchanges that went out of business and I think some of my highest cost purchases were there. Without those records, it looks like I made way more than I actually did.
This is unfortunately common with crypto. If you can't access the original exchange data, try these approaches: 1. Bank/credit card statements showing deposits to those exchanges 2. Email confirmations of purchases 3. Blockchain explorers to verify transactions from your wallet addresses 4. If you have partial records, you can sometimes reconstruct activity based on withdrawals to known wallets Document your attempts to obtain complete records. The IRS does recognize that some extinct exchanges make perfect recordkeeping impossible. They generally just want to see a good faith effort to accurately report your activity. If all else fails, you may need to use "other methods" to establish basis, which a tax professional can help with. It's better to respond with partial records than to ignore the CP2000 entirely.
Your brother should absolutely NOT give full bank access to his accountant. Besides being unprofessional, it could violate his bank's terms of service and potentially void fraud protections. I learned this the hard way after giving my bookkeeper access and having unauthorized transactions that the bank initially refused to reimburse because I had shared my credentials. Most accounting software like QuickBooks, Xero, or even Wave (which is free) can connect to bank accounts securely using proper API connections that don't require sharing login credentials. These connections are read-only by design and still give the accountant everything they need for tax purposes. The SSN issue is a red herring. Any legitimate tax professional routinely provides their information to financial institutions and clients. It's literally part of the job.
What specifically should someone look for when hiring an accountant to make sure they're legitimate? Are there credentials or certifications that indicate they follow proper security protocols?
When hiring an accountant, you should look for proper credentials like CPA (Certified Public Accountant), EA (Enrolled Agent) or at minimum a PTIN (Preparer Tax Identification Number) which is required for anyone who prepares taxes for compensation. Legitimate professionals will have business liability insurance and will follow a clear engagement process with proper contracts. Ask them directly about their data security practices - good accountants will have written policies about client data protection and will never ask for full login credentials. They should be using encrypted portals for document sharing and professional accounting software with proper bank feed integrations. Also, verify they're a member of professional organizations like the AICPA or NAEA which require adherence to ethical standards. A quick check with your state's board of accountancy can confirm their license status and show any disciplinary actions.
My father-in-law fell for this exact scam last year with his "accountant" and lost over $24,000 from his business account. The person seemed totally legitimate - office, website, everything. After getting his login info, they slowly transferred money out over several months while sending him fake bank statements showing the correct balances. By the time he discovered it during tax season, the bank refused to cover the losses because he had willingly shared his credentials, which violated their terms of service. Please tell your brother to run away from this accountant and find someone legitimate who uses proper accounting software and secure document sharing. This isn't just unusual - it's a common scam targeting small business owners.
That's terrifying! Did they ever catch the person? Did your father-in-law report them to the IRS or state board of accountancy? I'd be interested to know what happened afterward.
Quick tip - if you can't find your old records, you can request a "Wage and Income Transcript" from the IRS which includes your filed returns. It's free and you can get it online at irs.gov/transcripts. It won't have the detailed worksheets, but shows what forms were filed.
If you're tracking multiple depreciated assets for a business, I'd strongly recommend starting a spreadsheet to track everything going forward. Include purchase date, cost, business use %, method, recovery period, Section 179 amount (if any), and depreciation taken each year. I learned this the hard way and now updating my taxes is SO much easier. You can even calculate future depreciation in advance.
Payton Black
Another thing no one mentioned yet - make sure you're tracking your business mileage if you drive for your LLC! That goes on Schedule C as a business expense and is separate from the standard deduction. I missed out on this my first year self-employed and probably overpaid by $1000+ in taxes.
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Harold Oh
ā¢Do you know if you can deduct mileage if you work from home but occasionally drive to client meetings or to pick up supplies?
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Payton Black
ā¢Absolutely you can! Any driving from your home office to client sites, suppliers, business meetings, etc. counts as deductible business mileage. Just make sure to keep a log with dates, starting/ending mileage, and purpose of each trip. The only driving that's not deductible is regular commuting to a primary workplace. But if your home is your primary workplace (home office), then driving to clients or for business purposes is generally deductible. There's a pretty generous mileage rate too - it was 65.5 cents per mile for 2023.
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Amun-Ra Azra
Hey just a quick tip that helped me - I was also confused about where to take the standard deduction when filing for my small business. If you're using tax software like TurboTax, H&R Block, etc., they'll apply the standard deduction automatically unless you specifically choose to itemize. The software will usually ask you something like "Do you want to itemize deductions?" and if you say no, it applies the standard deduction. Super easy! Don't overthink it like I did my first year.
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Summer Green
ā¢Which tax software do you recommend for first-time self-employed? I've used the free versions before but now I need something that handles Schedule C.
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