Good point! I just double-checked my statements and there was actually a small cash payment of $37.42 for a fractional share. But the CP2000 is claiming I owe taxes on the entire value of all converted shares, not just this tiny cash amount. Could this small cash payout be why the entire transaction got flagged?

Yes, that's exactly what probably happened! The cash-in-lieu payment triggered a report to the IRS, but then the entire transaction got mischaracterized. This is super common. Your response to the CP2000 should acknowledge this small taxable amount (the $37.42) but explain that the remainder of the transaction was a tax-free reorganization. Include your Morgan Stanley statements showing both the share conversion and the small cash payment. The IRS should adjust their proposed assessment to only tax the cash portion, which would be a much smaller amount than what they're currently claiming.

This is such a good point. I went through an acquisition with Exxon back in 2019 and completely lost track of my original basis. Had to pay an accountant $500 to reconstruct everything when I sold some shares last year. Save yourself the headache!

Would this work even if the stock is only worth like $200? Seems like a lot of hassle for the charity for such a small amount. And how do you claim the deduction - is it complicated to do on your taxes?

Yes, it works even for smaller amounts! Many charities are set up to handle stock donations of all sizes. While some very small local organizations might not have the infrastructure, most medium to large charities definitely do. For claiming the deduction, it's straightforward if you itemize deductions on Schedule A. You'll get a receipt from the charity showing the donation value (usually the market value on the transfer date). If the stock is worth more than $500, you'll also need to fill out Form 8283, but the form isn't particularly complicated. For very small donations, make sure the tax benefit of itemizing would exceed the standard deduction, otherwise there's no additional tax advantage.

Did you have to pay any fees to sell through Computershare? I heard some transfer agents charge like $25-50 for selling shares which seems ridiculous if the stock isn't worth much.

Thanks, this is exactly what I needed to know! For tracking business vs personal use, would a simple log be sufficient or do I need something more formal? I probably use it about 85% for the Amazon business and 15% for personal browsing.

A simple log would work fine, but be consistent with it. I recommend creating a spreadsheet where you track hours of use and categorize them as business or personal. Do this for a representative time period (at least a few weeks) to establish your usage pattern. The key is having something contemporaneous - meaning you're tracking it as you go, not trying to recreate it later if you get audited. Also take screenshots of your work on the computer for the business as additional evidence. The IRS is particularly interested in seeing that high-cost assets claimed as business expenses are actually being used for business purposes.

I think the "hobby loss rule" is that you need to show a profit in 3 out of 5 consecutive years to automatically be considered a business. Otherwise you need other evidence that it's a legitimate business attempt.

12 Thanks for the suggestion! Would I need any special documentation to prove I actually tried to collect the debt? I have the original contract, all my invoices, and email threads showing I tried to get paid multiple times.

4 Yes, documentation is critical. Keep your original contract, all invoices sent, and especially any communications showing you attempted to collect payment. Also document how you determined the company was bankrupt and the debt uncollectible - like news articles about their shutdown, bankruptcy filings, or bounced emails to company addresses. Form 8949 is typically used for capital losses, but business bad debts can sometimes be reported as short-term capital losses. However, this really depends on your specific situation and whether you're using cash or accrual accounting.

3 Good point! They definitely should have issued a 1099-NEC for payments over $600. If they didn't, you should still report the income you actually received, but that missing 1099 might be another sign the company wasn't following proper business practices.

That's really helpful! Do you know if I can have both a Solo 401k and a SEP IRA for the same business? And does the contribution limit apply across both plans or separately?

You can have both types of plans, but the contribution limits overlap - they're not separate. The total combined employer contributions across all defined contribution plans (401k, SEP IRA, etc.) can't exceed the annual limit ($61,000 for 2022 or $67,500 if you're eligible for catch-up contributions). If you've already made employer contributions to your Solo 401k for 2022, you'd need to subtract those from the maximum SEP IRA contribution you could make. It gets complicated quickly, which is why having a tax pro run the numbers is usually worth it. The key advantage is that you can still set up and fund a SEP IRA now for 2022, whereas the Solo 401k needed to be established by Dec 31, 2022.

I did this last year. C-corps have some advantages for retirement planning (like the ability to create defined benefit plans with much higher contribution limits), but the tax situation gets WAY more complicated. You're looking at potential double taxation issues that can offset the retirement benefits.