1 That's good to know! If my cost basis is missing, can I just use the price I remember paying or do I need actual documentation?

5 You really need documentation to support your cost basis if it's missing from your 1099-B. The IRS can question unsupported numbers during an audit. If you absolutely can't find records, you should make a good faith effort to reconstruct the cost basis using historical price data from when you purchased the securities. Some brokerages have historical price lookup tools, or you can use financial websites that show historical prices. Just make sure to keep notes on how you determined each cost basis amount in case you need to explain your methodology later. Documenting your research process shows you made a reasonable effort to comply with tax requirements.

12 Really? That seems excessive. What about losses? Can those offset other income or do they only offset capital gains?

But why would they reduce my income to zero though? Wouldn't they just hit me with penalties for not making enough quarterly payments? I did make some estimated payments but probably not enough.

You're right - they typically just assess penalties rather than reclassifying the income completely. This sounds more like either an error in processing or a mismatch in reported income. The zero income modification is unusual and definitely warrants investigation. When you contact them, specifically ask if this is related to Form 1099 mismatches or if they're questioning the nature of your business itself. Sometimes they'll reclassify business activity as a "hobby" if you've reported losses for several years, but reducing legitimate income to zero is different.

This is good advice. CP2000 specifically is an income verification notice that compares what you reported against what was reported to the IRS by others. Each notice type has specific response requirements.

Thanks for mentioning this! I looked it up but couldn't find a Form 8836 specifically for dependent disputes. Are you sure about the form number? I found some information about attaching a statement to my return, but not a specific form.

I apologize for the confusion! You're right - I made an error on the form number. There isn't a specific Form 8836 for dependent disputes. What I was thinking of is that in disputed dependent situations, the IRS may ask you to complete a "Dependency Exemption Questionnaire" during an examination, but this isn't something you can file proactively. My mistake came from mixing up IRS procedures. What you can do proactively is keep detailed records of support provided and be prepared to substantiate your claim if questioned. Some tax professionals also recommend attaching a statement with your return explaining the support situation in potentially disputed cases, though this isn't required.

Would the uncle have to prove he DIDN'T live with OP? Or would OP have to prove the uncle DID live with them? I'm confused about who has the burden of proof here.

This is a really good point about new skills vs improving current skills. How can you tell the difference though? If the conference has some sessions on topics I currently work with and some on areas I want to expand into, how would the IRS view that?

The key distinction is whether the education maintains/improves skills in your current business versus qualifying you for a completely new profession. If you're already in the field and attending sessions that expand your knowledge within that same general area, that's usually deductible even if it covers some new aspects. For example, if you're a marketing consultant attending a digital marketing conference that includes some sessions on emerging platforms you haven't worked with yet, that's still improving skills in your current profession. The IRS is mainly concerned with preventing people from deducting education that represents a career change (like a real estate agent deducting law school tuition).

Good point about tax brackets! I did this last December - prepaid about $3,000 in business expenses that weren't due until January because I had an unusually high income year and wanted to reduce my 2024 tax bill.

Thanks for that breakdown! My friend definitely meets all those requirements. They're 28, made about $12k, have valid SSN, are a citizen, and have zero investment income. They aren't claimed as a dependent either. Do you know approximately how much EITC they might qualify for with that income level? Just trying to see if it's worth the effort for them to amend.

With an income of around $12k and no qualifying children, your friend would likely qualify for an EITC of approximately $500-600 for tax year 2024 (filing in 2025). The exact amount depends on their precise income and filing status. This is absolutely worth amending for! The amendment process isn't extremely difficult, and getting several hundred dollars back for filling out a form is a pretty good return on your time. Plus, if they qualify this year, they should make sure to claim it in future years too.

Did you file the amended return yourself or use tax software? I'm trying to figure out the easiest way to help my mom with a similar issue from last year.