You absolutely cannot ignore it! The IRS receives a copy of every 1099-K, and their systems automatically match them to your tax ID. If you don't account for it somehow on your return, you'll likely get a CP2000 notice (automated underreporting notice) which is basically the IRS saying "hey, we think you didn't report all your income." The correct approach is to report it and then exclude it with an explanation. Most tax software (including CashApp Taxes) has a way to indicate the money isn't taxable income. This satisfies the reporting requirement while ensuring you don't pay taxes on money that isn't actually income.

Thanks for explaining! That makes sense about the IRS matching the forms. So better to report it with the explanation than to trigger an automatic flag in their system. I'll make sure to include it in CashApp Taxes and check that box saying it's not taxable income.

I managed to get Square to issue a corrected 1099-K last year, but it took persistence. The key was escalating beyond the first-level support. I had to specifically request to speak with their tax reporting department. It took about 6 weeks, but they eventually issued a corrected form. In the meantime, I filed my taxes as others here suggested - reporting the 1099-K but indicating the amounts weren't taxable. That way if the correction never came, my taxes were still accurate.

That's EXACTLY my situation! The property was just collateral for my business loan but not used in the business. The $380k satisfied about 80% of the loan and they did forgive the rest. So I need to worry about both capital gains tax AND cancellation of debt income?

Yes, you'll need to address both issues on your tax return. The capital gain from the property sale is calculated as the difference between the sale price and your adjusted basis, reported on Schedule D. For the loan forgiveness, you'll need to report this as cancellation of debt income on Form 982. However, there are exceptions that might apply - particularly if you were insolvent at the time of forgiveness or if the debt was related to a qualified business. This is definitely a situation where professional advice is valuable, as proper documentation can make a huge difference in your tax outcome.

This is so important. Question for you - did you use a tax pro to figure this out? I'm in a similar situation and wondering if tax software can handle this complexity or if I need to hire someone.

If I find different refund amounts between software, how do I know which one is correct? Should I just go with the one that gives me the bigger refund?

You should never simply choose the software that gives you the bigger refund without understanding why there's a difference. A larger refund might be incorrect and could potentially trigger an audit. If you find different results, dig into the actual tax forms and compare them line by line to see where the differences occur. The most common discrepancies happen with education credits, business expense categorizations, or retirement contribution deductions. When you find the specific lines that differ, research that particular tax topic or consult with a professional about that specific issue.

Does this work with state taxes too or just federal?

I took it in English even though Hindi is my first language. The tax terminology is mostly English anyway, so I found the translated version more confusing than helpful when I tried practice questions in Hindi. The technical terms don't always translate well.

This is super helpful advice I hadn't considered. Are there any specific resources you'd recommend for learning about state taxation and these FBAR requirements? Would the regular EA prep courses cover these topics adequately?

Most EA courses touch on FBAR and international reporting but not deeply enough for specializing in international clients. I'd recommend the IRS's own resources on FBAR and Form 8938 requirements as a start (search "IRS FBAR Reference Guide"). For state taxation, each state has different rules, but I'd suggest focusing initially on understanding residency rules and sourcing of income, as these determine filing requirements. The tax foundation website has good comparative information across states. Once you understand the concepts, you can look up specific state rules as needed. Bloomberg Tax and Thomson Reuters also have good continuing education courses on international tax compliance that go beyond what's covered in basic EA prep.

Thanks for the warning! Do you know where I can figure out if we need to make an estimated payment? The inheritance was about $47,000 and they withheld around $5,600. We both make about $70k each yearly if that helps.

With a combined income of around $140k plus this $47k inheritance, you're looking at potentially being in the 22% federal tax bracket for 2025 (assuming you're married filing jointly and tax brackets stay similar to 2024). At 22%, the tax on $47k would be about $10,340, but they only withheld $5,600. So you might be under-withheld by around $4,740. To avoid a potential underpayment penalty, you could make an estimated tax payment using Form 1040-ES. The IRS website has a withholding calculator that can help determine the exact amount based on your full financial picture.

I used TurboTax last year for this exact situation. It actually does a good job with inherited IRAs. There's a specific section for reporting distributions, and it asks if it's from an inherited account. Just make sure you have the 1099-R form from the financial institution (they'll send it in January/February) and enter everything exactly as shown on that form.