This is a really good point! So for documentation purposes, would things like rental listings, a copy of the lease agreement, and property management contracts be sufficient? My property was vacant for about 2 months between when I moved out and when I found tenants, so I'm not sure exactly when it counts as "placed in service.

Yes, those documents would be excellent proof. The IRS considers a property "placed in service" when it's ready and available for rent - not necessarily when you actually get a tenant. So if you moved out, did any needed repairs/updates, and then listed it for rent, the property is considered "placed in service" on the date it was first available to rent (when you started advertising it). The key is being able to prove that date with documentation. Save copies of rental listings showing the date posted, emails with potential tenants, records of any improvements you made specifically for rental purposes, and definitely the final lease agreement. If you hired a property manager, their contract and any correspondence about listing the property would also be excellent documentation.

Did TurboTax automatically know to include the real estate commission from the original purchase? I'm using H&R Block software and it didn't specifically ask about that.

That's a good point! What specific things should I document to show I'm running this as a legitimate business? I definitely want to turn a profit, but it's taking time to build up my designs and customer base.

You should keep track of how many hours you spend working on the business each week, have a separate business bank account, maintain professional records of income and expenses, create a business plan with profit projections, and document your marketing efforts. Also consider getting business cards, a business website or professional social media presence, and perhaps even form an LLC if you're serious about it long-term. The key is demonstrating that you're approaching this in a businesslike manner with the intention to make profit, even if you haven't gotten there yet. The IRS typically looks for profitability in 3 out of 5 years, but showing these business practices helps even if you're still in the early stages.

One thing to note - computers are considered "listed property" by the IRS if they're not used 100% for business, so you'll need to track business vs personal use. If you use it more than 50% for business, you can still claim depreciation proportional to business use.

What happened in your situation? Did you get in trouble with the IRS? Im worried about something similar.

I didn't get in trouble since I'd been reporting all my income properly on my Schedule C forms each year. But it created a mess because they tried to issue me 1099s under a business name that wasn't properly registered with the state or IRS. I ended up having to provide additional documentation during tax filing to explain the mismatch between the 1099 information and the business information the IRS had on file. It was a paperwork headache but not a financial or legal problem since I'd been honest about my income all along.

Still $600 for 1099-NEC (non-employee compensation). You might be thinking of the 1099-K threshold for payment platforms like Venmo and PayPal which was supposed to change to $600 but got delayed again for 2024 filings. It's staying at $20,000 for now.

Thanks for this insight. Our pediatrician has actually written respite care into my daughter's care plan, but nothing specifically about who provides it. Would it help if we got the doctor to write a letter specifically mentioning that having a trusted family member like grandma is beneficial for our daughter's condition since she struggles with new people due to her autism?

Yes, that would definitely strengthen your case considerably. Having your pediatrician specifically document that a familiar caregiver like your daughter's grandmother is medically beneficial due to her autism-related difficulties with new people would create a direct medical necessity connection. The letter should explain why this specific arrangement (flying in grandmother) is medically necessary rather than just convenient or preferable. Make sure the letter mentions your daughter's diagnosis, why consistent caregivers are important for her condition specifically, and how this respite care benefits her medical condition beyond just giving you a break.

I used TaxSlayer last year for a similar situation with my son's therapy travel expenses. TurboTax was too limiting for our complex medical situation. TaxSlayer has a specific section for unusual medical expenses where you can add detailed notes explaining the medical necessity.

I honestly hadn't considered that angle! I was briefly part of a small partnership about 6 years ago that dissolved, but we remained on good terms. I never thought they might still be using my info for something, but I'll definitely reach out to my former partner to check. That said, I'd still expect the IRS to be able to tell me who's making these payments. It's bizarre that they claim they can't see the source when it's their own payment system.

Glad I could suggest something helpful! The IRS systems are surprisingly disconnected from each other. The department that processes payments often doesn't have access to the details of who submitted them, especially for third-party payments. When you talk to your former partner, ask specifically if their accountant might be making these payments. In my case, the accountant had set up an automated system years earlier and nobody thought to update it after our business relationship ended. Definitely check on that possibility before going through all the hassle with the IRS.

This is good advice. I work in tax preparation, and I've seen several cases where the IRS corrected errors years later and then demanded repayment with interest and penalties. Document everything and maybe consider putting those refund amounts into a separate savings account so you have the money available if they ever come asking for it.