This is super helpful, thank you! Looking at these factors, I'm definitely more on the hobby side. My financial records are pretty basic, I primarily do it for enjoyment, and the income is small compared to my day job. One more question - if I do decide to formally track this as a hobby on my taxes, should I be keeping receipts for all my bonsai-related purchases even though I can't deduct them? Just in case the IRS ever has questions?

Good question! Yes, I would recommend keeping basic records of both your sales and expenses, even though you can't deduct the expenses for a hobby. This serves two important purposes: First, if the IRS ever questions whether this is truly a hobby, your records can help demonstrate the financial reality of your activity. Second, if you eventually transition to business status, having historical records will be valuable. Also, while you can't deduct hobby expenses against hobby income anymore (thanks to the Tax Cuts and Jobs Act), keeping track of expenses helps you understand the true economics of your activity. Just keep it simple - a basic spreadsheet and a folder for receipts should be sufficient. No need for elaborate bookkeeping if it's truly just a hobby.

Getting a 1099-K means Etsy is reporting that income to the IRS, so you definitely need to report it on your tax return. Starting in 2022, platforms like Etsy are required to issue 1099-Ks for $600+ in sales (used to be $20k). This doesn't automatically make your activity a business, but it does mean the IRS knows about the income. You'd still apply the same hobby vs business tests others mentioned. If it's a hobby, report on Schedule 1 (Other Income). If business, Schedule C.

Thanks for the tip! I just looked at the actual Schedule D form in the PDF and you're right - there's a discrepancy. The main software screen shows $0 carryover, but Schedule D Line 16 is showing the $4,000 remaining loss amount. So it looks like the calculation is correct in the actual forms but just displaying wrong in the summary screen? Do you think I should contact the software company about this display issue or just ignore it since the actual form seems correct?

If the actual Schedule D shows the correct $4,000 carryover amount, then your tax return is being filed correctly and you should be fine. This is definitely just a display issue in the software interface. It's still worth reporting to the software company since others might be confused by the same issue. Take screenshots of both the incorrect summary page and the correct Schedule D to include with your report. But as far as your taxes are concerned, you're good to go - the IRS receives the actual forms, not the software's summary screens.

This is good advice. Numbers get fuzzy when we rely on memory. I've messed up carryovers before because I was working from memory instead of having my previous return open while doing my current taxes.

That's really helpful context. The mobile home was repossessed rather than sold, and I don't think there were any investment accounts generating income. Does that mean the estate might not have needed to file either? I'm trying to figure out if we're in deep trouble or if this might be a relatively minor issue.

Based on what you've described, it sounds like the estate tax situation might be fairly straightforward. If the manufactured home was repossessed rather than sold by the estate, there wouldn't be income from that transaction. Without investment accounts generating income, the estate may have had minimal or no taxable income. That said, estates still have filing requirements even with zero tax liability in many cases. The 1041-ES forms you received suggest the IRS believes there is some obligation, but it could be much simpler than you fear. Getting the transcript information from the IRS will help clarify exactly what they're expecting.

This is super important. My family got hit with massive penalties that were almost more than the taxes themselves. Request first-time penalty abatement if this is your first tax issue - the IRS will often grant it if you have a clean compliance history.

DON'T do this unless you're an actual tax professional with a CAF number. They will ask for your credentials and if you can't provide them, they'll just transfer you back to the regular line and you've wasted your time. They've gotten stricter about this in the last year.

Thanks for the heads up! I didn't realize they were checking credentials now. Guess I'll stick with the regular line and just use the tips from this thread. Definitely don't want to make things worse by trying to game the system.

Thanks for the validation. I've already started asking around for recommendations for next year. Did you find any specific questions that helped you separate the knowledgeable CPAs from those just claiming to understand crypto?

I ask them to explain how they handle specific crypto situations that I know are tricky - like liquidity pool rewards, token airdrops, or NFT transactions. The ones who give vague answers or just say "we can handle any crypto situation" without details are the ones to avoid. The good ones will be honest about what they know and don't know. My current CPA straight up told me he specialized in DeFi and mining operations but wasn't as familiar with NFTs. That honesty was refreshing, and he ended up partnering with an NFT tax specialist for that portion of my return. Transparency about their limitations is a huge green flag.

Eh, I disagree. The CPA did complete part of the work, so paying nothing would be unfair. The $250 partial payment makes sense. And honestly, most CPAs are overwhelmed during tax season - it sounds more like miscommunication than intentional deception.

This is why I just do my own taxes now. I spent $600 on a CPA two years ago only to find a mistake that could have cost me $1200. H&R Block software is like $70 and has handled everything I've thrown at it including rental property and some basic stock trades.