Does specific identification actually save you money compared to FIFO? And how exactly do you indicate which specific coins you're selling when you execute a transaction? It's not like stocks where you can pick specific shares.

Specific identification can potentially save significant money compared to FIFO, especially if you've bought the same cryptocurrency at very different price points over time. It allows you to strategically "sell" the lots with the highest cost basis first, minimizing your reported gain. You don't need to specify which coins you're selling at the time of the transaction. What matters is your accounting method and documentation. You need to maintain clear records showing the date and time each unit was acquired, your cost basis, the date and time of sale, and the proceeds. This becomes your evidence for using specific identification. Most specialized crypto tax software can help maintain these records and will let you choose which method to apply when generating your tax forms.

The IRS clarified in 2019 that like-kind exchanges (Section 1031) were never applicable to cryptocurrency trades, even before the 2018 tax law change that explicitly limited 1031 exchanges to real estate. Unfortunately, those 2017 crypto-to-crypto trades were taxable events. If you haven't been reporting them correctly, you might want to consider filing amended returns for those years. The statute of limitations is typically 3 years, but it can be extended in certain cases, especially if the IRS considers it substantial underreporting.

Thanks so much for sharing your experience. That's actually really reassuring. Did you file yourself or use a tax professional? I'm debating whether I should try to DIY this or if it's worth paying someone at this point.

I started trying to DIY it using one of the major tax software programs, but got stuck on how to handle some of my 1099 business expenses. I ended up hiring a CPA who specializes in late filings, which cost me about $350 but was totally worth it. She found several deductions I would have missed on my own, which saved me more than her fee. Plus she knew exactly how to request the payment plan and advised me on the penalty abatement request. If your situation involves 1099 income with business expenses, I'd definitely recommend getting professional help. If it was just W-2 income, you could probably handle it yourself.

Also worth noting that you can't e-file prior year returns (after a certain point). You'll have to print and mail them. Make sure to send it certified mail so you have proof of when you filed it!

Do you just use Excel or is there a specific app you recommend for tracking? I'm terrible at keeping organized and my "system" is basically a shoebox of receipts lol.

That's a really good point! I never thought about the teaching part possibly being different from the actual woodworking hobby. So would I split it into two activities? Like report the teaching income ($1,785.90) as self-employment on Schedule C with related expenses, but still treat the $25 pen sale at the craft fair as hobby income on Schedule 1?

Yes, that's exactly right! You would treat the teaching income as self-employment on Schedule C, where you can deduct legitimate expenses related to teaching (portion of tools used in classes, materials, mileage, possibly even a home office if you prepare for classes at home). The pen sale would technically be hobby income reported on Schedule 1, Line 8. However, for such a small amount ($25), many tax professionals wouldn't be concerned if you included it with your teaching business or even omitted it entirely due to its minimal value. If you do more craft fairs in the future and start selling regularly, you might want to evaluate whether that activity could also qualify as a business.

I filed an amended return last July because of a late K-1 and it took almost 6 months to process. The IRS is still catching up from the pandemic backlog. Just make sure you keep copies of EVERYTHING and consider sending it certified mail so you have proof of when you submitted it.

Unfortunately, the IRS still considers it your responsibility to report all income accurately, even when the delays are caused by third parties like partnerships sending late K-1s. The penalties and interest aren't meant to be punitive so much as to compensate the government for the time-value of the money you owed but didn't pay on time. That said, you can request an abatement of penalties (though not interest) by showing reasonable cause, which could include receiving documents late. You'd need to document your efforts to get the information timely and show you acted reasonably. Success with this approach varies, but it's worth trying if you face significant penalties.

Is there any way to separate personal payments from business ones on these apps? Like if friends pay me back for dinner through Venmo vs clients paying for services?

Yes, most payment apps now allow you to flag transactions as personal or business. PayPal and Venmo both have this feature - you should use it consistently. The personal transactions shouldn't count toward the 1099-K threshold, but the business ones definitely will. Also, I recommend having separate accounts if possible - one for personal use and one strictly for business transactions. Makes record-keeping much cleaner and helps if you ever face questions about what was business versus personal.

That's actually a really good point I hadn't considered. I've been preferring cash to "avoid the hassle" but my long-term goal is to grow my business enough to get financing for equipment upgrades.

Exactly - when I applied for financing to buy a work truck, the lender wanted to see consistent business income. My payment app history and bank statements showing regular business deposits were crucial for approval. Cash-only would have made that much harder. You should also look into a business banking account if you don't have one already. Many banks offer free business checking for small operations, and it further legitimizes your business when seeking loans or credit.