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Ask the community...

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Aaron Boston

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Your RSA treatment depends on exactly when you recognized ordinary income. If your RSA was subject to vesting, you would've paid ordinary income tax at the time of vesting, establishing your cost basis. If the acquisition accelerated vesting, that complicates things. Check your 2021-2023 W-2s for Box 14 which might list the RSA income. That amount is your cost basis. The difference between that and your acquisition payout is your capital gain. In my experience, the missing cost basis is the most common issue with equity comp in tax software. You'll need to manually adjust this in TurboTax.

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Thanks for explaining this! I just checked my W-2 from 2021 and sure enough, there is an amount listed in Box 14 that matches when the RSA vested. So if I understand correctly, I should use that as my cost basis when entering this into TurboTax?

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Aaron Boston

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Yes, that amount in Box 14 is exactly what you should use as your cost basis. Enter that into TurboTax when it asks for the adjusted basis. This will reduce your capital gain to just the appreciation that occurred between vesting and acquisition. Regarding the 20% rate, once you enter this correct basis, check your total income. If your modified AGI exceeds $200,000 (single) or $250,000 (married filing jointly), you're subject to the additional 3.8% Net Investment Income Tax on top of the 15% long-term capital gains rate, effectively making it 18.8%, which TurboTax might round to 20%.

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I had a similar issue with RSAs at my last company. Make sure to check Form 8949 in TurboTax. If the cost basis wasnt reported to the IRS (box A unchecked on your 1099-B), you need to select "adjustment" and enter code B for "basis reported to the IRS is incorrect." Then manually enter your correct basis from your W-2 when the RSA vested. This is super common with employer equity and most people overpay taxes because they dont adjust it!!

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Chloe Zhang

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I agree with this! Same thing happened to me last year and I ended up amending my return after I realized I'd overpaid. The adjustment codes on Form 8949 are crucial for equity compensation.

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One thing nobody's mentioned - make sure to keep detailed notes about EVERYTHING related to how they controlled your work. Write down dates, times, names of supervisors, specific instructions you were given, etc. If possible, save any emails or texts with instructions. I filed an SS-8 last year for a similar situation (event staff misclassified as contractors) and the more specific examples of employer control I could provide, the stronger my case was. The IRS specifically asked for examples of how my schedule and work methods were dictated.

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Thanks for this advice. I do have some text messages from the production coordinator with specific reporting instructions and break schedules. Should I include screenshots of these with my SS-8 filing? And did you end up saving much on your taxes after going through the process?

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Yes, definitely include screenshots of those text messages! They're perfect evidence of the control factor. Anything showing they dictated when and how you performed the work strengthens your case dramatically. As for tax savings, it wasn't huge for me since it was just a few days of work, but I saved about 7.65% on those earnings (the employer half of FICA taxes). The bigger impact was that the company got flagged for a broader employment tax review, which potentially helps all the other misclassified workers too.

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Dont bother with the SS-8 for such a small amount IMO. I filled one out 2 years ago for a $1200 job and still havent heard anything back. Complete waste of time for small amounts, the IRS is so backlogged they prob wont even look at it for years.

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That hasn't been my experience at all! I filed one for a $750 job last year and got a determination in about 4 months. I think it depends on how clear-cut the situation is. My case had obvious employee factors like required uniforms, equipment provided, and scheduled hours - sounds similar to the OP's situation.

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Former bookkeeper here. You absolutely need to report all income, but there's a big difference between reporting income and incriminating yourself. Most people in "alternative sales" industries report under something like "retail sales" or "consulting" and use Schedule C. The IRS wants their cut, but they don't need you to write "ILLEGAL WEED DEALER" on your forms.

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But wouldn't you need to explain to the IRS how you made so much money in "retail sales" without a storefront or inventory? Don't they audit people who suddenly claim large income from businesses that don't seem to exist?

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The IRS cares about whether you're reporting income and paying taxes, not interrogating every small business about their operations. Plenty of legitimate businesses operate without storefronts (online sales, mobile services, etc). If you did get audited, they would look for documentation of income and expenses, not necessarily the specifics of what you sold. That's why keeping good records of your money flow is important regardless of the source. Many cash businesses get audited simply because of poor recordkeeping, not because of the nature of the business.

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Ethan Brown

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Y'all are missing something important here. NYC has legalized recreational marijuana, but selling without proper licensing is still illegal. If OP is selling without a license, that's still breaking state law. The bigger issue isn't federal - it's that they'd be admitting to NY state that they're operating an unlicensed cannabis business, which carries its own penalties.

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Do NY state tax authorities share information with NY law enforcement though? I thought tax info was generally protected unless there's like a specific investigation already happening?

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Yara Sabbagh

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Has anyone looked into qualified opportunity zones? I read somewhere that investing capital gains into these zones can defer or reduce taxes. Is this something that actually works for regular people or just for the ultra-wealthy?

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NeonNova

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Qualified Opportunity Zones (QOZs) can work for regular investors, but they have very specific requirements and aren't typically a last-minute strategy. You need to have capital gains to invest, and you must invest through a Qualified Opportunity Fund within 180 days of realizing those gains.

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Yara Sabbagh

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Thanks for explaining! Makes sense why I haven't heard much about this for regular folks. Sounds like it's more complex than I was hoping for my situation right now, especially with the year almost over.

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I know this might be too late for 2023, but for next year, set up regular automatic contributions to tax-advantaged accounts from day 1. We learned this lesson the hard way. Now we max out 401ks, HSAs and IRAs throughout the year instead of panicking in December! Steady contributions also mean you're buying at different market prices throughout the year.

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That's definitely the plan for 2024! We're basically starting from scratch with all this tax planning stuff. Better late than never I guess...

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Definitely keep a log of your business calls and any app usage related to business on that phone. I use a simple spreadsheet that I update weekly. This has saved me twice during audits where I was able to show that my more expensive phone was used exclusively for my business. They didn't care about the cost - they cared about documentation showing business purpose. That's what they'll look for.

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What kind of detail do you include in your log? Just dates and who you called, or more specific notes? I'm wondering how detailed I need to be.

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I keep it pretty simple. I record the date, contact name, brief purpose (like "client meeting," "vendor call," etc.), and approximate duration. For text messages and emails, I just note weekly totals rather than each individual communication. For social media management, I log the platforms and approximate time spent. The key isn't exhaustive detail - it's consistency. An auditor just wants to see that you maintained records systematically, not that you documented every minute. Also, I take quarterly screenshots of my call logs and text histories as backup. This level of documentation has always been sufficient for me.

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Has anyone tried using one of those dual-SIM phones instead of carrying two separate phones? I'm in a similar situation and wondering if that's a better solution than two folding phones.

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Emma Wilson

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I've been using dual-SIM for about 2 years and it works great. You can clearly separate business and personal calls/texts, and most phones let you designate which SIM to use for data. The accounting is a bit trickier though - you'd need to calculate what percentage of the phone use is business-related and only deduct that portion.

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