Thanks for mentioning this! Do you know if email confirmation of the download/activation would count as proof? Or do we really need actual project screenshots?

Email confirmations of download/activation are a good start, but they only prove you received the software, not that you actually put it to business use. The IRS specifically looks for evidence of the software being used in your business operations. Project screenshots with visible dates, saved project files with creation timestamps, or even emails to clients mentioning you used the new software on their project can all serve as stronger evidence. I'd recommend keeping several different types of proof just to be safe. My accountant calls it the "belt and suspenders" approach to tax documentation.

I got audited last year and software deductions were absolutely part of what they examined. It wasn't the only thing, but they specifically asked for proof that the $3200 design software I purchased was actually used in my business and when I started using it. They disallowed part of another tech purchase because I couldn't prove I was using it exclusively for business.

3 Wouldn't leasing have limitations too though? I thought there were luxury auto restrictions on lease deductions as well? Plus don't you lose the potential appreciation of the vehicle as an asset?

5 You're right that there are luxury auto limitations on lease deductions, but they work differently than purchase limitations. With leasing, you can deduct the business percentage of your payments, subject to inclusion amounts for higher-priced vehicles. It's often more straightforward than dealing with Section 179 income limitations. As for asset appreciation - vehicles almost always depreciate rather than appreciate, so that's rarely a concern. In fact, with leasing, you avoid the risk of getting stuck with a rapidly depreciating asset. The main advantage in your situation would be that you don't need immediate business income to start taking some deduction, unlike with Section 179 which requires business profit to utilize fully.

1 This is making me nervous now. Would starting with a cheaper vehicle be less likely to trigger an audit? I was also thinking about an SUV but maybe something in the $45k range instead of $95k?

That's an interesting approach I hadn't thought of. Wouldn't setting up a payment plan be seen as accepting that I owe the amount though? I'm concerned it might complicate things if we're simultaneously arguing that we don't actually owe this money.

Setting up the installment agreement doesn't mean you're agreeing the amount is correct. The IRS allows you to dispute the underlying tax while still having a payment arrangement in place. You can specifically request that your agreement be processed with "pending audit reconsideration" or "disputed liability" noted on your account. When the dispute is resolved, if it turns out you owe less or nothing, the IRS will refund any excess payments automatically. I made about four $25 payments before my situation was resolved, and I received those payments back with my refund. The peace of mind was worth the temporary $100 out of pocket.

This is correct. Having worked at the IRS for 12 years, I can tell you there's a specific sequence of notices, and CP504 is not the final step. You'll get at least one more notice with appeal rights before any levy action.

Did you find the new accountant through a referral or did you just search online? I'm thinking I might need to do the same thing but I'm not sure how to find someone reliable.

I got a referral from a coworker who also does freelance work on the side. Personal referrals are definitely the way to go if possible since online reviews for tax professionals can be hard to trust. If you don't have any personal referrals, I'd recommend looking for an Enrolled Agent (EA) rather than just any tax preparer. They're specifically licensed by the IRS and tend to be more knowledgeable about tax code than the seasonal preparers at big chain tax services. Local small business associations sometimes have lists of reputable tax pros who work with self-employed individuals.

QBI is so confusing! My accountant says I don't qualify because my business is a "specified service business" (I'm a consultant) and my income is too high. Is there a simple way to know if I should be getting this?

Thanks for mentioning the specific tax code sections! That's super helpful. Do you think I should also include a brief letter explaining the situation in more detail, or is the Form 8275 enough on its own?

The Form 8275 should be sufficient on its own if completed properly. There's a section for "Detailed Explanation" where you can provide a concise summary of the situation. Keep it factual and reference those tax code sections. If you want to provide additional context, you can include a brief statement in the "Explanation" section of Schedule 1 where you offset the 1099-MISC income. Something like "See Form 8275 - Reimbursed employee business expenses incorrectly reported as income on 1099-MISC." But don't attach a separate letter - that's not standard procedure and might actually complicate processing.

I went through this last year with a former client who incorrectly sent me a 1099 for reimbursed expenses. I filed Form 8275 with my return in February 2024, and didn't hear anything until June when I got a letter asking for documentation. I sent in all my receipts and expense reports, and by August they sent a determination letter saying they agreed with my position. So about 6 months total from filing to resolution.