That's actually really good advice and something I've been considering. Did you have trouble separating your finances from the joint account holder? I'm worried that if I pull my money out suddenly it might look suspicious for tax purposes.

When I separated my finances from my dad's joint account, I opened a new account first, then gradually moved over my direct deposits and auto-payments over a period of about a month. That way there wasn't a sudden large withdrawal that could raise flags. I also kept really clear records of which money was mine versus his in the joint account, and made sure I only took my portion. For your situation, since the deposit is clearly your mom's settlement, you should have no problem leaving that untouched while taking your pre-existing balance.

This is the right answer! Keep the money separate from the beginning. My parents did this with some inheritance money and it made everything so much cleaner for taxes. Just make sure both names are on the new account.

Is there any simple way to handle this retroactively? We're in a similar situation where one partner did 80% of the work this year but we have a 50/50 split. Tax filing deadline is approaching fast.

Unfortunately, retroactive special allocations are problematic. The IRS generally requires that allocations be established in advance of the economic activity. Making changes after the fact often raises red flags. Your best option at this point might be to ensure your operating agreement is updated for future projects, while accepting the default 50/50 allocation for the current tax year. Another possibility, depending on your specific situation, is to consider guaranteed payments to the partner who did more work - this is essentially a payment before profits are calculated. However, this has different tax implications and should be discussed with your tax professional before implementation.

I did it last year with my 2-person LLC. We used a template from our legal service subscription and then had it reviewed by our accountant (much cheaper than having them draft it from scratch). The key elements were: 1) Special allocation provisions that meet the substantial economic effect test 2) Clear tracking of capital accounts 3) Language about how profits from specific projects can be allocated differently Cost us about $400 total for the review and filing the amendment. You definitely don't need to pay $1,500 unless your situation is extremely complex.

Do you think the CPA could get in trouble if OP reports him to the state board? My tax guy messed up some stuff too and I'm wondering if I should report him.

Yes, CPAs are licensed professionals who can face disciplinary action from their state boards for substandard work. The severity depends on whether this was a simple mistake or represents a pattern of incompetence. Before formal reporting, I'd recommend clearly documenting the errors in writing and giving the CPA an opportunity to correct the issues or adjust their fee. Most licensing boards want to see that you attempted to resolve the issue directly first. If they're dismissive or refuse to acknowledge clear errors (like taxing unrealized gains), then reporting becomes more appropriate. Make sure you keep copies of all communications and the incorrect tax documents to support your complaint.

I tried a couple different options but ended up using Koinly for tracking all the transactions and calculating the gains/losses. It was pretty intuitive for importing from different exchanges. Then I just took those totals and put them into FreeTaxUSA for the actual filing. The whole process was definitely time-consuming upfront but now that I understand it, next year should be much easier. I also created a detailed spreadsheet where I documented everything so I have backup records. The most annoying part was figuring out the staking rewards since they count as income at the fair market value when received. The tax software I used makes it pretty clear where to report everything.

Thanks for sharing that! That's exactly what I was worried about. Did your brother have to file an amended return or did the IRS just send him a bill?

The IRS sent him a CP2000 notice showing the discrepancy and their calculation of what he owed. He had the option to dispute it or agree and pay. Since it was legitimate income he hadn't reported, he just paid the amount. It wasn't catastrophic, but definitely more expensive and stressful than if he'd just reported it correctly the first time. The peace of mind from doing it right is worth the extra effort now.

This is great advice. I had a similar issue and found out the payroll records were being maintained by a third-party processor even though the business was gone. Might be worth checking if you know what payroll service they used.

Thanks for this advice! I pulled my credit reports right after reading this and thankfully don't see any suspicious accounts or inquiries. I've already frozen my credit at all three bureaus and filed the FTC complaint. Would you still recommend filing a police report even though there don't seem to be any other signs of identity theft beyond the fake W-2s?

Absolutely still file a police report. Even if there aren't currently other signs of identity theft, having an official police report will be extremely helpful if anything else pops up later. It creates a timeline and official documentation of when you first discovered the identity theft. Some identity thieves are specifically targeting tax fraud without touching credit because it can fly under the radar longer. The fact that they've filed W-2s using your SSN at multiple law firms suggests this is a sophisticated operation, not just a random scammer. These operations often sell stolen identities on the dark web, so other issues could surface later. Having that police report now establishes you as a victim from the start.

I had something similar happen but with medical offices. Turned out the person who stole my identity worked in medical billing. The IRS agent told me scammers often pick industries they're familiar with because they know how to manipulate those specific payroll systems or have inside access.