Does the 1065 instructions specifically address this situation? I'm looking at the 2023 instructions and I don't see clear guidance on partner-to-partner sales...

One thing to keep in mind is the timing of when you recognize the ownership change during the year. You'll need to determine the exact date when the buyout was completed (when ownership officially transferred) to properly allocate the partnership's income, deductions, and credits. For the K-1s, use the "varying interest rule" under Section 706(d) to prorate each partner's share of items based on their ownership percentage during different periods of the year. So if the buyout happened mid-year, Partner D gets 25% allocation up to the buyout date, then 0% after. Partners A & B get 25% allocation before the buyout, then 37.5% after. Also make sure you update Schedule K-1, Part II (Partner's Share of Liabilities) to reflect the new ownership percentages. Partners A & B will need to pick up their additional share of partnership liabilities as part of their outside basis calculation, even though they paid cash for the interest. The partnership agreement should specify how these mid-year changes are handled - whether you use the closing-of-books method or proration method for allocating partnership items. This affects how precisely you need to calculate each partner's share.

Has anyone here used turbotax to report rental property losses? I'm confused by their interface and not sure if it's automatically putting things in the right place.

@Natasha Volkova - You're definitely on the right track with wanting to claim that $25,000 allowance! Just to reinforce what others have said, your rental property should absolutely go on Schedule E, not Schedule C. The IRS is very specific about this - Schedule C is for business activities where you're providing substantial services to tenants (think hotel-like operations), while Schedule E is for traditional rental real estate. Based on what you've described (8-10 hours monthly on tenant issues, maintenance, and paperwork), you likely qualify for "active participation" which is exactly what you need for the $25,000 allowance. Active participation just requires that you make management decisions like approving tenants, setting rent, and approving expenditures - it sounds like you're doing this. With your $95k AGI, you should get most or all of the $25,000 allowance assuming your MAGI doesn't push you over the $100k threshold. Your $3,400 loss should be fully deductible against your other income. Just make sure you're calculating MAGI correctly by adding back things like IRA contributions and student loan interest deductions to your AGI.

This has been such an enlightening discussion! As someone who's been doing freelance work for years but just started hiring my own contractors, I was completely overwhelmed by the 1099 requirements. The breakdown of payment methods is incredibly clear now - I had no idea that the distinction between PayPal Business vs Friends & Family made such a difference for reporting requirements. I've been using Friends & Family thinking it was just easier, but now I realize I should have been issuing 1099s for those payments! One question that came up while reading through all this: what about Apple Pay or Google Pay transactions? I've made a few payments to contractors through Apple Pay Cash - would those be treated like Venmo personal payments (requiring a 1099-NEC) or is there some other classification? Also, for record-keeping, does anyone have recommendations for apps or tools that can help track contractor payments and automatically categorize them by 1099 requirements? The spreadsheet approach sounds great, but I'm wondering if there are purpose-built solutions that might catch things I'd miss manually. Thanks to everyone who shared their experiences - this thread should be bookmarked by every small business owner dealing with contractor payments!

This thread has been incredibly helpful! I'm dealing with a similar situation as a small business owner who pays contractors through various methods. One thing I want to emphasize that might not be completely clear from the discussion: even though payment apps like PayPal and Venmo might not issue 1099-K forms for amounts under their thresholds, the contractors are still legally required to report ALL income on their tax returns, regardless of whether they receive any 1099 forms. I learned this when I got audited a few years back - the IRS explained that 1099s are information returns to help them match reported income, but the absence of a 1099 doesn't mean the income doesn't need to be reported by the recipient. Also, for anyone using cash payments (which I know some contractors still prefer), those definitely require 1099-NEC forms if over $600 for the year. Cash payments don't go through any third-party processor, so there's no possibility of a 1099-K being issued. One more tip: if you're ever unsure about a specific payment situation, document your reasoning for why you did or didn't issue a 1099. This can be helpful if questions come up later during an audit or review.

Just wanted to add my experience as someone who went through this exact same thing a few months ago! Got the same "60-day accuracy review" message and was completely stressed about it. Mine ended up resolving in about 3 weeks, way faster than the 60 days they warned about. The key thing that helped me was understanding that this review is actually pretty routine - the IRS runs these on a certain percentage of returns every year, especially if there are any minor data matching issues between your return and what employers/banks reported. It's not necessarily a red flag that something's wrong with your taxes. One tip: screenshot that status page for your records, just in case. And definitely don't call the IRS like the message says - you'll just waste hours on hold for them to tell you the same thing the website already told you. For California specifically (saw you mentioned that in the comments), your state refund should process completely separately. CA doesn't typically hold up state refunds for federal reviews unless there's a specific garnishment or legal issue involved. Try not to stress too much - I know it's easier said than done when you're counting on that money! But statistically speaking, the vast majority of these reviews end with the refund being released without any problems. Just keep checking back every few days and it should update soon 🤞

Going through the same thing right now and honestly it's nerve-wracking! The 60-day message is so vague and scary when you're expecting that refund. Reading through everyone's experiences here is actually super helpful though - seems like most people get their money way before that 60-day deadline. I'm curious about one thing - for those who went through this review, did your "Where's My Refund" status ever show any intermediate updates between "Return Received" and "Refund Approved"? Or does it just sit there looking the same until suddenly it jumps to approved? Also appreciate everyone confirming that state refunds process separately. Was definitely worried about both getting held up but sounds like I should still expect my state refund on the normal timeline. The waiting game is brutal but at least knowing other people have been through this exact same situation and came out fine on the other side helps a lot! 🤞

You're in exactly the right place asking these questions! Yes, as a solo artist making income through Patreon, you're definitely a sole proprietor and should check that box on your W-9. The IRS doesn't care that you're single or don't have kids - what matters is that you're earning income from your own business activities. One thing I'd strongly recommend is getting familiar with the "hobby vs. business" rules since you're making consistent income now. The IRS looks at factors like whether you operate in a businesslike manner, keep good records, and have a profit motive. Since you're making $850/month regularly, you're clearly past hobby territory, which is great for deduction purposes. Don't forget to track EVERYTHING - your drawing tablet, software subscriptions, art supplies, reference materials, even courses or books that help improve your skills. If you attend any art conventions or workshops (even virtually), those can be business expenses too. And if you're using your phone for business communications with patrons or promotion, a portion of that bill is deductible. The self-employment tax might seem scary at first (15.3% on top of regular income tax), but remember you can deduct half of it, and all those business expenses help reduce your taxable profit. You've got this!

Isabella, congratulations on building such a successful Patreon! You're absolutely correct to check the "Individual/sole proprietor or single-member LLC" box on your W-9. Since you're operating as yourself without any formal business entity, you're a sole proprietor by default. A few additional things to consider as you navigate this transition: First, since you're consistently earning $850/month, you're looking at over $10K annually in self-employment income. This means you'll likely need to make quarterly estimated tax payments to avoid penalties. You can either increase withholding at a day job (if you have one) or make payments directly to the IRS using Form 1040-ES. Second, start documenting everything business-related NOW. Your drawing tablet depreciation, software subscriptions (Adobe, Clip Studio, etc.), art supplies, reference books, online courses, and even a portion of your internet/phone bills can be legitimate business deductions. If you have a dedicated workspace in your apartment, look into the home office deduction too. Finally, consider opening a separate bank account for your Patreon income and business expenses. This makes record-keeping much easier and helps establish that you're running a legitimate business rather than just a hobby. The IRS loves to see clear separation between personal and business finances. You're asking all the right questions - that's half the battle! Keep creating and don't let the tax stuff overwhelm you.