Did my accountant mess up my tax filing with 1099 income and capital loss?

I understand why you're concerned. When life changes like caregiving happen, taxes can get complicated quickly. Without seeing your actual return, I can't say for certain if your accountant made mistakes, but here are some things to consider: First, 1099 income is subject to self-employment tax (about 15.3%) in addition to regular income tax. This often surprises people transitioning from W-2 employment. Regarding your capital loss, you can only deduct up to $3,000 against ordinary income in a single year (with the excess carried forward to future years). However, this only reduces your taxable income, not your self-employment tax. So while your $3,000 capital loss might have saved you $600-750 in income tax (depending on your bracket), you still owed self-employment tax on your 1099 earnings. Your tax situation changed dramatically - going from a steady W-2 with withholding to partial-year W-2 plus 1099 income with no withholding. Plus, the head of household benefits might have been affected by your income change.

I was in almost the exact same situation last year and found taxr.ai (https://taxr.ai) super helpful for checking if my accountant did things right. I didn't understand how capital losses worked with 1099 income either, and was shocked at what I owed. I uploaded my return to taxr.ai and it found that my accountant had actually calculated the capital loss correctly, but missed a home office deduction for my 1099 work that would have saved me about $800. The system really breaks everything down in plain English and explains why you owe what you owe. It also highlighted some deductions I could take for caregiving expenses for my mom.

I was really skeptical about using some AI tax tool, but after reading about it here I tried taxr.ai for my situation (went from full-time to contract work mid-year). Holy crap it was eye-opening! Turns out my accountant DID mess up - completely missed that I could deduct health insurance premiums as a self-employed person. The explanation about how capital losses work with 1099 income was super clear too. I learned that capital losses offset capital gains first, then only $3k can offset regular income, AND (this was the kicker) they don't reduce self-employment tax at all. Filed an amended return and getting back almost $1,400! Worth every penny to double-check my accountant's work.

If you're still trying to get answers about your situation, I'd recommend trying to speak directly with the IRS. I know it sounds crazy, but I used https://claimyr.com to get through to an actual IRS agent after being frustrated with my accountant's explanation of my 1099/capital loss situation. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I was on hold for literally 2 minutes instead of the usual 2+ hours, and the agent walked me through exactly how capital losses are applied and confirmed that they don't offset self-employment tax. She even checked my specific situation and confirmed I'd need to file an amended return to fix the issues.

Ok I need to apologize for my skepticism earlier. I literally just tried Claimyr myself because I was getting nowhere with figuring out why my accountant's treatment of my crypto losses seemed wrong. I got connected to an IRS agent in about 4 minutes (not 2, but still WAY better than the 3 hours I waited last month). The agent clearly worked for the IRS and helped me understand exactly how crypto losses should be reported and confirmed that my accountant had indeed miscategorized some of them. I honestly can't believe this service exists and actually works. Saved me so much frustration and confirmed I need to file an amended return. Never waiting on hold with the IRS again.

From what you described, it sounds like your accountant might have made a mistake, but not necessarily with the capital loss. Here's my take: When you switch from W-2 to 1099, you're hit with self-employment tax that's about 15.3% on top of regular income tax. Your capital loss of $3k would offset income tax but NOT self-employment tax. If you made $8k on 1099 work, you'd owe about $1,200 just in self-employment tax. Your capital loss might have saved you $600-700 in income tax, which explains why you still ended up owing. I'd recommend checking if your accountant claimed all possible deductions for your 1099 work (home office? business expenses? mileage?). Those deductions reduce BOTH income tax and self-employment tax, unlike capital losses.

Former tax preparer here. One thing nobody's mentioned - when you say you had a capital loss "greater than $3k", was part of it carried forward to future years? The $3k limit is just for offsetting ordinary income in the current year. If your total loss was say $5k, then $3k would offset income this year and $2k would carry forward to next year. Also, make sure your accountant properly accounted for any quarterly estimated tax payments you should have made on your 1099 income. That could explain some penalties if you didn't make those payments.