Let me tell you what happened to me last year - got my state refund in February while my federal was under review, then in JULY the IRS finally processed my federal with adjustments. Had to amend my state return and ended up owing them money! Plus penalties! The worst part was I'd already spent the refund on home repairs (sounds familiar?) and had to scramble to pay it back. Now I always wait until both are finalized before spending any refund money. Lesson learned the hard way!

This is such a common concern for new filers! Yes, you can absolutely receive your state refund while your federal return is under review. As others have mentioned, these are completely separate systems. I've been through this situation twice - once in 2022 and again last year. Both times my state refund arrived within 2-3 weeks while my federal took 8+ weeks to clear review. However, I want to echo what Omar and Chloe mentioned about potential complications. If the IRS makes adjustments to your federal return that affect your state taxes (like changing your AGI or deductions), you may need to file an amended state return later. This could mean owing money back to the state, sometimes with interest. My advice: Go ahead and expect your state refund to process normally, but maybe hold off on spending it until your federal review is complete. That way you're covered if any adjustments are needed. Good luck with your home improvements - hopefully both refunds come through smoothly!

I've been using QuickBooks for my online business, and they actually have a feature to help with inventory adjustments like this. If you're using QuickBooks or similar software, you might want to check if they have a specific process for handling inventory count corrections. In my case, I was able to make an inventory adjustment entry that clearly documented the reason for the change. This created a paper trail showing exactly what happened and when I discovered the error. My tax software then helped me address Line 35 appropriately with the correct wording.

I went through something very similar with my small retail business last year. One thing I'd add to the great advice already given here is to make sure you're prepared for potential follow-up questions if the IRS does review your return. In addition to the Line 35 explanation, I kept a simple spreadsheet showing the original count vs. corrected count for each affected item, along with the unit cost and total value difference. I also noted the date I discovered the error and what caused it (in my case, I had double-counted some items that were stored in two different locations). My CPA recommended keeping this documentation for at least 3 years in case of questions. She said having this level of detail ready actually reduces the chance of extended scrutiny because it shows you're being thorough and transparent about the correction. Also, since you mentioned you're behind on your inventory count - this might be a good time to implement a more systematic counting process for future years. I started doing quarterly spot checks on my highest-value items, which has helped me catch errors much earlier. Good luck with your filing!

Anyone know if the IRS has a preference between these reporting methods? I use TradeLog and have always added wash sale amounts to cost basis on replacement shares, but my accountant is questioning it because his other clients' reports from their brokers do it the other way.

I've been dealing with wash sale reporting for years as a day trader, and what you're experiencing is actually pretty common. The key thing to understand is that both GainsKeeper and TradeLog are likely correct - they're just applying different but valid interpretations of the wash sale rules. The IRS allows flexibility in how you report wash sales on Form 8949 as long as you're consistent and don't ultimately avoid recognizing the disallowed losses. Some software applies adjustments immediately when the wash sale occurs, while others defer the adjustments until you exit the position completely. My advice would be to pick one method and stick with it consistently across all your trading. If you're unsure which to choose, the method that adjusts cost basis on replacement shares (like TradeLog did for your LINE 4) tends to be more widely accepted and is what most major brokerages use in their year-end tax documents. Just make sure your total gains/losses for the year are roughly the same between both systems - that's the real test of whether the calculations are equivalent.

Make sure your merger agreement specifically addresses how tax audit responsibilities will be handled if the IRS or state agencies come calling about pre-merger operations! We merged our LLC two years ago, and the IRS just selected our OLD company for audit for the year before the merger. Now there's a huge fight about who's responsible for handling it, providing documentation, and potentially paying any adjustments. Nobody thought to address this in the merger agreement and it's causing major drama.

This is exactly the situation I went through 18 months ago when our 3-member LLC merged with a larger entity. The undistributed profits piece was the most complex part to navigate. One thing that hasn't been mentioned yet is the importance of getting a formal valuation of your LLC before finalizing the merger terms, especially with $87K in undistributed profits. The acquiring company will likely want to see how those profits affect your capital account balance and overall contribution to the merged entity. Also, make sure you understand whether the merger will be treated as a contribution of assets under IRC Section 721 or as a sale. If structured properly as a contribution, you're right that it should be tax-free, but the devil is in the details of how the exchange is documented. For the K-1 handling, I'd recommend asking the acquiring company's accountants specifically about their process for issuing partial-year K-1s. Some firms are better at this than others, and you want to make sure they have experience with mid-year mergers to avoid delays in getting your tax documents. The undistributed profits will definitely transfer as part of your capital account, but make sure the merger agreement specifies exactly how they'll be valued and allocated in the new entity structure.

Just to add another data point - this EXACT issue is why I stopped using TurboTax for my foreign tax returns. I switched to TaxAct which actually lets you override the amount on line 19 without jumping through a million hoops.

I went through this exact same issue last year! The key thing to understand is that Form 1116 doesn't automatically force you to use all your foreign tax credits - you absolutely can elect to carry forward excess amounts. Here's what worked for me: On Form 1116 Part III, line 19 is where you enter the amount of foreign tax credit you want to claim for the current year. Most tax software defaults to the maximum allowable amount, but you can manually enter a lower amount if you want to preserve credits for future years when you might have higher tax liability. Since you mentioned having different categories (like passive income), make sure you're filling out separate Form 1116s for each category. The carryover election is made separately for each category. One tip - if your tax software won't let you override line 19, look for an "override" or "manual entry" option in the forms section. Every major tax software has this capability, though they sometimes hide it pretty well! If all else fails, you might need to file a paper return to have complete control over your foreign tax credit elections. Keep detailed records of your carryover amounts since they can be used for up to 10 years. Good luck with your return!