Quiet disclosures are risky. My accountant told me the IRS has algorithms that flag sudden new international form filings and compares them with prior years. If you're not in Streamlined program but suddenly show foreign accounts that have existed for years, they might look closer at your past returns.

I was in a very similar situation about two years ago - had foreign accounts for several years, reported all the income properly, but completely missed the Form 8938 requirement. The stress was unreal once I realized my mistake. After consulting with a tax attorney, I decided to go through the Streamlined Domestic Offshore Procedures rather than just start filing going forward. The key factor for me was that I could honestly certify my non-compliance was "non-willful" - I genuinely didn't know about the Form 8938 requirement since I was already reporting the income. The Streamlined process required filing amended returns for the last three years with the missing 8938 forms, plus a detailed statement explaining why I hadn't filed them before. The 5% penalty on the highest account balance was much better than potentially facing the $10-50k penalties per form if they discovered it later through an audit. One thing that helped my case was keeping good documentation showing I'd always reported the income accurately - bank statements, tax returns, etc. This demonstrated I wasn't trying to hide anything, just didn't understand the separate reporting requirement. Would definitely recommend talking to a tax professional about your specific situation, especially with $175k across multiple countries. The peace of mind from getting compliant through an official program was worth it for me.

Something to watch out for - if you report the full 1099-K amount and then deduct the refund, make sure you're using the correct lines on Schedule C. I messed this up last year and my return got flagged for review because it looked like I was trying to deduct business expenses that were way out of proportion to my income. Had to send in all my documentation to prove the "expense" was actually a refunded sale. Honestly, the whole 1099-K system is a mess for casual sellers. I'm dreading when they finally implement the $600 threshold - it's going to create so many problems for people just selling used personal items.

I went through this exact same situation with eBay last year! The key thing to remember is that you absolutely need to report the 1099-K - ignoring it will likely trigger an IRS notice since they receive a copy too. Here's what worked for me: I reported the full amount from the 1099-K on Schedule C as gross receipts, then listed the $1,600 refund as "Returns and Allowances" (there's a specific line for this on Schedule C). This way, your net income correctly shows just the $250 you actually earned. Make sure you keep all documentation of the refund transaction - screenshots from eBay, your bank records showing the refund going out, anything that proves the $1,600 was fully refunded in 2024. The IRS wants to see that paper trail if they ever question it. One tip: double-check that eBay didn't also send you a summary statement showing the refunds separately. Sometimes they provide additional documentation that makes filing easier. But even without it, as long as you properly account for the refund as a return/allowance, you'll only pay taxes on your actual $250 profit.

Has anyone actually been audited for something like this? I wonder how the IRS would even know the difference between money that was yours versus money others gave you to donate.

I appreciate everyone sharing their experiences and advice here. As someone who's been in a similar situation, I can confirm that the consensus is correct - you can only deduct what you personally contributed from your own funds. The IRS Publication 526 is very clear about this: "You cannot deduct contributions made by others." Even if you're the one physically making the donation or using your credit card, if the money originated from other people specifically for that charitable purpose, those amounts aren't deductible by you. In your case, you'd only be able to deduct the $250 that came from your personal funds. The $1,050 collected from family and neighbors cannot be included in your deduction, regardless of their stated lack of interest in claiming it themselves. The fact that they don't want the deduction doesn't transfer that right to you. Your accountant friend is giving you sound advice. It's always better to be conservative with tax matters than risk potential penalties and interest from the IRS later.

I tried both methods last year. My home is expensive (Bay Area) so Regular Method gave me about $3,200 more in deductions than Simplified. But honestly, the paperwork and record keeping wasn't worth the extra $700 in actual tax savings for me. This year I'm just doing Simplified. Life's too short to spend weekends calculating the square footage percentage of my utilities lol.

Great discussion here! I'm in a similar boat as the OP and this thread has been super helpful. One thing I'd add from my CPA's advice - if you're planning to sell your home within the next few years, the Simplified Method might be the safer bet to avoid the depreciation recapture headache that Zara mentioned. Also, for anyone considering the Regular Method, make sure you're tracking EVERYTHING throughout the year, not just at tax time. I learned this the hard way when I couldn't find receipts for repairs and utilities from 8 months ago. Now I use a dedicated folder (physical and digital) just for home office expenses. The audit risk thing seems overblown based on what I've read, but good documentation is key either way. Sean, with your 150 sq ft dedicated office, you're in a good position for either method - just comes down to whether the extra paperwork is worth the potential savings in your specific situation.

Have your parents considered creating a Spousal Lifetime Access Trust (SLAT) before 2026? My parents are in a similar situation (estate around $15M) and that's what their advisor recommended. Basically each spouse creates an irrevocable trust for the benefit of the other spouse and funds it with assets up to the current exemption amount. This "locks in" the higher exemption amount before it drops in 2026. The nice thing is that while the assets are removed from the taxable estate, the beneficiary spouse still has access to them if needed. It's not as simple as I'm making it sound (there are rules about not making them identical trusts), but it might be worth exploring.

Didn't see anyone mention this yet, but if a significant portion of your parents' $17M is in real estate or a family business, they might qualify for some additional exemptions or deferrals. Section 2032A can reduce the value of qualified real property for farms and businesses, and Section 6166 allows installment payments for estate tax when a business makes up a large portion of the estate. Also, don't forget about annual exclusion gifts - each of your parents can give up to $17,000 (in 2023, goes up periodically) to each recipient annually without touching their lifetime exemption. If they have multiple children/grandchildren, that can remove a significant amount from their estate over the next few years.