Does the holding period reset if the company does another round of funding? My startup is talking about a Series C next quarter and I'm worried it will mess up my holding period on shares I exercised last year.

No, funding rounds don't reset your holding period. The clock starts ticking from your exercise date (when you purchased the shares) and continues regardless of additional funding rounds or company events. What can affect things is if the company does a reorganization where shares are exchanged for new ones in a different entity - but that's relatively rare and typically happens in acquisitions, not standard funding rounds. Your original exercise date from Form 3921 remains the key date to track for tax purposes.

In FreeTaxUSA, you'll need to look under "Income" and then "Other Income." They don't have a specific ISO section, but you calculate the AMT adjustment manually and enter it in the AMT section under "Adjustments and Preferences" > "Other AMT Adjustments." It's a bit more work than TurboTax but definitely doable.

Oh wow, I hadn't even thought about the state filings or the S-Corp election potentially being terminated. She's in California, which I know can be pretty aggressive with business compliance stuff. Would a business attorney be needed alongside an accountant at this point?

California is actually one of the more challenging states for compliance - they have annual franchise tax minimums even for S-Corps with no profit. For California specifically, she'll need to check if the Statement of Information (Form SI-200) has been filed, and whether the $800 minimum franchise tax has been paid each year. At this point, I'd start with a good CPA who specializes in California S-Corps and business tax resolution. They can assess the situation first - a business attorney might be needed later, but accounting issues should be addressed first to understand the full scope of the problem. Most experienced CPAs will have relationships with business attorneys they can bring in if legal issues arise beyond tax compliance.

This is a really important point. My friend had a similar situation with her graphic design S-Corp and the IRS determined her reasonable salary should have been about 70% of the business profit since she was the only person doing the actual design work. The back payroll taxes and penalties were brutal.

This explanation really helps! I think I was confusing myself by thinking the PA should directly reduce my current income, but it sounds like its purpose is different. So basically, my employer is contributing something like $8,800 to my pension, but that part doesn't show up as a deduction on my income. Instead, the whole $20,000 value reduces my future RRSP room. Does that sound right?

You've got it exactly right! Your employer's contribution and any additional benefit value don't show up as deductions on your current income because you didn't pay that money - your employer did. But the government still wants to account for all that retirement benefit you're receiving. This is why the full $20,000 PA reduces your future RRSP room - it's the government's way of balancing the playing field between different retirement savings vehicles. If they didn't do this, people with employer pensions would effectively get double the tax-advantaged retirement savings compared to those without pensions.

I know right? I just had an accountant look at mine this year because I gave up trying to understand it all. Cost me $300 but at least I don't have to worry about messing it up anymore.

Thanks for this! I just double-checked and there's no code in Box 2, but Box F is checked which I think means it's a covered security? Does that change your advice?

If Box F is checked, that's good news! That means it's a covered security and the basis was reported to the IRS. In that case, you can safely use "Various" for the acquisition date or the merger date itself. Since the cost basis was reported to the IRS, they're much less concerned about the exact acquisition date because they already have the information they need to verify your gain/loss calculation. This is definitely the easier situation to be in compared to noncovered securities.

Try entering the date of the merger instead. That's what I did last year with a similar issue in TaxAct and it worked fine. For CashApp specifically, sometimes you need to select "I'll enter my own information" rather than using their guided walkthrough.

That worked! I had to switch to the manual entry mode and then it let me type "Various" in the field. Thanks for the tip!

Wait, can you still deduct legal fees on Schedule A at all? I thought those miscellaneous deductions were completely eliminated with the 2017 tax law.

You're right about the changes. Prior to 2018, you could deduct certain legal fees as miscellaneous itemized deductions on Schedule A, subject to the 2% AGI limitation. After the Tax Cuts and Jobs Act, most miscellaneous itemized deductions were suspended through 2025. For legal fees now, the best approach is to tie them directly to business income whenever possible so they can be deducted on Schedule C. For a 1099 contractor like the original poster, this should be straightforward since they're suing to collect business income. The key is making sure you can substantiate that the legal expenses are ordinary and necessary business expenses directly related to your self-employment activities.

Is this still true even with contingency fees? My attorney takes 30% if we win. Do I really have to report the whole amount including what goes directly to the lawyer?