That's a really interesting approach I hadn't thought of. Do you typically find that the equity accounts in QuickBooks accurately reflect true tax basis? I've seen some companies where the books don't properly track things like Section 179 adjustments or other tax-specific items.

You're right that QuickBooks equity accounts won't perfectly match tax basis. They're just a starting point. The biggest discrepancies usually come from 179 deductions, depreciation differences, and non-deductible expenses. Look for a reconciliation schedule in the prior preparer's workpapers that bridges book to tax. If that doesn't exist, you can build one by comparing Schedule M-1 adjustments across years. The equity accounts give you the structure, then you layer on the tax adjustments. It's still work, but often less than starting from scratch with just K-1s.

I've used these materials and they're excellent. The basis worksheet is particularly helpful for new preparers. Just note that they don't fully address some of the more complex situations like multiple classes of stock or special allocations.

Thanks for mentioning Form 3921! I do have that form and have been keeping it with my tax documents. One question though - when reporting the sale, do I need to reference this form or attach anything special to my return? Or do I just use it to determine my cost basis when filling out Schedule D?

You don't need to attach Form 3921 to your return or reference it specifically. It's primarily for your records to help you accurately report the transaction. You'll use the information from it to determine your cost basis when filling out Schedule D. When you sell, your brokerage will report the sale on Form 1099-B, but often they don't have your correct cost basis for ISO shares, so you may need to make an adjustment. That's where your Form 3921 comes in handy - it has the correct information for your cost basis (what you paid when exercising).

I used TurboTax Premier last year for my ISO sales and it worked fine. There's a specific section for stock options and it walks you through the process. Just make sure you have all your documentation ready (exercise price, date of exercise, sale price, etc). The key is entering the correct cost basis.

Thank you so much for this explanation! You're right - the Line 3 amount is actually a bonus she got for signing up new sellers. This makes perfect sense now that I should put it on Schedule C Line 6 since it's definitely related to her business activities, even though it's different from her regular product sales commissions. Do you know if there's any specific reference I should make on the tax return to explain this, or is just putting it on Line 6 of Schedule C sufficient?

Just putting it on Line 6 of Schedule C is technically sufficient for filing purposes. There's no special notation required on the form itself. However, I always recommend my clients keep a separate document in their tax records that explains the nature of any "Other income" reported, especially when it comes from a 1099-MISC Line 3. This documentation should include what the payment was for, when it was received, and why it's considered business income but not subject to self-employment tax. This isn't submitted with the return, but it's invaluable if questions ever come up later or in case of an audit.

I used TurboTax this year for my side gig and it actually handles this pretty well. When you enter the 1099-MISC, it asks you to break down the amounts by box number and then asks follow-up questions about the nature of any "Other income" on Line 3. Based on your answers, it will either put it on Schedule C or on Schedule 1 of your 1040. Just make sure you choose "Business" as the category when it asks what the Line 3 income relates to, assuming it's connected to your Etsy activities. TurboTax will then guide you to the right place on Schedule C.

Thanks for this info! I'll go back and double-check my entries. I think I might have rushed through those follow-up questions and that's why everything got lumped together. It's reassuring to know the software can handle this situation correctly if I input everything properly.

Oh that's really good to know. I actually have a side gig in addition to my main job, but they're both withholding OASDI. How do I figure out if I've overpaid? Do I just add up the OASDI from both W-2 forms?

Yes, you just add up the OASDI tax amount (box 4) from all your W-2 forms. If the total exceeds $10,740 (for 2025), then you've overpaid and can claim the difference as a credit. Just make sure you're only looking at the employee portion. Some people mistakenly include both the employee and employer portions when calculating this, but you can only get a refund on what you personally paid over the limit.

Haha same! It's like a little year-end bonus. I actually think of it as forced savings that gets "returned" to me near the holidays.

Exactly! It comes right when holiday shopping starts ramping up. Not a huge amount extra but definitely noticeable and appreciated!

This is super helpful! I do have some stock purchases from around 2007-2008 that I'm still holding. Sounds like I should definitely keep those returns. Do you recommend physical copies, digital, or both?

For stock purchases you're still holding, definitely keep those records until at least 7 years after you sell. The basis information is crucial for calculating your eventual capital gains/losses. I strongly recommend both physical and digital copies for your most important documents (like the OIC, home purchase, and investment records). For the rest, properly encrypted digital copies are usually sufficient. Just make sure you have multiple backups - I've seen too many clients lose everything in a hard drive crash. Cloud storage plus an external hard drive gives you good redundancy.

Yes! This happened to me too! Needed info from my 2012 return and the IRS said they couldn't provide a transcript. The IRS representative told me they "might" have the actual return available but I'd need to pay $43 for a copy and wait 6-8 weeks. Definitely keep your own records.