What kind of resources did you need to dedicate to get this off the ground? We've thought about it but worried about the compliance risks given how the IRS is scrutinizing these claims.

We started with one full-time CPA who spent about 8 weeks becoming our in-house expert (lots of CPE, IRS notice reading, and conference attendance). Then added a dedicated admin person for documentation collection and organization. The compliance risk is manageable if you're conservative and thorough with documentation. We built a 27-point checklist that every claim must satisfy before filing. It took about $30K in startup costs (mostly training and building templates/processes), but we've generated over $400K in fees since starting 14 months ago.

This is so important. We had a similar disaster with an ERC firm that disappeared when the audits started coming in. What red flags should people watch for when vetting these firms?

Did you have to provide a lot of documentation to get them to issue the corrected form? My exchange seems completely unwilling to even look at the problems.

I had to be pretty persistent and provide very specific evidence. For each transaction they had wrong, I included screenshots from my wallet showing the actual transactions with timestamps and transaction IDs. I also had to escalate beyond the first-level support to their specialized tax team. The key was being extremely organized and specific - I created a spreadsheet showing exactly what was incorrect on the 1099 versus what actually happened, with links to blockchain evidence. Don't just say "there are errors" - show exactly what's wrong with proof. And don't give up after the first automated response!

I used CoinTracker last year and it was hit or miss. It's good for organizing transactions but doesn't really "solve" the problem of incorrect 1099s. You still have to manually identify and fix discrepancies, which can be super time consuming if you have lots of transactions.

Thanks for sharing your experience. Sounds like these tools help organize things but don't solve the core issue of exchange reporting errors. I was hoping there might be a simpler solution than manually reconciling everything.

Thanks for this! Did you have to specifically ask your attorney to break it down this way? My lawyer seems focused only on getting the highest dollar amount and doesn't seem to understand or care about the tax implications.

Yes, I had to specifically ask - actually, I had to insist on it. Most attorneys are focused solely on the gross settlement amount rather than your net after taxes. I ended up printing out IRS Publication 4345 "Settlements — Taxability" and bringing it to my attorney to show him exactly what I needed. Even if your attorney isn't knowledgeable about tax implications, you can request that the settlement agreement specifically allocate amounts to different categories. For example, you want as much as possible categorized as "compensation for diminution in property value due to undisclosed defects" rather than "damages for fraud." The former is more likely to be treated as a reduction to basis while the latter might be considered ordinary income. Don't be afraid to push back - this is your money and your tax situation!

You're right that the Tax Cuts and Jobs Act severely limited casualty loss deductions for tax years 2018-2025. For non-business casualties, they're only deductible if they result from a federally declared disaster. This is why structuring the settlement properly is so important. What you can't claim as a casualty loss might still be handled favorably if properly categorized as a recovery of capital or reduction in basis. However, fraud victims specifically have had a tough time under current tax law since the casualty loss limitations went into effect.

Does having a separate bank account matter for proving it's a business? I just use my personal checking for everything.

Having a separate bank account isn't required but it's extremely helpful for proving business intent. It shows you're treating the activity professionally and makes tracking income and expenses much easier. It's one of the factors the IRS considers when determining if something is a business vs. hobby. Other factors include business cards, a business name, proper recordkeeping, and marketing efforts. The more business-like behaviors you demonstrate, the stronger your case for self-employment treatment.

Wait I've never done quarterly payments! I've been self-employed for 2 years and always just paid at tax time. How much trouble am I in?

That's an interesting thought! Maybe there was just a communication breakdown. I was so focused on my 401k contributions that I might have misunderstood if she was asking about separate IRA contributions. Is it worth going back to TurboTax and clarifying this with a different expert?

Absolutely worth clarifying with a different TurboTax expert. Ask specifically about the deductibility of traditional IRA contributions when you already participate in a 401k plan. The rules get complicated based on your income level and filing status. For context, if you're single and covered by a workplace retirement plan, your ability to deduct traditional IRA contributions starts phasing out at an income of $77,000 and disappears completely at $87,000 (for 2024). The ranges are different if you're married or if only one spouse has a workplace plan. But regardless, 401k and IRA contributions are always reported separately - they're never the same thing.

What about a SIMPLE IRA? Those are employer-sponsored but have "IRA" in the name. Could that be what the TurboTax person was confusing?