Correct way to amend tax return as a result of not correctly reporting gains on sale of private stock based on Installment method?
"After much research, the answer is ""a"": recompute the tax return using the installment sales method because (1) the escrow payment was subject to ""substantial restrictions"" by virtue of the escrow being structured to pay buyer's indemnification claims and (2) the taxpayer did not correctly elect out of the installment method by reporting the entire gain including the escrow payments on the return in the year of the transaction."
He has included this on Schedule D line 1a, but I don't see any   details on the actual transaction. It is reported on form 8949. However, if it is fully reported in 1099-B (with cost basis), then you don't have to actually detail every position. Turbotax asked me to fill in individual stock sales with proceeds and cost basis information. ... Again, it seems to be documented on Schedule D in boxes 1a and 8a. See above. I received a 1099-Q for a 529 distribution for a family member. It was   used for qualified expenses, so should not be taxable. Then there's nothing to report. I believe I paid the correct amounts based on my (possibly flawed) understanding of estimated taxes. His initial draft had me paying a penalty. I explained my situation for the year, and his next draft had the   penalties removed, with no documentation or explanation. IRS assesses the penalty. If you volunteer to pay the penalty, you can calculate it yourself and pay with the taxes due. Otherwise - leave it to the IRS to calculate and assess the penalty they deem right and send you a bill. You can then argue with the IRS about that assessment. Many times they don't even bother, if the amounts are small, so I'd suggest going with what the CPA did. Such activity is normally referred to as bartering income. From the IRS site - You must include in gross income in the year of receipt the fair market value of goods or services received from bartering. Generally, you report this income on Form 1040, Schedule C (PDF), Profit or Loss from Business (Sole Proprietorship), or Form 1040, Schedule C-EZ (PDF), Net Profit from Business (Sole Proprietorship). If you failed to report this income, correct your return by filing a Form 1040X (PDF), Amended U.S. Individual Income Tax Return. Refer to Topic 308 and Amended Returns for information on filing an amended return. "Great question! While investing in individual stocks can be very useful as a learning experience, my opinion is that concentrating an entire portfolio in a few companies' stock is a mistake for most investors, and especially for a novice for several reasons. After all, only a handful of professional investors have ever beaten the market over the long term by picking stocks, so is it really worth trying? If you could, I'd say go work on Wall Street and good luck to you. Diversification For many investors, diversification is an important reason to use an ETF or index fund. If they were to focus on a few sectors or companies, it is more likely that they would have a lop-sided risk profile and might be subject to a larger downside risk potential than the market as a whole, i.e. ""don't put all your eggs in one basket"". Diversification is important because of the nature of compound investing - if you take a significant hit, it will take you a long time to recover because all of your future gains are building off of a smaller base. This is one reason that younger investors often take a larger position in equities, as they have longer to recover from significant market declines. While it is very possible to build a balanced, diversified portfolio from individual stocks, this isn't something I'd recommend for a new investor and would require a substantial college-level understanding of investments, and in any case, this portfolio would have a more discrete efficient frontier than the market as a whole. Lower Volatility Picking individual stocks or sectors would could also significantly increase or decrease the overall volatility of the portfolio relative to the market, especially if the stocks are highly cyclical or correlated to the same market factors. So if they are buying tech stocks, they might see bigger upswings and downswings compared to the market as a whole, or see the opposite effect in the case of utilities. In other words, owning a basket of individual stocks may result in an unintended volatility/beta profile. Lower Trading Costs and Taxes Investors who buy individual stocks tend to trade more in an attempt to beat the market. After accounting for commission fees, transaction costs (bid/ask spread), and taxes, most individual investors get only a fraction of the market average return. One famous academic study finds that investors who trade more trail the stock market more. Trading also tends to incur higher taxes since short term gains (<1 year) are taxed at marginal income tax rates that are higher than long term capital gains. Investors tend to trade due to behavioral failures such as trying to time the market, being overconfident, speculating on stocks instead of long-term investing, following what everyone else is doing, and getting in and out of the market as a result of an emotional reaction to volatility (ie buying when stocks are high/rising and selling when they are low/falling). Investing in index funds can involve minimal fees and discourages behavior that causes investors to incur excessive trading costs. This can make a big difference over the long run as extra costs and taxes compound significantly over time. It's Hard to Beat the Market since Markets are Quite Efficient Another reason to use funds is that it is reasonable to assume that at any point in time, the market does a fairly good job of pricing securities based on all known information. In other words, if a given stock is trading at a low P/E relative to the market, the market as a whole has decided that there is good reason for this valuation. This idea is based on the assumption that there are already so many professional analysts and traders looking for arbitrage opportunities that few such opportunities exist, and where they do exist, persist for only a short time. If you accept this theory generally (obviously, the market is not perfect), there is very little in the way of insight on pricing that the average novice investor could provide given limited knowledge of the markets and only a few hours of research. It might be more likely that opportunities identified by the novice would reflect omissions of relevant information. Trying to make money in this way then becomes a bet that other informed, professional investors are wrong and you are right (options traders, for example). Prices are Unpredictable (Behave Like ""Random"" Walks) If you want to make money as a long-term investor/owner rather than a speculator/trader, than most of the future change in asset prices will be a result of future events and information that is not yet known. Since no one knows how the world will change or who will be tomorrow's winners or losers, much less in 30 years, this is sometimes referred to as a ""random walk."" You can point to fundamental analysis and say ""X company has great free cash flow, so I will invest in them"", but ultimately, the problem with this type of analysis is that everyone else has already done it too. For example, Warren Buffett famously already knows the price at which he'd buy every company he's interested in buying. When everyone else can do the same analysis as you, the price already reflects the market's take on that public information (Efficent Market theory), and what is left is the unknown (I wouldn't use the term ""random""). Overall, I think there is simply a very large potential for an individual investor to make a few mistakes with individual stocks over 20+ years that will really cost a lot, and I think most investors want a balance of risk and return versus the largest possible return, and don't have an interest in developing a professional knowledge of stocks. I think a better strategy for most investors is to share in the future profits of companies buy holding a well-diversified portfolio for the long term and to avoid making a large number of decisions about which stocks to own." "Keep in mind that all of the information below assumes: That being said, here are some examples of national tax laws relating to barter transactions. Obviously this isn't an exhaustive list, but based on my grossly non-representative sample, I think it's fairly safe to assume that barter transactions are more likely taxable than not.  You're referring to a barter system; in the United States, the IRS is very specific about this (see the section titled Bartering).  Bartering is an exchange of property or services. The fair market   value of goods and services exchanged is fully taxable and must be   included on Form 1040 in the income of both parties. The IRS also provides more details: Bartering occurs when you exchange goods or services without   exchanging money. An example of bartering is a plumber doing repair   work for a dentist in exchange for dental services. You must include   in gross income in the year of receipt the fair market value of goods   and services received in exchange for goods or services you provide or   may provide under the bartering arrangement. Generally, you report this income on Form 1040, Schedule C (PDF),   Profit or Loss from Business or Form 1040, Schedule C-EZ (PDF), Net   Profit from Business. If you failed to report this income, correct   your return by filing a Form 1040X (PDF). Refer to Topic 308 for   amended return information. So yes, the net value of bartered goods or services is most likely taxable. According to the Australian Tax Office: Barter transactions are assessable and deductible for income tax   purposes to the same extent as other cash or credit transactions. Her Majesty's Revenue and Customs states that: If you supply services or goods (new or second-hand) and receive other   goods or services in payment, there are two separate supplies: You must account for VAT, and so must your customer if they're   VAT-registered. The VAT treatment is the same as for part-exchanges.   You must both account for VAT on the amounts you would each have paid   for the goods or services if there had been no barter and they had   been paid for with money. Searching the website of the Federal Tax Service for the Russian/Cryllic word for barter (бартер) doesn't yield any results, but that might be because even between Google Translate and the rest of the internet, I don't speak Russian. That being said, I did manage to find this (translated from the first full paragraph of the Russian, beginning with ""Налог на доходы..."": The tax on personal income is paid by citizens of the Russian   Federation with all types of income received by them in the calendar   year, either in cash or in kind. Since bartering would probably qualify as an in kind transaction, it would likely be taxable.  The South African Revenue Service includes barter transactions in the supply of goods taxed under the VAT.  The term “supply” is defined very broadly and includes all forms of   supply and any derivative of the term, irrespective of where the   supply is effected. The term includes performance in terms of a sale,   rental agreement, instalment credit agreement or barter transaction. Look for section 3.6, Supply and Taxable Supply, found on p17 of the current version of the linked document." "I'm assuming that when you say ""convert to S-Corp tax treatment"" you're not talking about actually changing your LLC to a Corporation. There are two distinct pieces of the puzzle here. First, there's your organizational form. Your state, which is where the business is legally formed and recognized, creates the LLC or Corporation. ""S-Corp"" doesn't come into play here: your company is either an LLC or a Corporation. (There are a handful of other organizational types your state might have, e.g. PLLC, Limited Partnership, etc.; none of these are immediately relevant to this discussion). Second, there's the tax treatment you receive by the IRS. If your company was created by the state as an LLC, note that the IRS doesn't recognize LLCs as a distinct organizational type: you elect to be taxed as an individual (for single member LLCs), a partnership (for multiple member LLCs), or as a corporation. The former two elections are ""pass through"" -- there's no additional level of taxation on corporate profits, everything just passes through to the owners. The latter election introduces a tax on corporate profits. When you elect pass-through treatment, a single-member LLC files on Schedule C; a multiple-member LLC will prepare a form K-1 which you will include on your 1040. If your company was created by the state as a Corporation (not an LLC), you could still elect pass-through taxation if your company qualifies under the rules in Subchapter S (i.e. ""an S-Corp""). States do not recognize ""S-Corp"" as part of the organizational process -- that's just a tax distinction used by the IRS (and possibly your state's tax authorities). In your case, if you are a single-member LLC (and assuming there are no other reasons to organize as a corporation), talking about ""S-Corp tax treatment"" doesn't make any sense. You'll just file your schedule C; in my experience it's fairly simple. (Note that this is based on my experience of single- and multiple-member LLCs in just two states. Your state may have different rules that affect state-level taxation; and the rules may change from year to year. I've found that hiring a good CPA to prepare the forms saves a good bit of stress and time that can be better applied to the business.)" "You should check with your broker for details, but you can generally specify which ""lot"" you are selling.  where I've seen it, that's done by concurrently sending a ""letter of instruction"" documenting your choice of lot concurrent with the sale, but different brokers may handle this differently.  I would think this should work for the case that you describe. (In addition, the default rule used by your broker is ""probably"" first-in-first-out, which will do what you want here.) Note that this may come into play even in a margin account to the extent that you might want to specify a lot in order to obtain (or set yourself up for later benefit of) favorable tax treatment under the long-term capital gains rules" "I don't think its a taxable event since no income has been constructively received (talking about the RSU shareholders here). I believe you're right with the IRC 1033, and the basis of the RSU is the basis of the original stock option (probably zero). Edit: see below. However, once the stock becomes vested - then it is a taxable event (not when the cash is received, but when the chance of forfeiture diminishes, even if the employee doesn't sell the stock), and is an ordinary income, not capital. That is my understanding of the situation, do not consider it as a tax advice in any way. I gave it a bit more though and I don't think IRC 1033 is relevant. You're not doing any exchange or conversion here, because you didn't have anything to convert to begin with, and don't have anything after the ""conversion"". Your ISO's are forfeited and no longer available, basically - you treat them as you've never had them. What happened is that you've received RSU's, and you treat them as a regular RSU grant, based on its vesting schedule. The tax consequences are exactly as I described in my original response: you recognize ordinary income on the vested stocks, as they vest. Your basis is zero (i.e.: the whole FMV of the stock at the time of vesting is your ordinary income). It should also be reflected in your W2 accordingly." The default is FIFO: first in - first out. Unless you specifically instruct the brokerage otherwise, they'll report that the lot you've sold is of Jan 5, 2011. Note, that before 2011, they didn't have to report the cost basis to the IRS, and it would be up to you to calculate the cost basis at tax time, but that has been changed in 2011 and you need to make sure you've instructed the brokerage which lot exactly you're selling. I'm assuming you're in the US, in other places laws may be different.