Extensions don’t raise audit risk, don’t cost anything, and often produce better returns. What an extension does and doesn’t do — and the one thing it never extends.
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The envelope says Internal Revenue Service, your stomach drops, and — if you’re like a remarkable number of people — the letter goes into a drawer, unopened, to radiate anxiety for six weeks. That drawer move is the single most expensive mistake in tax administration. Here is what’s actually happening and the playbook that handles it.
First truth: it’s almost certainly a computer
The overwhelming majority of IRS mail is automated. A document you didn’t report (or reported differently) tripped the matching system; a payment didn’t land where the computer expected; a number needs verification. Audits — actual examinations by actual humans — are rare, and they don’t begin with a vague scary letter; they begin with a specific one naming the tax year and items under exam.
Second truth: the IRS never initiates contact by phone, text, or email demanding payment. Anyone calling about your “case” with urgency and gift cards is a criminal. Real tax problems arrive by mail, move slowly, and cite notice numbers.
Read the notice number — it tells you the genre
Top or bottom right corner: CP or LTR followed by digits. The common ones:
CP2000 — the matching notice. “Our records show income your return didn’t.” Often it’s a 1099 you missed; often it’s right about the income but wrong about the tax — the classic being stock or crypto sales assessed at zero cost basis, taxing your entire proceeds as gain. A CP2000 is a proposal, not a bill. You can agree, partially agree, or dispute with documentation.
CP14 / CP501-503 — balance due series. Escalating politeness about the same debt. Interest runs the whole time.
CP504 / letters with “intent to levy” language — the serious tier where liens and levies become real and response deadlines carry legal weight. This is professional-help territory, immediately.
Math error and refund-adjustment notices — the IRS changed something; verify before accepting, because their corrections are wrong often enough to check.
New Jersey and New York run parallel systems, and the states are, frankly, faster and more aggressive on collection than the IRS. A state notice deserves the same playbook at higher speed.
The playbook
Step 1 — Open it today. Every option gets worse with age; several expire at 30, 60, or 90 days.
Step 2 — Compare the notice to your filed return before believing either one.
Step 3 — Never just pay a proposed amount to make it stop. We regularly cut proposed CP2000 balances by 70–100% by supplying the basis or documentation the computer didn’t have.
Step 4 — Respond in writing, by the deadline, keeping copies — certified mail or the IRS online response tools. Phone hold times are a tax of their own.
Step 5 — Know about first-time penalty abatement. A clean three-year compliance history often erases failure-to-file/failure-to-pay penalties on request. The IRS does not volunteer this.
Step 6 — If the letter proposes real money, involves multiple years, or uses the words levy, lien, or examination — bring in a CPA before responding. A professional response in round one shapes everything after; cleanup after a bad self-response costs more than the response would have.
What not to do
Don’t ignore it. Don’t call the number on a phone message (call the one on the printed notice, or better, let your CPA use the practitioner line). Don’t send originals. Don’t miss a deadline because you were “gathering everything” — a timely partial response beats a late perfect one.
Romanchuk CPA LLC responds to IRS, NJ, and NY notices for clients year-round — often resolving matching notices for less than the proposed penalty alone. Forward us the letter the day it arrives: rfg.tax.
This article is general information, not tax advice for your specific situation.
For years, crypto taxation ran on the honor system: exchanges reported little, investors self-assembled spreadsheets, and plenty of gains simply never met a tax return. That era is over — not because the rules on what’s taxable changed (they mostly didn’t), but because the reporting plumbing finally got built. If you hold digital assets, two structural changes now govern your filing life.
Change 1: The IRS gets a copy now
Custodial exchanges and brokers must issue Form 1099-DA reporting your digital asset sale proceeds — with cost basis reporting phasing in for covered assets. Practically, this puts crypto on the same matching footing as stocks: the IRS computer compares what brokers reported against what your return shows, and mismatches generate automated notices.
Two traps in the transition:
Proceeds without basis. Early-phase 1099-DAs may show what you sold for but not what you paid — especially for coins transferred in from elsewhere. If you don’t supply defensible basis, the notice math assumes basis of zero and taxes the entire proceeds. Sound familiar? It’s the RSU trap’s crypto cousin, and the fix is the same: your records, attached to Form 8949.
Transfers look like sales to no one — and like income to a bad reconciliation. Moving coins between your own wallets isn’t taxable, but a sloppy data trail makes those movements indistinguishable from dispositions. Reconciliation is now the core of crypto tax prep.
Change 2: One big spreadsheet is no longer legal
Under IRS transition rules, investors were required to move from “universal” basis tracking (pooling all holdings across every exchange and wallet) to wallet-by-wallet (account-by-account) basis tracking. Each wallet’s coins now carry their own lots and their own basis; you can’t sell on Exchange A and claim the basis of coins sitting in cold storage.
If you never did the formal allocation of your old universal pool to specific wallets, your current-year lot accounting has a foundation problem — one that’s fixable, but deliberately, not by letting a crypto tax app guess. Specific-lot identification remains available and is where the planning lives (choosing which lots to sell), but it requires the records to support it.
What hasn’t changed (and gets forgotten anyway)
Every disposal is taxable — selling for dollars, swapping coin-for-coin, spending crypto on anything. Buying and holding is not.
Staking rewards, interest, airdrops, and mining are ordinary income at fair market value when received — and that value becomes their basis, so people who ignored the income also carry wrong basis into every later sale.
The wash sale rule still does not apply to crypto as of this writing — losses can be harvested and repurchased immediately, a legitimate advantage over stocks. Proposals to close this exist perennially; use the window while confirming it’s still open.
The digital asset question on page one of the 1040 is answered under penalty of perjury. Answer it accurately.
The cleanup sequence for messy histories
Step 1 — Inventory every exchange account and The IRS now receives broker reports on your crypto sales, and the old “one big spreadsheet” method is no longer allowed. What every crypto investor must fix before filing. wallet, active or dead.
Step 2 — Pull complete transaction histories; exports vanish when platforms do, so get them now.
Step 3 — Establish the wallet-by-wallet allocation from your pre-transition holdings.
Step 4 — Reconcile transfers so the software stops inventing gains.
Step 5 — If prior years have material unreported activity, address it proactively; voluntarily amended returns are treated very differently than matching-notice discoveries.
Romanchuk CPA LLC prepares returns for crypto investors from clean portfolios to multi-wallet archaeology projects. If your basis records wouldn’t survive a notice, book at rfg.tax before the 1099-DA does it for you.
This article is general information, not tax advice for your specific situation. Reporting rules are phasing in — current-year requirements should be confirmed at filing.
For decades, New Jersey was one of the stingiest states in America for college savers: no deduction, no credit, nothing — so NJ families sensibly shopped nationwide for the best 529 plan. That changed a few years ago, and the planning answer changed with it. Most families never got the memo.
What New Jersey now offers
Contributions to NJBEST (New Jersey’s own 529 plan) are deductible on your NJ return — up to $10,000 per year, for households with gross income of $200,000 or less. At NJ rates, a maxed deduction is worth several hundred dollars a year, every year you contribute.
Two companion perks for NJ families: a matching grant of up to $750 for qualifying new accounts opened for younger beneficiaries (income limits apply), and an NJBEST scholarship credit for beneficiaries who attend college in-state. Small, but stackable — and only available in the home plan.
Note what the deduction is not: it’s NJ-only (there is still no federal deduction for 529 contributions, anywhere), and the income cap is a cliff to plan around, not a phase-out.
So should NJ families use NJBEST or a better out-of-state plan?
The honest, income-dependent answer:
Income ≤ $200K: the NJ deduction usually tips the scale to NJBEST for at least the first $10,000/year, even if its investment menu and fees are merely fine rather than best-in-class. A guaranteed several-hundred-dollar annual return-on-contribution beats a few basis points of expense ratio.
Income > $200K: no deduction for you — choose purely on merit (fees, investment options). The perennial favorites among low-cost national plans remain fair game, and there is zero NJ penalty for going out of state.
Straddling the line: in years your income dips under $200K (a sabbatical, a business-loss year, a retirement transition), a contribution captures the deduction. This is a year-by-year check, not a one-time decision. And nothing stops a family from holding both an NJBEST account (for the deduction years) and a legacy out-of-state account.
The rules of the account itself (quick refresher)
Growth is tax-free when used for qualified education: college costs broadly, K-12 tuition (the federal limit for K-12 was expanded under the 2025 law — relevant to private-school families), apprenticeships, and up to $10,000 of student loan repayment per beneficiary. New Jersey generally follows the qualified-use rules, but state conformity on newer categories is worth confirming before a large K-12 withdrawal.
The escape hatch that changed the “what if they don’t go to college” objection: unused 529 funds can now be rolled to a Roth IRA for the beneficiary — lifetime cap of $35,000, the account must be 15+ years old, and annual rollovers are limited to IRA contribution limits. Overfunding risk, the historic reason families under-contributed, is now substantially defanged.
The grandparent upgrade
Recent financial-aid rule changes mean grandparent-owned 529 distributions no longer count against the student on the FAFSA — eliminating the old penalty for grandparent generosity. For estate-planning grandparents, 529s also allow five years of gift-tax annual exclusions in a single front-loaded contribution. If grandparents want to help, this is now the clean vehicle.
The move before December 31
The NJ deduction is a calendar-year item. If your household is under the income cap and college is anywhere on the horizon, funding NJBEST by year-end is one of the simplest deductions in the state — currently claimed by a fraction of the families entitled to it.
Romanchuk CPA LLC builds education funding into family tax planning — NJBEST vs. out-of-state analysis, grandparent coordination, and the year-end contribution checklist. Book at rfg.tax.
This article is general information, not tax or investment advice for your specific situation. Program terms and limits change — confirm current NJBEST rules before contributing.
The dependent care FSA just got bigger, the child care credit just got more generous, and most parents are using neither correctly. The 2026 playbook for daycare money.
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Named for the Georgia homeowners who rent their houses at spectacular rates during the Masters, the “Augusta rule” — Section 280A(g) — says: rent your home for 14 or fewer days per year, and the rental income is completely tax-free. Not deferred. Not reduced. Excluded.
For business owners, the popular application is renting your own home to your own company for legitimate business events. The company deducts the rent; you receive it tax-free. On 12 meetings at $600, that’s $7,200 moved out of the business deductibly and into your pocket untaxed — call it $2,500+ of real savings at typical rates.
It works. It has also produced a string of Tax Court losses for owners who treated it as free money instead of a transaction. The difference between the two outcomes is entirely procedural, so here is the honest requirements list.
Requirement 1: A real business purpose, actually conducted
Board meetings, quarterly planning sessions, annual shareholder meetings, team retreats, client events, video/content production days. Each event needs an agenda prepared beforehand and minutes or notes produced afterward — contemporaneously, not reconstructed in an audit. “We discussed the business over dinner” is how these cases are lost.
A fair question for a solo owner: can a one-person S-corp hold a meaningful “meeting with itself”? Courts haven’t rewarded thin versions of this. Strategy sessions with your advisors, your spouse-shareholder, contractors, or documented planning days have substance; twelve solo “board meetings” at $1,000 each do not pass the smell test, and smell tests matter.
Requirement 2: A market-rate rent you can prove
This is where the recent court losses concentrated: owners charging $1,000+ per day with no support, in markets where meeting space runs a fraction of that. The rate must reflect what the venue is actually worth for the hours used.
Build the file before paying: quotes or screenshots for comparable local meeting space — hotel conference rooms, Peerspace listings, coworking day rates — matched to your space and duration. A half-day meeting for four people is not priced like a wedding venue. A defensible NJ number is usually in the low-to-mid hundreds, not four figures.
Requirement 3: Treat it like a real transaction
A written rental agreement between you and the entity. Invoices for each event; payment by actual company check or transfer — not a journal entry in December. A calendar trail: 14 days means 14; keep the count. The corporation reports the expense; current guidance and practice on whether a 1099 is issued to you varies — we handle the reporting posture as part of preparation, and the exclusion holds either way when the substance is right.
One more boundary: you cannot double-dip the same space. Rooms claimed under your home office arrangement and rooms rented under Augusta need coherent, non-overlapping treatment.
The honest verdict
The Augusta rule is a modest, legitimate benefit — a few thousand dollars a year for an owner who runs it like a business transaction with a paper trail. It is not the five-figure loophole the courses sell. If your version was installed by a seminar and consists of a spreadsheet and good intentions, have it reviewed before it’s tested for you.
Romanchuk CPA LLC implements the Augusta rule for clients where it fits — documentation templates, rate support, and the discipline that makes it stick. Book a planning session at rfg.tax.
This article is general information, not tax advice for your specific situation.
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Read MoreRomanchuk CPA LLC is a virtual CPA firm offering tax preparation, advisory, and year-round support for small businesses and their owners, professionals, and individuals with complex tax situations - delivered through a secure digital process, at prices published before you even sign up.
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