Incorrect calculation of Net Investment Income Tax

It looks like FreeTaxUSA doesn't deduct early withdrawal penalty (Schedule 1 (Form 1040),
line 18) from Net Investment Income (Form 8960, line 10).

In my return it causes NIIT to be a bit higher then needed, so it's not a big deal but it would be great this error was fixed.

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Accepted answers

MatthewD

Hi Andrey,

I am glad you contacted us about this issue. We do support that adjustment for early withdrawal penalty (Schedule 1 (Form 1040), line 18) from Net Investment Income (Form 8960, line 10). Here is what you need to do:

Click on the Misc menu and select the option, "Net Investment Income Tax (Form 8960)"
Under "Deductions and Additional Modifications Allocable to Investment Income" Anwer Yes that you have additional modification to make to your investments expenses.
We will have a suggested amount for you to enter. Check that amount and press Save and Continue.

That adjustment will now show on your Form 8960.

For more information see the Form 8960 Instructions.

All comments

MatthewD

Hi Andrey,

Click on the Misc menu and select the option, "Net Investment Income Tax (Form 8960)"
Under "Deductions and Additional Modifications Allocable to Investment Income" Anwer Yes that you have additional modification to make to your investments expenses.
We will have a suggested amount for you to enter. Check that amount and press Save and Continue.

That adjustment will now show on your Form 8960.

For more information see the Form 8960 Instructions.

andrey

I worked. Thank you very much!

It's interesting that after I answered "Yes" to the question "Do you have any additional modifications to make to your investment expenses?" FreeTaxUSA correctly recognized that I have early withdrawal penalty and even pre-populated adjustment field with correct value.

I curious why have't it done it automatically and instead I had to navigate to "Misc" → "Net Investment Income Tax (Form 8960)" ? Did I messed up when I was entering my forms ? Or is it an expected behavior ?

MatthewD

Hi Andrey,

I think the reason we have you do that, is that adjustment isn't always used and so we have you do it manually to make sure it is included in the right calculations. Thanks for your feedback though.