Same data for two 1040s; two different tax liabilities.

troop147

Same data for two 1040s; two different tax liabilities.

I am asking for reactions to the following situation before submitting my 1040 to the IRS. Every year I prepare my 1040 using two different methods to check on consistency of results. I either use two widely used tax software packages, or I use one package and have an organization like AARP prepare the second return. In each previous year the calculated tax liability has been the same for both approaches.

For 2023 I chose to use TurboTax and FreeTaxUSA. The two outcomes were nowhere close to each other. TurboTax calculates that I owe the Feds another $400 on top of the $20,000 that I have already paid them while FreeTaxUSA calculates that I am owed $30. I have carefully checked the numbers that were entered into each template, and they were identical. The aggregate value of each of these categories are the same: ordinary dividends, taxable IRS distributions, taxable Social Security, taxable pensions, and early withdrawal penalties.

However, there are differences in the taxable gains (line 7 of IRS 1040) and taxable interest (line 2b) categories though the sum of these amounts are the same for both templates (ie, taxable gains + taxable income (Turbo) = taxable gains + taxable income (FreeTax)). The difference occurs because FreeTax puts the value of all capital gains (short term, long term, unspecified) into the Capital Gain/Loss line (7) of 1040 while TurboTax adds the value of short term and long term capital gains to the Taxable Interest line (2b). [note: TurboTax claims that only the short term capital gain is included in line 2b but my calculation indicates both short and long term gains appear here]. The short and long term gains come from Form 1099-B and INT-DIV provided by two financial organizations and are entered into the two templates.

I hope that my description is reasonably clear. Is there something that I have overlooked that explains the difference in tax liability calculated by TurboTax and FreeTaxUSA? If I submit FreeTaxUSA and the Feds subsequently find something in error can I be penalized for relying on an established software package?

KeriC

It sounds like the difference may come from (at least partially) capital gains tax. Are you able to view the capital gains tax worksheet in TurboTax? You can view the worksheet within your FreeTaxUSA account by selecting the "Summary" tab. Scroll to the bottom of the page and click "View" next to the "View Qualified Dividends and Capital Gains Tax Worksheet" heading.

Of course, if any calculations seem to be off, you are welcome to reach out to our Customer Support team using the "Support" feature within your account to have them take a look at your specific return.

We do have an accuracy guarantee. It states, "FreeTaxUSA cannot and does not assume any liability, claim, or loss for any user generated errors, including but not limited to data entry errors. However, FreeTaxUSA does offer an Accuracy Guarantee that the tax formulas and calculations accessed via any of the Products and Services offered on the Site are accurate and will produce results consistent with federal and state standards for preparing and/or filing tax returns. In the event any of the formulas and/or calculations utilized in any of the Products and Services offered by FreeTaxUSA are incorrect, then FreeTaxUSA will reimburse you any penalties and/or interest imposed by the Internal Revenue Service and/or your state of residence to the extent that such are imposed as a result of any such erroneous formulas and/or calculations. The Accuracy Guarantee is limited to penalties and/or interests as stated in this section and to no other amount(s).

"If you believe that an above described calculation or formula error has occurred, you must notify FreeTaxUSA as soon as you are made aware of the mistake (and in no event later than 45 days after the interest or penalty is assessed) by mail at:

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"FreeTaxUSA will then contact you to resolve the issue. In order to investigate your issue, FreeTaxUSA requires supporting information such as a copy of the IRS/state notice, evidence of payment of the specified penalty and/or interest, etc."