tax software discrepancies

annie1956February 12, 2007

I've been filing my own taxes for what seems like forever. Always double checking my numbers to make sure things add up. Way back with the "box" versions, went to the "free files" offered by the IRS. Have always put my info into a couple of programs to cross check. Last year used TaxAct and felt comfortable. Put my info into TaxAct and then tried H&R Block TacCut for my cross check and imagine my surprise when there is a $400 refund difference between the two with H&R Block being the better refund using the same data. My taxes are not that involved - married filing joint, $70k income, 1st mortgage, home equity loan, rv loan (now is that the difference - one classifies it as a 2nd home another just as mortgage interest?) Interesting-they both guarantee their programs for calcualtion errors.

Obviously-from a financial standpoint I'm going to go with the bigger refund - duh.


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I would.

Thing is, you can ask half-a-dozen tax preparers (including the folks who answer the phones at the IRS) about the same return and get six or seven (!) different answers. The people who write the tax software make similar assumptions, so it does not surprise me that different programs will differ in their results.

One thing I did not see you mention in your message was whether you had verified you were using the latest version of software available. Tax software is notorious for having lots of "dot-revisions" between release and April as errors are discovered and IRS regulations are finalized.

    Bookmark   February 12, 2007 at 9:18AM
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I googled RV and federal taxes, etc and found pretty consistant insistance that if the RV has bath and kitchen facilities, interest does qualify for federal tax deduction as a second home.

"One final benefit is that interest payments on an RV loan may be tax deductible. This benefit applies if the RV is used as security for the loan, and has cooking, sleeping and toilet facilities on board to qualify for the federal income tax second-home deduction, according to IRS code section 280A(f)(1). You cannot take advantage of this deduction if you already own a second home or another RV. You should consult with your tax adviser for more information on this finance benefit if you are interested."

And from another site:
"Wheels or no wheels(loan interest) can dededucted on Federal income taxes. It is considered a second home if it has a bathroom."

And a third:
"My dad has been a professional tax accountant for years and assures me that it's deductible as long as it has kitchen and bath facilities."

So take the money and run. (And maybe be ready to locate and print out that 280A(f)(1) section, just in case there is a question later.)

    Bookmark   February 12, 2007 at 10:41AM
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I use TaxCut. Well last year I got 2 different answers for the same problem worked 2 different ways. The result from inputting estimated tax payments quarterly or once yearly got different answers. Assuming one single payment resluted in an underpayment penalty. Quarterly payments did not.

I emailed em why. They came back with they didn't give tax advice. I emailed em I wasn't asking advice just why 2 different answers. They came back with that the internal calculations are "sheltered from the user." Really!!!!

Accordingly, I divided my one payment by 4, filed it in as quarterly --- no penalty.


    Bookmark   February 12, 2007 at 1:28PM
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In Canada, if at year-end one owes more than $2,000. tax, next year one must make instalment payments Mar, Jun, Sep, Dec. 15.

If they are not made on time, in about the 1/4 amount of last year's payment, or anticipated for this year - there's an interest charge on the unpaid balance. I don't think that there's a penalty.

ole joyful

    Bookmark   February 12, 2007 at 7:33PM
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If you do your taxes on different software programs, print the returns out and do a line by line comparion to see where the differences are. Two of the problems with any software is not understanding completely what the question is asking and not following thru to see if the software did what you expected it to do. Even with software, you have to do some research to insure that you have done your return correctly.

mxyplx, you will probably receive a letter from the IRS in a year or so charging you the penalities and penalities for understating your penalities and interest on those penalities. If I understand your post correctly, you did not make quarterly estimated payments but made on payment towards the end of the year. The IRS will verify the dates they received your payments with what is shown on your return. They will most likely catch that you didn't make the quarterly payments you said you did on your return. Using the scenario that I think you described, it is possible to pay penalities for late filing of estimated payments and receive a refund on the same tax return.

    Bookmark   February 12, 2007 at 8:36PM
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"Obviously-from a financial standpoint I'm going to go with the bigger refund - duh.

Not necessarily. Not if it's wrong. If you underpay your taxes and they catch you, you'll owe taxes, interest, and penalties. In other words, more than if you just pay it. I wouldn't presume to know how likely it is they'd catch you, but I can tell you that last year (or the year before maybe), I accidentally put my foreign tax credit of $2 and some cents (yes, less than $3.00) on the line above or below, which was a credit for child care. I got a letter from the IRS asking for documentation of the $2 I spent in child care that year. So someone's paying attention (ok, probably a computer program designed to notice and flag things that seem unusual is paying attention, but still).

Then there's the non-financial, moral standpoint. Are you someone who would normally, knowingly cheat on your taxes? If not, why does having a computer program make a mistake make it ok? The company who designed and sold the program is not who is going to send you your refund, and the IRS/taxpayers aren't the one who made the error (if it is one).

Plus--- "Interesting-they both guarantee their programs for calcualtion errors." Interesting- they don't guarantee for "errors", only "calculation errors". I personally doubt making a judgement call on whether or not a particular interest payment on a particular asset is considered a "calculation error." A calculation error is 2+2=5. This is going to wind up being your responsibility, no matter how you look at it. You might as well take the time to figure out which is right. (and if it turns out to be the one in your favor, won't you feel better *knowing* you did it right and don't have to worry about repercussions?)

    Bookmark   February 13, 2007 at 11:06AM
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... if it turns out that higher refund is correct and you should have but didn't take a deduction in previous years, you can I'm almost positive file an amended return for past years and still get a refund.

This makes a very good case for actually going through the process of doing your taxes the "paper" way, by reading the instructions and figuring out what deductions you can take. What if the bigger refund program is right, but you only used the other one? You would be out $400 that is rightfully yours. Maybe more if you should have gotten it in past years, too, and never checked.

    Bookmark   February 13, 2007 at 11:15AM
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I agree - best know the answer in advance - easy to fake yourself out on those interviews.
I dug back thru the correspondance. Here was the question sent to TaxCut:
Not asking advice! I'm asking why I get different answers when I use the program 2 different ways!

I input the paid estimated tax as: 1. paid quarterly or 2. paid in one single payment on April 15th.

The program coughs up an underpayment penalty for the single payment even tho it was made on April 15th ie a year in advance. (No underpayment for the quarterly payments).

How could paying the estimated tax a year in advance possibly be an underpayment? with attendant penalty?
I just tried my 2006 TaxCut both ways and got no underpayment penalty either way. I tried various answers in the interview to see if it would warp the final result. Nope.

However, inputting the whole est tax payment on 12-14-2006 and pushing various combinations of buttons in the interview induced either a penalty or no penalty. Partly depends on the income distribution thruout the year.

    Bookmark   February 13, 2007 at 12:59PM
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Correct me if I'm wrong but -- my understanding is the payment on April 15 is for LAST YEAR, thus, it IS in fact late if you were obligated to make quarterly payments last year.

    Bookmark   February 14, 2007 at 8:23AM
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Then there's the non-financial, moral standpoint. Are you someone who would normally, knowingly cheat on your taxes? If not, why does having a computer program make a mistake make it ok? The company who designed and sold the program is not who is going to send you your refund, and the IRS/taxpayers aren't the one who made the error (if it is one).

Who says it's a mistake? It simply may be a different interpretation of the rules. This happens all the time with humans who supposedly are trained in IRS rules and regulations, and people don't consider that cheating. Maybe it's because it's much more expensive to run a return past two or three human tax preparers when it's cheap and pretty quick to run the same return through two or three tax software packages.

    Bookmark   February 14, 2007 at 10:20AM
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I don't know that it was a mistake. It might be perfectly legitimate. My suggestion was that she figure out whether or not it is before just picking the answer she likes better. True, Congress and tax law doesn't exactly make it easy, but we are legally responsible for accurately figuring out our own tax obligations paying the correct amount. Sure, use tax software to help do the returns, but that doesn't change our personal obligation to make a reasonable attempt to do it right. And I may be wrong, but I think the IRS will impose late payment penalties if you don't pay what they think you owe them, whether or not you intentionally "cheated" or just made a mistake, or made what they consider a wrong interpretation. She doesn't even know if the difference is because of a different interpretation of an ambigous rule; the RV loan deduction, if I read the post right, was a guess. All she knows is that there is a difference in the amount of tax that she owes, depending on which program she uses (and assuming that she didn't make a mistake in any of the inputs). It seems reasonable (to me) to figure out why and make an effort to do it correctly. I'm not saying don't go with the higher refund. I'm saying figure out why they're different and go with the one that's correct. If it is a difference in interpretation of a deduction and the rules are written in a way that she believes she's entitled to the deduction, then by all means take it and no, that's not cheating. Willful ignorance in order to avoid a legitimate obligation is in my opinion cheating. And knowing there's a discrepency and not making an effort to figure out why is in my opinion willful ignorance.

    Bookmark   February 14, 2007 at 10:47AM
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>>Correct me if I'm wrong but -- my understanding is the payment on April 15 is for LAST YEAR, thus, it IS in fact late if you were obligated to make quarterly payments last year
The April XX date is for BOTH last years tax and the first installment of the current years' estimated tax. In the program it gets input into a special section for est taxes

    Bookmark   February 14, 2007 at 12:23PM
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Mxyplx, I didn't understand that you had paid all of your extimated taxes for 2006 in one lump payment on 4/15/2006. Check your data entry to see if you have the info in the correct spot for that estimated payment. The software shouldn't be calculating a penalty if you paid your estimated taxes early. Maybe you need to send another email to the company with some very specific information about what data you entered, where you entered it and why you believe there software has a bug.

To everyone else, yes, there are different interpertations of tax law but it's pretty rare to have them on the things that are most frequently seen in tax returns. I don't buy the "different interpertations" arguement. If you do research (using software does NOT relieve you of that obligation) you will know what the software is asking for and how to correctly input the data so you get a correct response.

I've done taxes for 13 years. During that time I have reviewed for free countless returns prepared by taxpayers using the various tax prep programs. Many of those returns were done correctly and some were not. The ones that were not, the taxpayer always says but the software asked me if ..(you can pick the question)..... then they answered it with a respose that seemed right. The taxpayer interperted the question in a way that benefited him without ever looking anything up. The result was just plain wrong. Software is good and getting better every year, but it's not fool proof. Hopefully everyone remembers the old "garbage in, garbage out" saying. Tax prep software is no exception to that saying.

You, the taxpayer, has an obligation to do your tax return correctly no matter what software you are using. If you do your return using 2 different programs and get 2 different answers, then you need to do the research and figure out which one is right and not simply choose the one that gets you the biggest refund. I suspect that there is a wrong answer to a question or a data entry error somewhere in your data imput.

Put those 2 returns side by side and do a line by line comparision. On the lines where the numbers are different, do some research and figure out using a pencil and calculator and your brain which answer is correct.

Stepping off my soapbox now. Carry on

    Bookmark   February 14, 2007 at 10:28PM
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The way I see it, I spend maybe a weekend gathering the information I need to feed my tax software program and compute my taxes. The folks at Intuit and H&R Block spend far longer than that and they are subject-matter experts. So, bugs aside (and I work in the computer field; I know they can happen), I expect them to be interpreting the IRS (or state) regulations in a legal manner.

That does not mean no errors are made. From the CNNMoney Web site:

For the 2002 tax year, the IRS found that among returns signed by paid preparers there were 1.2 million Form 1040s with mistakes." Returns with errors prepared by individuals numbered about twice that, but it tells me there's plenty of room for reading comprehension and math skills to vary, even among professionals.

U.S. and state Tax Courts handle thousands of cases each year, some of which are accusations of evasion and improper activity; others which are based on an interpretation of a given event or action in regards to tax law (not like that ever changes!). I did my own taxes for many years and always read the instructions for each line until that line no longer applied to me ("Are you a retired albino railroad employee living on an Alaskan oil field?") You cannot tell me the tax rules are explicit and easily understandable.

Should you make sure your return passes "the smell test"? Sure. Should you ask questions of your preparer if something clearly is not right? Certainly. But if you have to go through the return line-by-line to figure out if the preparer (human or electronic) computed every last dollar correctly, you might as well do it by yourself. And good luck with that. You should be able to trust whoever/whatever is preparing your taxes. If you don't, find someone else.

    Bookmark   February 15, 2007 at 8:53AM
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Yes, we are all human and we all make mistakes.

If you pay a preparer to do your taxes, your return should be done correctly. You should have a guarantee that the return is done correctly. The preparer should pay penalities and interest if there is a mistake on your return and the IRS sends you a bill.

Most of the people who use paid preparers are too lazy to do their own returns, don't want to spend the time to do their return themselves, are totally confused by tax law or want that guarantee in case the return is done incorrectly. Personally, I don't think you should be able to graduate from high school without knowing how to complete a return with wages, dependents, interest, dividends, and Schedule A. That isn't that difficult.

It is important to remember that the paid preparer is only as good as the information that person has. If you fail to bring a W-2 or a 1099 Misc or a 1099 Int, the preparer has NO way of know that information is missing. A good portion of the mistakes preparers make are due to a lack of infomation or poor information provided by the client. We just had a case where a client got a letter from the IRS because he had forgotten to claim $17,000 in income on a Schedule C. In the IRS statistics, that goes down as a paid preparer mistake even though we had no way of knowing he had recieved that income in addition to the other income he had on his Schedule C. Some errors that end up on the preparer side of the ledger are a result of taxpayers lying about being married and whether or not a child has lived with them a full year.

I've seen self prepared returns that a taxpayer claimed the Hope Credit and the Lifetime Learning Credit and the Tuition and Fees deduction for the same student for the same tuition paid. Clearly this was a mistake. The software gave him a warning, but the taxpayer ignored the message, printed the return and mailed it in anyway. Mr. Taxpayer got a letter from the IRS a year or so later. When I talked to the taxpayer, his response was "The software asked the questions and I answered it". If Mr. taxpayer had spent 15 minutes doing some research to figure out why the software said his return was incorrect, he would have saved himself the terror of a letter from the IRS and a bunch of money.

If you do your return yourself and use two different tax prep programs and get two different answers, you really need to figure out why the answers are different.

I'm not trying to start a fight, but simply let the OP know that he/she should have figured out why there was a difference before filing.

    Bookmark   February 15, 2007 at 9:22AM
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"I'm not trying to start a fight, but simply let the OP know that he/she should have figured out why there was a difference before filing."

I agree with you...

AND, if the OP is audited, she has to justify without a shadow of a doubt WHY she took the deductions she did. She can't just 'blame' the software!
Research is crucial in her case.

    Bookmark   February 15, 2007 at 10:24AM
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Wow-what responses- and I thank all of you! Actually I ended up going back through BOTH programs and did find a mistake "mine" (she quietly says). Since I never received a form for the RV interest I had it written on a scrap of paper from the bill (which did say - this would be the only tax notice you will receive). Somehow I had neglected to input it into the one program - hence the huge difference in refunds.
I do know that the RV loan interest is deductible as a 2nd home and I have used it in the past.
With the loan interest included there is still a difference in the refund but it is now a more "reasonable" $60. (And yes, that is comparing line by line so I don't know what the behind the scenes calculations are doing but I'm comfortable with what I do).

    Bookmark   February 15, 2007 at 3:29PM
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Glad to hear you found the source of the difference, annie.

Reminds me of an old saying, however. "A man with two watches never knows what time it is." I think I'll stick with my one program and make sure the numbers seem right. A second program can only get me into trouble. :-)

    Bookmark   February 16, 2007 at 9:15AM
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I do very good to get my taxes done at all, let alone run thrm through 2 programs! Not a bad idea, though - it caught a mistake the OP might have missed.

I don't know if they still do this, but Money Magazine used to send a set of hypothetical financial data out to 20 different tax preparers each year, and usually got 20 different answers as to what amount was due. If I recall correctly, the returns weren't necessarily wrong, either, just different legal ways of calculating some things. I'm glad my tax situation isn't that complicated.

    Bookmark   February 17, 2007 at 10:45PM
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I don't think Money Magazine does the hypothetical tax return any more. At least if they are still doing it, I haven't noticed for the last several years.

The biggest problem with the scenario was that it wasn't detailed enough. If it had been a real tax return, the preparer would have called the taxpayer to clear up some of the gray areas. Since that wasn't an option, the preparers made some assumptions which lead to the different answers. I doubt that is the explanation for all of the different answers, but I know it was for many of them.

    Bookmark   February 18, 2007 at 8:02AM
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"... With the loan interest included there is still a difference in the refund but it is now a more "reasonable" $60... "

Check to see if you took the Telephone Excise Credit on both returns. If you are claiming 4 exemption (you, DH, and 2 dependents) then you would be eligible for a $60 Telephone Excise Credit (as long as you paid federal excise tax on long distance phone calls). Sounds like you might have missed this credit on one of the programs you used.

The amount of the credit is $30 for 1 exemption, $40 for 2 exemptions, $50 for 3 exemptions, and $60 for 4+ exemptions.

    Bookmark   February 19, 2007 at 2:12AM
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