Amending a Tax Return - Penalties?

[PaunchyPirate]

I prepare my best friends taxes each year using TurboTax Desktop. He comes to my house and we do it together. Today, he discovered that he had forgotten a 1099-INT from a CD for 2023 because the bank no longer sends paper copies. He was able to sign into his account and get the 1099 for 2023. It is for $950 or so of interest.

I've never amended a tax return before with or without TurboTax, but I managed to re-install the 2023 software that I had just deleted last month to make room for the 2024 version. I was able to initiate the amend process using his TurboTax file, which I always keep. It really was a straight-forward process to amend both the Federal and State returns. No issues there. But I was assuming he would have to pay some penalty amount in addition to the added tax on the interest income. But so far, I have not found anywhere that a penalty has been applied. Can anyone shed some light on 1) is there actually a penalty and 2) where do I find that details in TurboTax (or whatever IRS Form would show it)? Thanks.

Edited to add: I should have Googled first... On TT website, I found info that says TT does not calculate a penalty, but that the IRS will calculate one and send a bill. Does that jive with your thinking?

 

[Midpack]

The only amended return I did with TT meant the IRS owed me, so not sure if/how penalties are handled - looks like you found that answer. My amended return was only a few months after the original. I do agree the whole process was very easy in TT.

 

[Jerry1]

The 1040X is pretty easy to do by hand. You just put in the original numbers and the new numbers and you only do it at a total level. You won't have a penalty per se but they may charge you interest. It's not something you'll calculate for the form. The IRS will bill you if they want to collect it.

 

[PaunchyPirate]

The 1040X is pretty easy to do by hand. You just put in the original numbers and the new numbers and you only do it at a total level. You won't have a penalty per se but they may charge you interest. It's not something you'll calculate for the form. The IRS will bill you if they want to collect it.

Yep. And if my internet search is correct, the penalty is only 1/2 of 1% per month of the new amount due. So I think my buddy will owe about $10 in penalties. Not the end of the world. He’s more bothered by troubling me with doing the amendment.

 

[Jerry1]

You could try going into the current version of TT and trying to do the amendment. It might pull in the data from the prior year data file - assuming you have that.

 

[PaunchyPirate]

You could try going into the current version of TT and trying to do the amendment. It might pull in the data from the prior year data file - assuming you have that.

TurboTax specifically says to load the software for the year of the return to do amends. It’s easy to do because I buy from Amazon and the keep the download file available for multiple years. Tax laws, brackets, thresholds, etc. differ from year to year.

 

[SecondCor521]

Yep. And if my internet search is correct, the penalty is only 1/2 of 1% per month of the new amount due. So I think my buddy will owe about $10 in penalties. Not the end of the world. He’s more bothered by troubling me with doing the amendment.

It's interest, not penalty. They're essentially charging your friend for making him a ~$150 loan for a year or so - the taxes he should have paid from the time he didn't pay them until he did.

The interest rate has varied over the past year or two - from about 3% to about 8%. But yeah, somewhere in the $5 to $15 in interest. They may decide it's not worth the paperwork hassle.

But if they do, those interest rate calculations are already programmed into the IRS computers, so they can and will calculate it. When they send the bill they give you a grace period to pay in full that will be listed in the notice.

He might have a state amended return to file too, but that would probably be even a lower penalty. And TT probably handles that situation fine.

 

[PaunchyPirate]

It's interest, not penalty. They're essentially charging your friend for making him a ~$150 loan for a year or so - the taxes he should have paid from the time he didn't pay them until he did.

The interest rate has varied over the past year or two - from about 3% to about 8%. But yeah, somewhere in the $5 to $15 in interest. They may decide it's not worth the paperwork hassle.

But if they do, those interest rate calculations are already programmed into the IRS computers, so they can and will calculate it. When they send the bill they give you a grace period to pay in full that will be listed in the notice.

He might have a state amended return to file too, but that would probably be even a lower penalty. And TT probably handles that situation fine.

Yes, we are going to amend the state return too. He owes them another $31 (plus whatever they decide to charge him for interest/penalty). I did the dry run in TT and it was indeed an easy process. I'll do it again this weekend with him here.

 

[NeilDH]

I understand that you would pay a penalty for underpayment of taxes, under the failure-to-pay provision, in addition to interest. As the IRS says:

“In addition, if you file a return but don't pay all tax by the due date of the return (without any extensions), you'll generally have to pay a late payment penalty. The failure-to-pay penalty is one-half of one percent for each month, or part of a month, up to a maximum of 25%, of the amount of tax that remains unpaid from the due date of the return until the tax is paid in full.”

This accounting firm says the same: Know the Rules for Amending a Federal Income Tax Return

And you’d let the IRS figure it out and bill you. Now all this said, you’re talking $31 in unpaid tax here, so the max penalty would be $7.75. And the interest similar. I have a possible memory rattling in my head that under $10 they don’t bother; whether or not that’s officially true, I suspect they won’t anyway. It means a lot that you’re catching it before they do. (And they should have since that bank’s 1099-INT also went to them, but .) This is really loose change in the grand scheme.

 

[Elizrogers]

I prepare my best friends taxes each year using TurboTax Desktop. He comes to my house and we do it together. Today, he discovered that he had forgotten a 1099-INT from a CD for 2023 because the bank no longer sends paper copies. He was able to sign into his account and get the 1099 for 2023. It is for $950 or so of interest.

I've never amended a tax return before with or without TurboTax, but I managed to re-install the 2023 software that I had just deleted last month to make room for the 2024 version. I was able to initiate the amend process using his TurboTax file, which I always keep. It really was a straight-forward process to amend both the Federal and State returns. No issues there. But I was assuming he would have to pay some penalty amount in addition to the added tax on the interest income. But so far, I have not found anywhere that a penalty has been applied. Can anyone shed some light on 1) is there actually a penalty and 2) where do I find that details in TurboTax (or whatever IRS Form would show it)? Thanks.

Edited to add: I should have Googled first... On TT website, I found info that says TT does not calculate a penalty, but that the IRS will calculate one and send a bill. Does that jive with your thinking?

Just curious why you are using the desktop version? I did that for years, but once TurboTax went online I switched to that and have used it there ever since. Nothing to install, easy to amend, past years' files are always there. I really didn't know you could still buy a desktop version.

 

[PaunchyPirate]

Just curious why you are using the desktop version? I did that for years, but once TurboTax went online I switched to that and have used it there ever since. Nothing to install, easy to amend, past years' files are always there. I really didn't know you could still buy a desktop version.

I've never tried the online version. I like my routine.

 

[NeilDH]

One advantage of the desktop version is you can do five returns on it, if you need to do more than one, such as for a relative or friend.

 

[Jerry1]

One advantage of the desktop version is you can do five returns on it, if you need to do more than one, such as for a relative or friend.

Yes. You can actually do an unlimited amount of returns but you can only e-file five of them. As a practical matter it wouldn’t matter but if your a person who wants to print out several scenarios in a planning exercise, that might be useful.

 

[RetiredAndLovingIt]

Just curious why you are using the desktop version? I did that for years, but once TurboTax went online I switched to that and have used it there ever since. Nothing to install, easy to amend, past years' files are always there. I really didn't know you could still buy a desktop version.

I also use the Desktop version and have no intention of moving to the online. You don't get the What If worksheets with the online version. I use them every year to play around with the numbers for estimating next years Roth Conversion and how it will impact Social Security taxation.

Tax Planning with TurboTax What-If Worksheet: Roth Conversion

After you file your taxes with TurboTax, use the hidden What-If Worksheet to plan for the current year. See how to use it to plan for a Roth conversion.

thefinancebuff.com

 

[badatmath]

There are some clear advantages to using desktop - I will say filing multiple returns and being able to see forms being major advantages if that "help" question can be believed. I didn't know there were forms differences in the versions?
What are the differences between Turbotax Online and TurboTax Desktop?

I will use desktop as long as it is available anyway.