Is Turbo Tax responsible for any errors they make on your taxes? According to a recent United States Tax Court ruling, it is the consumer who is responsible for any errors or inaccurate financial information submitted to the IRS. The ruling was reached on May 11, 2017 by Judge Holmes.
Barry Bulakites, an insurance consultant, was the petitioner in the recently closed Turbo Tax case. Mr. Bulakites believed that he had evidence to prove that he was tricked into claiming more deductions than what he would normally be allowed to claim through usage of the Turbo Tax software to file his 2011 and 2012 returns.
The taxation issue was partly due to alimony that was paid to Mr. Bulakite’s ex-wife following a divorce settlement. In the divorce decree, a sum of $2,000 was supposed to be paid in monthly installments. Mr. Bulakites offered to pay a larger sum of $5000 to “do the right thing” during the 2008 financial crisis to help his wife since both parties were unable to sell their interests in a home that they shared together.
The additional money that was paid to Mr. Bulakite’s ex-wife was written off as an alimony deduction on the 2011 and 2012 tax returns. Since the extra $3000 per month was not allowed to be written off under current IRS tax laws as an interest deduction, $79,000 could not be claimed or proven as interest or principal.
Other expenses that were originally claimed in the aforementioned tax years by Mr. Bulakite include interest from a note that was secured through owned real estate. The deducted amount of $185,673 was mistakenly inputted into the Turbo Tax software as a carry forward of net operating loss for the previous tax year.
Because no documentation was provided by Mr. Bulakite that showed a detailed schedule of operating loss deductions, the total amount was not allowed to be deducted, meaning no entitlement of reduced taxes. Mistakes made during the input of financial information into the Turbo Tax software by Mr. Bulakite were not found to be reasonable or in good faith by the United States Tax Court.
In his final decision, Judge Holmes cited a previous ruling known as “Bunney v. Commissioner, 114 T.C. 259, 267 (2000)” that states that taxation software is only as good as the information that someone inputs into it for the preparation and filing of state and federal tax forms for electronic or hard copy delivery.
The decision will now be entered under Rule 155 which is the Computation by Parties for Entry of Decision in all US Tax Court matters. Consumers can protect themselves by inspecting 1040, 1099 or other taxation forms for numerical errors prior to using Turbo Tax.
Turbo Tax does offer a 100% Accurate Calculation Guarantee for consumers. This guarantee is subject to a number of regulations, and it provides only a 60-day error window starting with the date a penalty assessment notice is received. Consumers are still required to respond to requests by the … Read More
One of the biggest gambling events of the year is the Kentucky Derby. This is usually a chance for horse-racing fans to make some quick cash at the tracks. After all, the horses, riders and trainers are known, so the adds favor certain horses. However, there are also some underdogs that may pull off a surprise win. This can be a great opportunity to win big. The number of bets as well as the amount of money that will be staked during the Kentucky Derby will be quite considerable as people from around the world will also be watching the event and placing their bets. While the focus is on the races, many people have not thought about paying taxes on their winnings. In fact, some people do not even know that gambling winnings are taxable.
How Gambling Winnings are Taxed
Taxpayers are required to pay taxes on all the income they get, whether it’s from employment, dividends or gambling winnings. The federal government has singled out gambling winnings and imposed a special tax on all gambling winnings whether it’s at the tracks or casino. Some states have also imposed a special tax on gambling winnings. In addition to paying these taxes, you must also report them when filing your tax returns. There are also special forms, known as W2-G forms, that must be filled when your winnings exceed a certain amount.
The gambling tax rate imposed by the federal government is 25% of the total winnings. However, your winnings must reach or exceed the threshold set.
Below are the thresholds for different types of gambling winnings:
– $5,000 in tournament winnings at the poker table
– $1,500 in keno winnings
– $1,200 at a bingo game or slot machine
– $600 at the horse tracks (but this must be 300 times your bet)
If your winnings have reached or exceeded these thresholds, you will be required to fill IRS Form W2-G and pay a tax rate of 25% for the total gambling income. In most cases, the casino will withhold 25% of your winnings on behalf of the government before paying you.
It is important to note that taxpayers are not always required to fill the IRS Form W2-G when their gambling winnings exceed the thresholds highlighted above. For instance, you do not have fill this form if your winnings are from table games, such as roulette, craps, baccarat or blackjack, regardless of the amount. However, you still have to report these winnings when filing your tax returns and pay the gambling tax.
Paying Tax on Smaller Winnings
If your gambling winnings have not reached the thresholds noted above, does it mean your winnings are tax-exempt? No, it doesn’t. What it means is that you will not pay the 25% gambling tax. Instead, you will have to add it to your employment income and treat it like any other taxable income. The income must be declared on Form 1040. The good news is that you can avoid paying tax … Read More