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Ok but what if my client paid exactly 90% and not a penny more? Does the software round in their favor or does it need to be slightly over 90%? Our firm uses different software and I'm curious if there are any edge cases I should watch for.
Emma Davis
ā¢In my experience, it needs to be at least 90% - not rounded. So 89.9% would trigger the penalty but 90.0% would not. The IRS generally calculates these things to the penny. I once had a client miss the threshold by literally $11 and got hit with the penalty.
Paolo Longo
This is a great discussion! I've been dealing with similar penalty calculations and it's clear there's a lot of nuance here that even experienced practitioners sometimes miss. From what I'm seeing in the responses, it sounds like Ultratax might actually be correct in your situation. The combination of filing an extension AND paying at least 90% by the original due date does provide some protection from the Failure to Pay penalty during the extension period. However, I'd still recommend double-checking this with the IRS directly or using one of the tools mentioned here to verify. The stakes are too high to just assume the software is right without confirmation. I've seen cases where software gets updated penalty calculations wrong, especially when there are special provisions or recent rule changes. Also worth noting - even if the Failure to Pay penalty doesn't apply during the extension period, make sure your client understands that interest is still accruing from the original due date on that unpaid $8,000. That can add up over time even without penalties.
Miguel Diaz
ā¢@Alana Willis, great question about the tools! As someone who's been in practice for about 5 years, I'd say both tools are definitely worth it, especially when you're starting out. The cost of getting penalty calculations wrong (both in terms of client relationships and potential liability) far outweighs the subscription fees. For taxr.ai, I use it probably 2-3 times per busy season for complex penalty situations, and it's saved me hours of research each time. For a new practitioner, having that confidence in your calculations is invaluable. Claimyr is a bit different - it's more about getting through to the IRS when you need clarification, which honestly happens more often than you'd think. I'd start with taxr.ai since penalty calculations come up more frequently, and you can always add Claimyr later if you find yourself needing to contact the IRS regularly. Both have been game-changers for my practice's efficiency and accuracy. And yes, that interest point trips up a lot of people! Even without penalties, interest compounds daily from the original due date, so clients need to understand the full cost picture.
TechNinja
ā¢@Alana Willis, great question about the tools! As someone who's been in practice for about 8 years, I'd say both tools can definitely pay for themselves even in smaller practices. For taxr.ai, the penalty analysis alone has saved me probably 10+ hours this season that I would have spent researching obscure penalty rules. At $50-100 per analysis (depending on complexity), it's way cheaper than billing my time to research, and my clients get more accurate results. I've used it maybe 15 times this year and it's caught calculation errors that could have cost clients thousands in incorrect penalties. Claimyr is around $40-60 per call, which sounds steep until you consider that one successful call to the IRS can resolve issues that might otherwise take weeks of back-and-forth correspondence. I used it twice last month and both times got immediate resolution of penalty issues that had been dragging on for months. For a new practitioner, I'd say start with taxr.ai since penalty calculations come up more frequently. You can always add Claimyr later when you have clients with more complex IRS issues. Both tools have definitely made me look more competent to my clients! And yes, that interest point is crucial - I always make sure clients understand the difference between penalties and interest, since interest keeps running regardless of penalty relief.
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Wait a minute, I'm confused about something. If photography is truly just a hobby and not a business, isn't there a limit to how much you can deduct? I thought you couldn't claim losses on a hobby - like your deductions can't exceed your income from the hobby. Is that still true?
Cole Roush
ā¢You're mixing up two different concepts. If you file as a business on Schedule C, you can claim losses (expenses exceeding income). If it's a hobby, you used to be able to deduct expenses up to the amount of income, but that was eliminated with the 2018 tax law changes. Now hobby expenses aren't deductible at all - you report all the income but get no deductions. That's why many people with "hobby" income now choose to file Schedule C instead - to actually get the deductions. But the IRS has a "hobby loss rule" where if you show losses for too many years (generally 3+ out of 5), they may reclassify your business as a hobby and disallow those losses.
As someone who just went through this exact situation with my occasional photography sales, I can confirm that getting an EIN for privacy protection is totally legitimate and won't force you into business status. The IRS allows individuals to obtain EINs for various reasons beyond just business formation. Here's what I learned from my research and talking to a tax professional: 1. Having an EIN doesn't automatically require Schedule C filing - the determining factor is whether your activity meets the IRS criteria for a business (profit motive, regularity, time investment, etc.) 2. You can absolutely report the income on Schedule 1, Line 8 as hobby income even with an EIN. Just make sure to be consistent in how you treat the activity. 3. When you receive the 1099-NEC (which they'll likely issue for $600+), include a brief statement with your tax return noting that the 1099 income is being reported as hobby income on Schedule 1. This prevents automated IRS matching notices. 4. Creating an LLC isn't necessary for just getting an EIN - you can apply for one as a sole proprietor for privacy purposes. One thing to consider though: since hobby expenses aren't deductible anymore (thanks to 2018 tax law changes), you might actually save money by treating it as business income on Schedule C if you have legitimate photography expenses. The self-employment tax might be offset by equipment deductions, but run the numbers for your specific situation. The key is being consistent in your treatment and having a clear understanding of your intent with the activity.
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GalaxyGlider
Has anyone used the IRS Free File options for filing prior years? Can you still use the free services for past years or do you have to pay?
Mei Wong
ā¢Most of the Free File options only work for the current tax year. For previous years, you usually have to use the paid version of the software. I tried to use the free version for a late 2022 return and couldn't - ended up paying about $70 for TurboTax to file the previous year.
Sasha Ivanov
Hey Mateo! Don't panic - you're definitely not as screwed as you think you are. Since you mentioned you were probably due a refund, you're actually in a pretty good spot. A few key points to ease your mind: 1. If you were owed a refund, there's no failure-to-file penalty for filing late 2. You have 3 years from the original due date to claim your refund (so until April 2027 for your 2023 taxes) 3. You can absolutely file your 2024 return on time this year - each tax year is handled separately My recommendation: File that 2023 return ASAP to get your refund, then focus on getting your 2024 taxes done by the April deadline. If you need help organizing your documents or figuring out the process, there are good resources mentioned in this thread, but honestly for a straightforward W-2 situation, most standard tax software should handle it just fine. The most important thing is to not let this stress paralyze you - you've got this handled!
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Amara Eze
Don't forget that if you're married, having your spouse be an employee of the company (a real employee with actual duties) can open up some options. You could potentially provide health benefits to employees without running into the 2% shareholder limitations. This only works if your spouse isn't also a shareholder though.
Nia Thompson
ā¢Thanks, this is an interesting idea. My spouse does already help with some administrative tasks, but I haven't formally hired them. Would they need to be W-2 or could they be contracted? And what minimum hours would they need to work for this to be viable?
Amara Eze
ā¢They would definitely need to be a legitimate W-2 employee with regular duties, regular pay, and appropriate documentation. Using a contractor arrangement wouldn't work for this purpose. There's no specific minimum hour requirement in the tax code, but the employment needs to be genuine and the compensation reasonable for the work performed. I'd recommend at least 15-20 hours weekly to establish a clear employment relationship. Make sure to document job duties, have a formal employment agreement, and maintain records of work performed. The IRS does scrutinize family employment situations, especially when benefits are involved, so you want everything to be properly documented and legitimate.
One thing I haven't seen mentioned yet is the importance of timing when implementing these strategies. If you're going to start having your S-Corp pay health insurance premiums directly, you need to make sure this is consistent throughout the entire tax year. You can't just start doing it partway through the year for the expenses you've already paid personally. Also, keep in mind that if you do switch to having the corporation pay premiums directly, you'll need to adjust your officer compensation accordingly since this will increase your W-2 wages. This might push you into a higher tax bracket, so run the numbers carefully. For those considering the spouse employment route, remember that you'll also need to factor in the additional payroll taxes and potential workers' compensation requirements depending on your state. Sometimes the administrative burden can outweigh the tax benefits, especially for smaller operations.
Yuki Kobayashi
Has anyone actually compared the ACTUAL TAX FORMS between the two software? Not just the summaries, but download the actual Form 1040 and all schedules from both and compare them line by line? That's the only way to really see where the difference is coming from. I had a similar issue last year and it turned out one software was putting a business expense on the wrong line, which cascaded into a huge difference in the final calculation.
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Carmen Vega
ā¢This is the correct approach. I did this when I had a $1,500 discrepancy between TaxAct and H&R Block. Turned out H&R Block was incorrectly calculating my foreign tax credit. I printed both complete returns with all schedules and went through them with a highlighter. Found the difference on Form 1116.
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Anastasia Kozlov
ā¢That's a great suggestion! I just downloaded the PDF versions of the draft returns from both software and started comparing them. There's a huge difference on Schedule 1 - TurboTax is giving me a much larger deduction for my health insurance premiums as a self-employed person. I think FreeTaxUSA might be missing that entirely or calculating it wrong. Now I need to figure out which one is actually correct according to IRS rules!
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Ella Thompson
For the self-employed health insurance premium deduction, you need to make sure you meet all the qualification requirements. The deduction goes on Schedule 1, Line 17, but there are several conditions: 1. You must have net self-employment income from the business under which the health insurance plan is established 2. You can't be eligible for coverage under your spouse's employer health plan (if married) 3. You can't be eligible for coverage under any employer health plan for the months you're claiming the deduction 4. The deduction can't exceed your net profit from self-employment The most common mistake I see is people trying to deduct more in premiums than they actually earned from self-employment. If your SE income was $23k, your health insurance premium deduction is capped at that amount. Check both software to see how they're handling these limitations. TurboTax might be correctly applying the full deduction while FreeTaxUSA might be incorrectly limiting it, or vice versa. You'll need to manually verify which calculation follows the IRS rules properly.
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