Latest news with #1099-NEC
Forbes
05-05-2025
- Business
- Forbes
Tax Court Ruling Could Impact AI Software Tax Reporting
Artificial Intelligence (AI) continues to impact all industries as companies and individuals try and find the perfect balance between automation and sufficient oversight and monitoring. Tax reporting would appear, on its face, to be a prime candidate for the promises of efficiency achieved through AI's streamlined review of large amounts of data and identification of potential errors or inconsistencies. The Internal Revenue Service (IRS) already uses AI to select individuals and partnerships for audit, identify fraud, and other compliance and enforcement functions. I've previously written about the IRS' historical struggle with auditing partnerships and the future of partnership enforcement, which may include the use of AI. A Government Accountability Office (GAO) study on government use of AI has indicated that its own studies require high-quality data and a skilled workforce to truly recognize the benefits of the technology. It has been reported that the IRS pausing current modernization efforts to evaluate the use of AI going forward. However, a recent U.S. Tax Court ruling signals that the increased use of software for compliance may not spare taxpayers from errors made by the new technology. In fact, the immediate future may be less forgiving for errors by software than traditional human error. The IRS receives millions of third-party informational returns used for analysis and enforcement against non-compliance with reporting and tax payment obligations. Information reporting can come from employers (e.g. Form W2), non-employee compensation (e.g. 1099-NEC), or intermediaries to the sale of goods or services (e.g. 1099-K), and an entirely new set of informational reporting was sought and imposed for digital assets. Congress and President Donald Trump recently removed informational reporting requirements for certain DeFi transactions indicating the burden on small businesses and the digital asset community. However, informational reporting is still required for certain 'brokers' involved in digital assets transactions on the new IRS Form 1099-DA. Businesses, especially small businesses, the added costs of creating, implementing, and overseeing compliance with informational reporting can be quite burdensome. Many such businesses choose to purchase software programs to assist in those compliance efforts. As the availability of software programs implementing AI promise savings of both time and cost adoption is certainly expected to increase. Companies must comply with tax reporting obligations or face potentially large penalties by the IRS for non-compliance. Therefore, an AI solution would be an attractive option. However, based on a recent Tax Court case the use of an AI tax reporting software solution may not save you from large tax penalties if the software makes a mistake. One of the many informational reporting penalties the IRS can assess is for failure to file a Form 8300 when a business receives more than $10,000 in cash in one or more related transactions. In a recent U.S. Tax Court case, Dealers Auto Auction of Southwest LLC v. Commissioner, an Arizona company purchased specialized software intended to assist with compliance in preparing IRS Form 8300 after a noncompliance incident in a previous year. Despite having the software in place, the IRS determined that the company failed to file all of the required Forms 8300 and assessed $118,140 in penalties. Failure to file an informational return like the Form 8300 results in a $250 penalty for each return not filed not to exceed $3 million in any calendar year. This penalty can, in some situations, be enhanced if the IRS deems the failure to be 'intentional disregard' of the statute. In general, intentional disregard exists where a taxpayer knows or should know of the obligation and chooses to ignore it. Actual knowledge is one thing, but 'should know' may be construed differently by the IRS and the impacted taxpayer. This is especially true in the context of a taxpayer's responsibility over software, using artificial intelligence or not, it has purchased to handle compliance. Information return penalties, usually assessed under Section 6721 of the Internal Revenue Code, can be particularly high because of their per failure application and potential enhancement for alleged 'intentional disregard." Thousands of mistakes at a $250 per mistake charge adds up quickly and a $3 million ceiling on penalties is little comfort. There is, thankfully, a defense against imposing the penalties if it can be shown that the failure is due to reasonable cause and not willful neglect. A taxpayer meets the 'reasonable cause' exception to information reporting penalties if they can show significant mitigating factors for the failure or the failure arose from events beyond the filer's control. The statement outlining the facts showing reasonable cause is usually signed under penalties of perjury, which comes with its own risks for misstatements. In Dealers Auto Action of Southwest LLC, the company involved argued that it relied on the software it purchased but the software did not perform as intended. However, the Tax Court noted that the company's own brief indicating 'there may have been a failure with the computer system' and that the record was not clear on what specific failures involved the software and whether the failures might be connected to input errors. The company claimed that the failure was due to software malfunctions beyond its control and the IRS countered with the argument that reliance on software does not establish reasonable cause. Several individual taxpayers have tried, unsuccessfully, to defeat penalties using reasonable cause defenses claiming that tax preparation software like Turbo Tax generated the errors resulting in accuracy penalties. The Tax Court, in Bunney v. Commissioner, held that Turbo Tax is only as good as the information entered. However, IRS regulations still indicate that circumstances indicating reasonable cause against accuracy penalties include 'honest misunderstanding of fact or law' and 'isolated computational or transcriptional' errors. Also, the regulations still provide for reasonable cause against accuracy penalties if the taxpayer relied on qualified professional tax advisor (e.g. CPA) when taking a position later determined to be incorrect. Perhaps a future case will decide whether reliance on a CPA using AI still meets the reasonable cause exception or not. The Tax Court, in Dealers Auto Auction of Southwest LLC, did rejected the IRS' 'blanket assertion' that software malfunctions cannot qualify for reasonable cause. Although this gives hope for future taxpayers, it did not provide penalty relief in Dealers Auto Auction's claim of software errors. Why not? It appears that company was unable to show sufficient facts to convince the Tax Court that the software was really to blame. The Tax Court found that the record did not adequately show as software failure and that the company itself had failed to show adequate controls to identify the noncompliance. The Tax Court also pointed to the lack of proof that the company acted reasonably before or after the failure. For example, the Tax Court noted that there was no evidence regarding the installation, training or use of the software. Also, the number of Forms 8300 decreased from 212 in 2014 to 116 in 2016 and no explanation was given as to why the reduction appeared reasonable. Regardless, the Tax Court appears to be indicating there needed to be more affirmative actions by the taxpayer in implementing and overseeing the software and its operation. As AI attempts to take more and more human interaction out of the process, how will future AI misfunctions be judged when 'reasonableness' is required for penalty relief. The government recognizes the burden on businesses, especially small businesses, to comply with informational reporting requirements but maintains the expense is required to enforce the tax laws and maintains penalties for failures in reporting. Both the IRS and companies under reporting obligations are looking to software innovation, including artificial intelligence, to ease burdens on analysis of large amounts of data. As the IRS attempts to reduce both costs and people through increased use of AI will it expect tolerance of its own software malfunctions. If the IRS' AI system results in errors there are few remedies for taxpayers recover the cost of disputing those errors. The IRS has penalties and other enforcement mechanisms to punish private use of software that doesn't produce expected results. According to this current Tax Court decision, it appears that taxpayers will need to maintain evidence of proper operation and oversight of any software because the benefit of the doubt isn't going to the taxpayer in software situations.
Yahoo
29-03-2025
- Business
- Yahoo
TurboTax vs. IRS Free File: A self-employed writer tries both, picks a winner
I've always used TurboTax to file my personal tax return. It's what my dad showed me when I first started filing taxes, and I've used it ever since. I considered trying a free platform in previous years, but never actually made the jump. This tax season was a whole new ball game. I started freelancing in May 2024, so this year was my first time filing as a self-employed person. I had a W-2 form from my previous employer (for two U.S. states), four 1099-NECs from freelance work and tax-related investment forrms to track down and factor in. I knew having multiple forms would drive up the total cost of TurboTax, so I decided to explore the IRS Free File options. In the end, I filed my taxes for free with an IRS Free File program, but would I recommend it? Let's find out. Learn more: 5 ways to file your taxes for free in 2025 Bankrate ranked TurboTax as the best tax software for beginners in 2025, and I totally get why. The user-friendly design makes it simple to navigate by guiding you through each step and breaking down complicated tax jargon. You can access helpful resources without leaving the page by using the search feature or clicking on links within the questions. This feature makes it easier and faster to understand what you're doing and keep moving through the steps without getting stuck. One of my favorite features is TurboTax's ability to automatically import tax documents from banks and employers. It saves time on entering the information, but it makes sense to double-check everything is correct just in case. I still had to manually enter my 1099-NEC forms, but it wasn't too much of a hassle. Another aspect I appreciate is how TurboTax constantly reassures you throughout the process. It checks for potential errors and gives confidence boosts that you're on the right track and not missing anything. While the helpful resources and ease of use are a huge plus, the cost is a big downside. TurboTax wanted to charge $267 after a limited-time $90 discount. The total would have been $357 without the early-bird discount, which is about 10 percent more expensive than the nationwide average cost of $323 for a tax return without itemized deductions, according to a National Society of Accountants study in 2021. Learn more: Tax season 2025: Everything you need to know before you file TurboTax is a solid choice for convenience, but the cost made me consider whether it was worth sticking with it or if a free option could get the job done just as smoothly. Can import tax forms from banks and employers Offers flexible support options to file by yourself, receive live support or have an expert file taxes for you Provides helpful resources to help you answer questions Reviews your return for missing details and boosts confidence in the process Easy to use search bar to quickly find specific sections or resources Expensive, especially for complex tax situations or multiple forms Upselling of add-ons can be annoying and costly Does not connect with all financial institutions Did not automatically ask about estimated tax payments You can file your taxes without spending a dime by using IRS Free File. The catch is that you have to meet specific eligibility requirements. The program partners with tax software providers to offer a guided filing experience, but income limits and other criteria may limit your options. For example, TaxSlayer is available if your adjusted gross income (AGI) is below $48,000, or under $84,000 for active military. Some providers, like FreeTaxUSA, offer free state returns if you qualify for free federal filing, while others, like TaxAct, only provide free state returns in specific states. (Note: You must go through the IRS Free File site to access these companies' Free File options.) The IRS Free File program offers a quick survey to match you with the best partner for your tax situation. But be careful, you might choose a tax software you don't qualify for if you don't have accurate numbers or information. This error can lead to wasted time and having to redo your taxes (not that I'd know from experience or anything). I chose from the IRS Free File website because it was the only option for free state returns and eligibility based on my AGI. The site offers a similar guided experience to TurboTax by asking questions to determine which forms you need to fill out. However, the site has an older and less user-friendly feel than TurboTax. I did appreciate the supportive and encouraging copy — it kept me entertained. Throughout the process, I kept second-guessing whether I was missing something or inputting information correctly. It also used more jargon than TurboTax, so I had to look up certain tax terms and figure out what numbers to enter. While saved me $267, it was more challenging than TurboTax to navigate and complete my return. Here are a few things to consider before choosing an IRS Free File program partner. Offers free federal and state tax return filing, depending on the platform asks about estimated tax without needing to look it up Provides options for guided filing or manual input Limited eligibility and options based on AGI and location May require more tax knowledge or extra research time Some partners don't connect to financial accounts to pull in forms Has an outdated interface, making it harder to navigate Filing a tax return as a self-employed worker is a learning experience, and I've picked up some tips that may make your return process easier. First, it's important to know which forms you need and what deductions or expenses you can claim. Bankrate's tax deduction hub can help you there. While the guided experience on both platforms was helpful, it won't always identify everything you qualify for or need to input. Learn more: 20 valuable small-business tax deductions For example, I made quarterly estimated tax payments throughout 2024. When I originally went through the process, TurboTax told me I owed thousands of dollars to the government. I knew that wasn't true because I hadn't entered anything about my quarterly payments. The search feature on TurboTax helped me find where to input this information. However, asked me directly if I made quarterly payments. The same experience happened on both sites when searching for where to add my car registration fees or SEP IRA contributions. That leads to my second tip: Make a tax-filing checklist to ensure you don't miss anything. The checklist should include all your income sources, expenses and any deductions you might qualify for. Learn more: 10 easy tax deductions and credits to trim your tax bill If you have multiple clients, list each client and gather tax documents from each. You may have to track down a client or two, so starting early is a good idea. While it took about the same amount of time to complete my tax return on each platform, I felt more confident using TurboTax. Learn more: Here's a checklist of tax documents you'll need to file your taxes this year TurboTax is the clear winner in my eyes. Simplicity is king for a busy freelancer, so TurboTax's beginner-friendly software makes handling self-employment taxes a breeze. Honestly, I don't think I could have completed my return on without using TurboTax first. I kept going back to my TurboTax information to see what forms and details I needed to include. Plus, TurboTax works to improve its features for people like you and me. At the beginning of the process, it asked me questions about my experience and for feedback on what worked and what didn't. Even so, I filed with since I used both platforms and found similar numbers for my return. I'd recommend trying out both platforms if you're eligible. You don't have to pay until you file, so these platforms won't cost you anything other than time to input all your information and try it out. It helped me understand more about my taxes, so I'll be better prepared next year and can improve how I track income and expenses. The best tax software for you depends on your comfort level and preferences. If you're like me and have always used TurboTax, it's worth exploring other options to save money. But if cost isn't a concern, keeping it simple might be the way to go. As the saying goes, 'If it ain't broke don't fix it.' Plus, tax preparation and software costs can be deducted as a business expense for self-employed individuals. So, even though TurboTax is pricier, you can write it off on your next tax return. As a frugal gal, I'm still curious about other free options. Will I give Cash App Taxes a try next year? Stay tuned.
Yahoo
27-03-2025
- Yahoo
Over 150 fake documents, items seized during traffic stop in far East El Paso
EL PASO, Texas (KTSM) — A 42-year-old man has been arrested after authorities found over 150 counterfeit documents and instruments in his vehicle, according to the El Paso County Sheriff's Office on Wednesday afternoon, March 26. The Sheriff's Office said Richard Allen Jenkins, 42, was arrested and charged with more than 50 counts of fraudulent use/possession of identifying information. In addition, he was also charged with theft of mail and forgery of a financial instrument. Jenkins was booked into the El Paso County Detention Facility with a $45,000 bond, the Sheriff's Office added. The Sheriff's Office said that on Tuesday, March 25, a deputy conducted a traffic stop at the 12800 block of Thackery Drive in far East El Paso. During the traffic stop, the deputy 'developed a probable cause to search the vehicle' and found several forged driver's licenses, identification cards, and over 150 counterfeit documents and instruments in Jenkin's vehicle, according to the Sheriff's Office. The following items were seized from Jenkins' vehicle, according to the Sheriff's Office: 39 forged Driver's Licenses 16 blank, print-ready ID cards Four Social Security cards 10 W-2 forms Four 1099-NEC forms Two 1095-C employer health insurance forms Two 1098-T forms One 1099-R form 18 forged checks 25 check copies 12 blank check backgrounds One blank checkbook One signature stamp One bill of sale valued at $69,900 One laptop with forging software One printer for IDs and forged checks Five USB drives Two cellphones Eight credit cards Four debit cards 10 pieces of mail belonging to other individuals 12 sets of stolen account/Social Security numbers 22 mail padlock shims 47 mail and skeleton keys One USPS mailbox Two fraudulent U.S. passports (One underage, one deceased) According to the Sheriff's Office, detectives with the East Montana Patrol Station have reached out to all identified victims, many of whom have reported mail theft incidents. Most victims resided in apartment complexes, and several reported fraudulent credit cards had been activated in their names, according to the Sheriff's Office. The East Montana Patrol Station has partnered with the U.S. Postal Inspector and additional state and federal charges are pending, according to the Sheriff's department. Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Yahoo
06-03-2025
- Business
- Yahoo
Ghost preparers and spear phishing: Here's the tax scams to avoid
SAN DIEGO (FOX 5/KUSI) — 'Your account has now been put on hold.' Anyone who has a phone or email address may have seen a similar message before, especially as tax season approaches. The sender might also attempt to threaten someone with false legal or criminal charges for tax fraud. While receiving such a text or email from an unrecognizable sender may cause alarm, the Internal Revenue Service says not to react immediately. California landlords prohibited from charging these fees starting in April Email and text scams are common examples of fraudsters trying to lure victims into providing them with personal and financial information, according to the IRS. These tactics are often called email phishing or smishing. With the tax filing deadline coming up on April 15, the IRS released its annual 'Dirty Dozen' list of tax scams for 2025 to warn people of common schemes — including phishing and smishing — that are meant to steal their money and identity. Here are just some of the other scams taxpayers should watch out for, according to the IRS: Taxpayers should not trust information circulating on social media, including on TikTok where some share inaccurate tax advice, the IRS stated. It added that following bad advice may lead to identity theft and tax problems. Whenever a natural disaster or crisis happens, scammers tend to set up fake organizations in an effort to profit off the public's generosity, according to the IRS. Taxpayers should avoid giving money or goods to charities that are not qualified tax-exempt organizations recognized by the IRS. Last year, the IRS said some taxpayers were misled into thinking they qualified for the Fuel Tax Credit. However, it is only for off-highway business and farming use, according to the bureau. Similarly, taxpayers cannot claim credits for Sick or Family Leave unless they were self-employed during 2020 and 2021 during the pandemic. In the past, the IRS said taxpayers who did not qualify attempted to claim the credit based on income earned an an employee and not as a self-employed individual. Scammers sometimes instruct people to fill out forms such as a W-2, Wage and Tax Statement or 1099-NEC with false large incomes and withholding amounts with the hopes they could get a substantial tax refund. However, if the IRS cannot verify the wages, income or withholding amount entered on the tax return, the refund will be held pending further review, the bureau stated. Fraudsters may promote the Offers in Compromise program to people who do not meet the qualifications, which could cost taxpayers thousands of dollars, the IRS said. Taxpayers can check if they are eligible for the program using the IRS's Offer in Compromise Pre-Qualifier tool. Fake tax professionals might charge people a fee based on the size of the refund or are unwilling to sign the return. Real tax preparers are required by law to include their Preparer Tax Identification Number (PTIN). Tips on how to find a legitimate tax preparer can be found on the IRS website. The last common scam the IRS included on its list targets tax professionals rather than their clients. Potential clients try to trick preparers and other businesses into responding to their emails. Then, they send a malicious attachment or URL which may allow them to access their clients' personal information. The IRS warns tax professionals to look out for poorly constructed sentences and suspicious requests before responding to an email. The full list of the IRS' 'Dirty Dozen' tax scams for 2025 can be found on Taxpayers and preparers can report abusive practices to the IRS Whistleblower Office for a possible monetary award. Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Globe and Mail
20-02-2025
- Business
- Globe and Mail
Tax Filing Season 2025: All Deadlines Taxpayers Need to Know
Stay ahead this tax season! Learn about the key tax filing deadlines for 2025, including federal filing dates, estimated payments, and compliance for businesses and individuals. Discover expert tips on avoiding penalties, maximizing refunds, and preparing for tax obligations. Plan ahead with helpful guidance and stay on track to file on time with the right support. MIAMI, Florida, February 17, 2025 - The Annual Tax filing season is back, bringing both anticipation and anxiety for millions of Americans. While some taxpayers look forward to their refunds, others are bracing for the paperwork and deadlines set by the Internal Revenue Service (IRS). Regardless of how you feel about filing taxes, missing a deadline can result in penalties, late fees, and potential IRS scrutiny. To Plan Ahead—Mark Your Tax Deadlines Now to Avoid Last-Minute Stress! Click Here! Every year, tax season follows a structured timeline, from the opening of the filing period to the final extension deadline. Understanding these key dates is important for avoiding last-minute stress and costly mistakes. Whether you are a salaried employee, a self-employed professional, or a small business owner, marking these deadlines on your calendar is essential. "Filing early ensures a faster tax refund and avoids last-minute stress. A well-planned approach can make tax season smoother and more rewarding for taxpayers' says Ajay Mehta CEO of IBN Technologies. To make the process easier, here's a breakdown of all the critical tax deadlines for 2025. Whether you're expecting a refund or simply aiming to stay compliant with IRS regulations, these dates are worth noting. Important Tax Deadlines for 2025, USA January 15, 2025 – Final Estimated Tax Payment Deadline for self-employed individuals and those with non-withheld income to submit the final estimated tax payment for 2024. Late payments result in penalties. January 31, 2025 – W-2 and 1099 Forms Issued Employers and businesses must provide W-2 forms to employees and 1099-NEC forms to independent contractors. Missing documents may cause delays. February 18, 2025 – 1099 Forms for Investment Income Financial institutions must issue 1099 forms for investment income, real estate transactions, and other earnings. These documents are crucial for accurate tax reporting. April 15, 2025 – Federal Tax Filing Deadline The last day to file 2024 federal income tax returns and submit Form 1040 to the IRS. All individual taxpayers must file their returns or request an extension by this date to avoid penalties. Any unpaid taxes are also due on this day to prevent additional interest charges. Taxpayers who need more time can file for an extension, which gives them until October 15, 2025, to submit their returns. However, an extension to file does not grant an extension to pay—any owed taxes must still be paid by April 15 to avoid late payment penalties. Additionally, the first quarter estimated tax payment for 2025 is also due on this date. June 17, 2025 – Filing Deadline for U.S. Citizens Abroad Deadline for U.S. citizens and military personnel stationed overseas to file their tax returns. Interest on unpaid taxes accrued after April 15. September 15, 2025 – Third Quarter Estimated Tax Payment Self-employed individuals and taxpayers with non-wage income must submit the third quarter estimated tax payment. Late payments result in penalties. October 15, 2025 – Final Extension Deadline Last chance for taxpayers who requested an extension to file their 2024 tax returns. Missing this deadline leads to additional IRS penalties. Extended Your Tax Deadline? File By Oct 15 to Avoid Penalties! Enquire Today! Avoid Penalties, Stay Compliant Missing a tax deadline 2024-25 can result in hefty penalties, accruing interest, and possible enforcement actions. Taxpayers unable to pay in full should consider setting up an IRS payment plan to prevent further financial consequences. "Proactive tax preparation is essential to avoid penalties and maximize tax refunds. Filing early and ensuring accuracy can save taxpayers from unnecessary stress and financial setbacks." – Ajay Mehta. Those expecting tax refunds 2024 are encouraged to file early. The IRS processes refunds on a rolling basis, with electronic filing and direct deposit leading to faster payouts compared to mailed returns. Businesses and individuals facing complex tax situations should seek professional assistance to navigate evolving tax laws, maximize deductions, and ensure compliance with IRS regulations Expert firms like IBN Technologies assist taxpayers in meeting deadlines and avoiding costly errors. With key deadlines fast approaching, taxpayers should gather necessary documents, verify all filings, and plan for any tax liabilities. Acting now with the right guidance can prevent last-minute issues and ensure a smooth filing process. Resources: About IBN Technologies IBN Technologies LLC, an outsourcing specialist with 25 years of experience, serves clients across the United States, United Kingdom, Middle East, and India. Renowned for its expertise in RPA, Intelligent process automation includes AP Automation services like P2P, Q2C, and Record-to-Report. IBN Technologies provides solutions compliant with ISO 9001:2015, 27001:2022, CMMI-5, and GDPR standards. The company has established itself as a leading provider of IT, KPO, and BPO outsourcing services in finance and accounting, including CPAs, hedge funds, alternative investments, banking, travel, human resources, and retail industries. It offers customized solutions that drive efficiency and growth.
