Earlier this year, however, I encountered an issue with TurboTax that could have cost me thousands of dollars if I hadn't given my taxes a second look. This highlights why it's very important to review your results and why you might even want to do your taxes twice to compare.
I encountered a problem with the Qualified Business Income deduction
The Qualified Business Income deduction was introduced as part of the 2017 Tax Cuts and Jobs Act. Under this enormous update to the US tax code, many business owners can deduct 20% of their business income on their personal tax returns. I work as a freelance writer using an S-Corporation for my business, which qualifies me for the QBI deduction.
The first year after the deduction came out, I went to Credit Karma Tax to prepare my taxes for free, but the QBI calculation wasn't correct . I decided to just pay the biggest player in the game, TurboTax, to make sure I got it right. For 2018, I used TurboTax, and ended up with a result I believe was accurate.
That's why I was surprised when I was preparing my 2019 taxes: TurboTax didn't seem to be handling the QBI correctly. The app said I qualified for the QBI, but the deduction amount of $5 was clearly wrong. That was thousands of dollars short of what I expected.
Verifying that TurboTax was wrong
While I spent nearly a decade working in corporate finance and accounting, I'm not a CPA and don't have any specific tax certifications. Before I was certain TurboTax was wrong, I wanted to make sure I didn't enter anything incorrectly and that the law actually did apply to me.
I spent hours reading to verify that I should qualify, and I did. The IRS makes it clear that S-Corporation income can be deducted with the QBI. While there are some limits, the IRS says that "this component of the deduction equals 20% of QBI from a domestic business operated as a sole proprietorship or through a partnership, S corporation, trust, or estate."
Based on my quick math, I should have qualified for a deduction of around $16,000. Not $5. To verify that I was right, I took the time to do my taxes a second time with H&R Block . Because you don't pay until you file with either, I was able to get to this point without spending anything other than my time. I had used H&R Block a few years prior, so it was an easy process for me to enter my 2019 info.
According to H&R Block online, I did qualify for the deduction and with a number far closer to what I was expecting.
As someone who is married filing jointly with my income, I fall into the top tax bracket of 24%. That means a $17,388 deduction was worth $4,174 off on my taxes.
Getting to the bottom of it with the TurboTax team
I contacted TurboTax customer support about this issue twice in early 2020, and both times was told there was a known bug with the QBI deduction. Knowing that, I decided to go ahead and file with H&R Block.
Before publishing this story, however, Business Insider contacted TurboTax for comment and I was connected with a top member of the customer service team along with two tax experts who were able to identify why I wasn't getting the same QBI results with TurboTax as I was with H&R Block.
On the second time going through the results, one of the lead QBI tax experts was able to zero in on the issue: I had missed a dropdown box in TurboTax for Box 17 V of the K-1 form. By adding the total revenue number there (which is duplicative of a number I had added on another page), TurboTax picked up that number and used it for the QBI calculation. With that update, my results were within a few dollars of my results at H&R Block.
Double check your taxes, no matter how much you trust your tax software
For the first time in years, this experience had me second-guessing my advice that most people should do their taxes on their own online . But having found problems when my taxes were done by a human accountant, Credit Karma Tax, and TurboTax, I have new advice for anyone doing their taxes.
Really check things twice. No matter how you do your taxes, even if you pay a professional tax preparer, you should always do them a second time with another tax program to compare the results. You might find that you made a typo or missed a box, or you might find an error with the program. In either case, it's worth the time to be sure you are on the right track.
For me, that small effort was worth more than $4,000 in 2019. Who knows what you could save by double-checking your taxes?
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