how to enter IRS penalty applied to 2022 tax return in 2023 TurboTax

[Wff]

I prepared my 2022 tax return in TurboTax showing a refund amount.  Because it was one day late when I filed it (by mail) due to an intervening medical emergency, I got a letter from IRS stating that I owed a penalty and interest greater than my expected refund amount.  After being on hold on the telephone with IRS for over 4 hours (total in 3 calls), I simply "let" IRS keep my expected refund and paid the extra penalty in 2022.  Now, for preparing my 2023 return, TurboTax has imported data from my 2022 return (which still shows the expected refund).  What changes do I need to make in my 2023 TurboTax to account for the IRS-applied penalty that took away the 2022 refund and required an extra penalty payment for 2022?

[DoninGA]

IRS penalties are not deductible on nor reported on a federal tax return.

[rjs]

You do not make any changes. You do not enter the penalties and interest anywhere. The penalties and interest that you paid for 2022 do not affect your 2023 tax return. The data that TurboTax transferred from your 2022 tax return is still accurate. The penalties and interest do not change that data.

[Wff]

Hello,

Thanks for your reply, which I have taken into consideration.  However, one aspect that appears to be affected in the 2023 return occurs when the 2022 return indicated "apply the refund to next year's return".  Because the 2022 IRS penalty "used up" the expected refund, there is no more refund to apply to the 2023 return.  Therefore, in the 2023 return it's necessary to revise the information taken over from the 2022 return by TurboTax.  In other words, TT "thinks" that the 2022 refund was applied to estimated payments for 2023, but in actuality it was not.

[VolvoGirl]

Go to

Federal Taxes

Deductions and Credits

Then scroll way down to Estimates and Other Taxes

Other Income Taxes - Click the Start or Update button

Next page scroll down to 2022 Refund Applied to 2023

Click Start or Update and then delete the amount

[fanfare]

Because you paid the additional amount imposed by IRS, that did not use up the amount you applied to the next year.

@Wff 

[VolvoGirl]

I posted above how to remove the refund amount applied from 2022 to 2023 but I don’t know what the IRS does about it when your return is changed or amended.  They might still apply the amount.  So if you change it to zero the IRS might add it on to your refund for you (or reduce a tax due).  Just saying, so don’t be surprised.

[Wff]

Thank you.  That's essentially what I did (except that I did it in Forms view).  I also updated the Tax History and Tax Comparison worksheets.

[Wff]

The total penalty and interest imposed by IRS was an amount that did "use up" the expected refund PLUS an additional amount (which I paid).  Example:  expected refund = 100, total penalty and interest = 250, and I paid the additional amount of 150.

[Wff]

I agree that I "got" the expected refund.  But the refund amount is not applied to estimated payments for 2023, but instead applied to cover a portion of the imposed penalty and interest for 2022.

Thanks everyone for all your replies!