How to eFile Taxes

When you eFile your taxes, it saves you time and money. Free online tools will save you bundles over hiring a traditional tax accountant. The great part is, these online tools have only gotten better, and more efficient. But choosing the right software for your needs can be daunting. So let’s explore a few different options when it comes to filing your taxes online:

• H&R Block At Home – Formerly known as H&R Block TaxCut, the new At Home release is bound to be a crowd pleaser.  As a long time leader in tax preparation, the H&R Block online tools are well worth the investment. The personalized tax guidance will help to maximize deductions involving hings like mortgage interest and charitable deductions. Also included in the Premium version is live tax advice, tax law references, planning resources, and tax calculators. Where you’re an individual looking to file a simple online tax return, or an self-employed investory, H&R Block will have the correct software for you. To explore the various H&R Block options, visit HRBlock.com.
• TurboTax – Another leader in the Tax industry, TurboTax will help you to get the maximum deductions this year. In fact, TurboTax double checks all deductions and guarantees that you will receive the biggest possible refund. With the Free Edition, you can do your Federal taxes literally for free. The Free Edition is mostly for simple returns (The Federal 1040EZ). The most popular of the packages is Deluxe — this will give you greater flexibility and support if you are a homeowner, if you made donations, or if you have medical expenses. To explore your TurboTax options, visit TurboTax.com.

Still not sure about which tax filing software to use? Check out our side-by-side comparisons of tax software, and our individual tax software reviews.

Once you’ve chosen which software to use, simply gather your W2s (Which you receive from your employer) and launch the web based software. Both H&R Block and TurboTax will easily guide you through the steps.  Basically it involves copying information from your W2s into an online form. (This is all done easily from your web browser) Then it will ask you more questions about recent life changes, income, and expenses. A live calculator will keep track of your deductions and show what you will owe or what the government will owe you.

Export Tax Data from TurboTax and Import into H&R Block at Home

The new H&R Block At Home eFile now offers free importing tools for you to import previous year’s tax data from TurboTax as well as previous versions of TaxCut.  We assumed the TaxCut import would be in place with this new release, but the TurboTax import is exciting. If you’ve been doing your taxes with TurboTax for years, and you now want to switch to H&R Block, this will save you quite a bit of hassle.

What is the Earliest Date I Can File My Taxes for 2009?

Eager to get those tax forms filled out? Ready to get your tax refund now? You can start filing your taxes as early as Janurary 1, 2010. In order to file taxes, you must have all your tax forms from your employer in hand — that is any W2s or 1099s from all jobs you worked in the past year. It’s unlikely that you will have received these forms by January 1, as they are not required to be mailed until the end of January.

Once you’ve received your W2 or 1099 from your employer, you can immediately begin to file your tax return using an efile program. We recommend TurboTax which includes a free federal efile. See our other recommendations on tax software.

Best Free eFile Tax Programs

Now that you’re ready to begin your taxes, the next step is to choose an eFile program. Many are free for Federal returns, and charge a fee for state filing. We recommend the following tax software:

• TurboTax – Free Federal and $29.95 State
• H&R Block At Home – Free Federal and $29.95 State

Both TurboTax and H&R Block at Home offer great solutions no matter the complexity of your tax returns. For basic filers with limited deductions, the free versions of these programs will be acceptable. But if you run a small business, have a lot of investments, or a lot of deductions, you will want to upgrade to a more comprehensive package.

The “Earned Income Tax Credit”

The “Earned Income Tax Credit” also-known-as the EITC is a credit meant to help those who make very little income. The government offers those cititzens a chance to keep a little bit of extra money in their pockets by lowering their tax obligations.

However, there are a few stipulations to receiving this credit. You must, of course, have a valid U.S. social security number and have earned income for the year, whether it be in self or regular employment. You must also be filing as an individual (those who are married but filing separately do not qualify) and not be claimed as a dependant on anyone else’s return. Most importantly, you CAN NOT file any forms having to do with foreign income, such as the 2555 or 2555-EZ.

You also must be within all of the EITC thresholds:

Earned income and adjusted gross income (AGI) must each be less than:

• $38,646 ($41,646 married filing jointly) with two or more qualifying children;
• $33,995 ($36,995 married filing jointly) with one qualifying child;
• $12,880 ($15,880 married filing jointly) with no qualifying children.

Tax Year 2008 maximum credit:

• $4,824 with two or more qualifying children;
• $2,917 with one qualifying child;
• $438 with no qualifying children.

Investment income must be $2,950 or less for the year.

The maximum Advance Earned Income Tax Credit for 2008 an employer is allowed to provide to employee’s pay is $1,750. (numbers from the IRS website)

There are so many different credits, make sure to check out which ones could save you.

The “Make Work Pay Credit”…what it means for you

We have all heard the word “stimulus” and a lot of us get a little happy feeling inside knowing that you are going to be getting back some of your hard earned money. This term is getting thrown around a lot, especially when it comes to our new President, Barack Obama. This week (January 12th) the House Democrats have been working on an 825 billion dollar bill called the “American Recovery and Reinvestment Bill” that will have a mixture of spending and tax relief for U.S. citizens. Since taxes is what we do here, we are going to focus on the most important piece for you, the average income consumer, and that piece of this bill is called the “Make Work Pay Credit.”

Whether or not you think so, you have heard of the “Make Work Pay Credit,” although maybe not by name. This concept was one of the primary focus’ of Obama’s Presidential campaign. At this time, the Democrats are negotiating $145 billion to go toward this program to help low and middle income Americans. Basically, as long as you are a working citizen, you are entitled to $500 per individual and $1,000 for couples in tax credit. This credit will be paid out in two ways. Either workers will have the amount added to their paychecks or their income tax return at the end of the year. Now, this credit may not be available until 2009 or 2010 and only those who make less than $75K a year are eligible ($150K for couples).
Here’s the kicker. The “Make Work Pay Credit” will also be refundable. That means that even those people who do not make enough money to file taxes would receive a credit.

There are a few other aspects of the “American Recovery and Reinvestment Bill” other than the stimulus checks too. They are talking of increasing the refundable portion of the “Child Tax Credit” meaning you will receive more money per child as well as attempting to expand the “Earned Income Tax Credit” which reduces the amount of taxes that low income citizens have to pay.

I don’t know about you, but all this sounds good to me! More money in your pocket means more ends met.

Obama’s “American Recovery and Reinvestment Bill”

Just in the last few days, House Democrats have been hashing out a bill that is being called the “American Recovery and Reinvestment Bill” to hopefully stop the bleeding of our economy. This $825 billion bill is actually two bills in one. There will be $550 billion in spending that will be handled by the House Appropriations Committee, but the remaining $275 billion will be used for tax breaks.

That’s right! The second half of this bill is said to include some tax breaks for businesses known as a “carryback” but the majority is going to the “Make Work Pay Credit” for low income families to receive another stimulus. (read more on the “Make Work Pay Credit“)
Unfortunately, this won’t happen on Tuesday immediately when Obama is sworn in as President, but let’s hope that we can all see a little relief soon.

What If I Can’t Pay My Taxes?

We all struggle to make ends meet sometimes. Just because it’s tax season doesn’t mean we can just make money appear. Here are some options for you if you find you owe the IRS money and you just don’t have it.

Pay with a Credit Card - The IRS will accept major credit cards for payment. see: Pay Your Taxes with your Credit Card

Apply for a Payment Plan from the IRS -The IRS will set up people in lower income brackets with a payment plan to help spread out your payments and make them more manageable.

Borrow from a Friend or Family Member - This is always an option, but in my experience…money and friends don’t mix.

Borrow on your Mortgage - This is also very dangerous…but if necessary, your home equity can save you from the IRS.

So, if you find yourself in a bind and don’t have credit to help you when times are tough, don’t underestimate the IRS. You should send them as much as you can with your return and discuss options to pay the rest over time. They should be willing to help you as long as you are honest and upfront about your situation.

Tax Deduction for Jury Duty

No one likes to hear the words “jury duty.” You are forced to do your civil duty for 6-8 hours a day, stuck in a little wooden box away from your family. And you only receive $15 a day! Well, there is a way that you can deduct your jury duty.

Some employers will pay full wages out to you even if you are called. Did you know if you pay your employer back the wage you earned from jury duty (yes, that $15 a day), you can claim a deduction. Fair trade off if you ask me….normal wages for your duration of duty for $15 a day. SWEET!

Reasons You Could Be Audited…and How to Avoid Them

The concept of being audited by the IRS scares most people, including me. Even though I follow the rules and pay my taxes on time, there is always that worry that the IRS will come a knocking. The word has gotten itself a frightful connotation, but the audit is really just justifying your deductions to an investigator from the IRS. That still doesn’t mean I want that headache and I assume neither do you. Here are some things to avoid that just scream “AUDIT ME.”

• You Are Already Being Watched If you receive the bulk of your income in cash (e.g. servers, dancers, etc) the IRS already tends to keep an eye on you. It’s important to try to get a 1099 from employers who compensate in cash to have exact documentation of your income, but we all know that this is not always an option. People who are self-employed and own small businesses are also on this radar.
• Errors in Calculation The main reason citizens receive letters from the IRS is due to simple errors in their calculations. Goofs in your addition and subtraction could lead to a full audit. Though math errors alone are rarely cause for a full fledged audit, check yourself before sending in your forms.
• Interest and Dividend Report Discrepancies Basically, this means that all those W2s and other paperwork you have sent the IRS does not match the figures you have put on your tax forms. There are a great deal of reasons for this to occur (1099s being one of the culprits) but you should always make sure that what you have recorded and what your employer(s) has reported match.
• Whistleblowers So, you have fooled the IRS. The worst thing you could do now is tell someone. Most people don’t realize that the IRS offers rewards, as much as 15-20% of the additional tax owed, to everyday citizens who inform on their peers’ tax evasions. If you know of someone who has been ”cheating” on their taxes, you can report it with Form 211: Application For Award For Original Information or call the IRS hotline at (800) 829-0433.
• The “DIF Score” This is an interesting one. The IRS has come up with a computer program that uses a secret IRS equation that will compare your deductions to those of other people in your income bracket. This way they can quickly see the DIF-ference and flag for audit returns that have exceptional deductions for their bracket.

So, do your best to avoid these red flags. You can’t really control if the government decides to audit you, but you can try to give them the least amount of reasons to suspect you. Good luck!

Fed to Cut Interest Rates Again

For the 10th time since September 2007, the Federal Reserve is set to decrease their interest rates. I can’t believe they are actually going to do it again. Currently at 1%, as early as next week we could be seeing .5% or even .25% interest on the funds our government is borrowing. That is good news for the auto makers who are begging for their “bailout” desperately trying to save their industry. Another benefit to our economy is when interest drops it leads banks to drop their prime rates, which influences the rates on your credit cards, home equity lines of credit and other personal/business loans.

However, does dropping the rate really boost the economy? Not really. All it does is stop the bleeding from getting much worse than it already is and try to stimulate government spending. Gotta spend money to make money, right? Dropping the rate in which our money is “loaned” to us doesn’t really stimulate the economy on the “Main Street” level. But if everyone keeps walking up with their hands out waiting for the government to help them fix their poor choices, at least their money will be cheaper to get from the Fed.