Home Improvement Receipts: Scan Now, Save Indefinitely

housecostbasis2For many people, when they sell a home they don’t even consider taxes. But over time, especially if you live in a relatively expensive area, more and more people will bump up against the federal capital gains exclusions of $250,000 for individuals and $500,000 for couples. (You must have lived in the home for at least two out of the five years before the sale.)

This NY Times article projects that the following share of homeowners in certain high-cost cities will exceed the 250k/500k limits within the next 10 years, assuming just 3.5% annual growth and no further improvements. (Also consider the uncomfortable idea that you really can’t know if you’ll be single or married when it comes time to sell your home.)

housecostbasis

Most importantly, the article provides a good reminder to save all of your home-related receipts because they can raise your cost basis and thus reduce any potential capital gains. It’s so easy, and those little pieces of paper can literally be worth thousands of dollars down the road when the tax bill hits.

In general, you should save all of your home repair and remodeling receipts, although things considered maintenance won’t count (painting, fixing leaks, patching cracks, etc.). Here are a bunch of things taken from IRS Pub 523, Selling Your Home. Don’t take this as specific tax advice, but instead as a potential reminder in case you have done something on this list but don’t have the receipts properly stored away and archived.

Home Acquisition and Closing Costs.

  • Charges for installing utility services, legal fees for preparing the sales contract, title search fees, recording fees, survey fees, transfer or stamp taxes, and owner’s title insurance.

Home Improvements

  • Additions. Bedrooms, bathrooms, garages, decks, patios.
  • Exterior. New roof, siding, satellite dish, storm windows.
  • Interior. Built-in appliances, kitchen modernization, flooring, wall-to-wall carpeting, fireplace.
  • Lawns and grounds. New driveways, landscaping, fences, retaining walls, sprinkler system, swimming pools.
  • Systems. Heating, air conditioning, furnace, duct work, air/water filtration, security system.
  • Plumbing. Septic, water heater, water softener, water filtration.
  • Insulation. Attic, walls, floors, pipes, ductwork.

Physical receipts can get lost or fade over time, but the IRS accepts electronic records so it is quite easy to make a PDF using either your home scanner or just your smartphone. I use the well-reviewed Scanner Pro app and am impressed by its quality, but there are many competitors out there that I haven’t tried. You can then save to a cloud service like Dropbox or Evernote, or simply e-mail them to a searchable gmail account as another form of backup.

Completed Sample IRS Form 709 Gift Tax Return for 529 College Savings Plan

529Let’s say you are fortunate enough to be able to make a large contribution to a 529 college savings plan, perhaps for your children or grandchildren. You read from multiple sources that you are able to contribute up to $70,000 at once for a single person or up to $140,000 as a married couple, all without triggering any gift taxes or affecting your lifetime gift tax exemptions (for 2014 and 2015). What you are doing is “super funding” or front-loading with 5 years of contributions, with no further contributions the next four years.

Those are pretty big numbers, but you also discover that any contribution above $14,000 will require you to file a gift tax return because that is the annual gift tax exclusion limit for 2014 and 2015. You’ll need to fill out IRS Form 709 [pdf], “United States Gift (and Generation-Skipping Transfer) Tax Return”. The instructions are quite long and confusing. You ask your accountant and they suggest talking to your estate lawyer. You may wish to avoid paying the $400 an hour or whatever it will cost as you know the form should be pretty straightforward.

So how do you fill out form 709 for a large but simple 529 contribution? You search for sample completed forms online but very few clear resources turn up. Here are the resources that I found most helpful:

Here’s a redacted version of my completed Form 709. Let me be clear that I am not a tax professional or tax expert. I am some random dude on the internet that did his own research to the best of his abilities and filled out the form accordingly. This is what my form looks like. It could be wrong. You’ll need to make changes to conform to your specific situation. Feel free to offer a correction, but please support your statement.

For my version, I am assuming that you and your spouse contributed the maximum $140,000 together in 2014. (No, I didn’t actually put in that much.) Note that you’ll need to file two separate gift tax returns, one for you and one for your spouse. Mail them to the IRS in the same envelope, and I like to send them certified mail.

f709_generic1

f709_generic2

f709_generic3

Here is my Form 709, Schedule A, Line B Attachment

Form 709, Schedule A, Line B Attachment

– Donor made a gift to a Qualified State Tuition Program (a 529 plan).

– Total amount contributed $140,000 in 2014.

– Donor elects pursuant to Section 529(c)(2)(b) of the IRS Code of 1982, as amended to treat the gift as having been made equally over a 5-year period.

– The gift was made jointly by the taxpayer and the taxpayer’s spouse on January 1st, 2014 and will be split equally in half.

– Election made for $140,000 over 5 years is equal to $28,000 total per year, or $14,000 per person per year.

– The contribution is for

Juniper Doe
Daughter
1234 Main St
New York, NY 10001

When to file Form 709. When taking the 5-year election, you must fill out the gift tax return (Form 709) by April 15th of the year following the year in which in the contribution was made. So if you make the contribution in 2015, you must file Form 709 by April 15th, 2016. If you make the upfront contribution in the first year and then make no future contribution in the next four years, you do not have to file a gift tax return after the one you did for the first year.

What if you’re late? Well, you should file the Form 709 as soon as possible. If you did not exceed the limits then technically there is no gift tax due, and there is no penalty that I could find for late filing when there is no taxes due. Still, I would file ASAP.

The tax information set forth in this article is general in nature and does not constitute tax advice. The information cannot be used for the purposes of avoiding penalties and taxes. Consult with your tax advisor regarding how aspects of a 529 plan relate to your own specific circumstances.

Paperless vs. Paper Statements

scansnap

Pictured above is the Fujitsu ScanSnap iX500 Scanner. It can digitize a page every 2 seconds, and some version of it has been on my Amazon Wishlist for many years. However, I still haven’t plunked down 400 bucks for it, because I don’t know if I’ll ever go completely paperless.

There are many tutorials on how to scan all your paper documents into Dropbox or Evernote. Liz Weston recently had a Reuters article about going paperless with tax-related documents:

I don’t make New Year’s resolutions. Instead, I resolve every tax season to get a better handle on my paperwork — with mixed results. This year, I turned to three certified public accountants to find out what apps, software and strategies they use to keep track of everything.

Kelley Long, a Chicago CPA and personal financial specialist, tries to generate as little paperwork as possible, opting for electronic records instead. “The IRS accepts electronic records,” said Long, resident financial adviser with Financial Finesse in Chicago. “There’s no need to keep paper. That’s the one thing they’re modern about.”

Long keeps a folder on her computer desktop for the current year’s tax documents. If a document comes to her in paper form, she scans it, saves it in the folder and shreds the original. She converts emails documenting charitable contributions and other tax-related expenses into PDF files by choosing the “print” function and then “save as PDF.” […] At the end of the year, she downloads her bank and credit card statements into the folder.

But then Reader Bill sent over this Clark Howard article about the benefits of paper statements:

If you think about all the companies you do business with, they all try to get you to turn off paper statements. If you’ve done so, I want you to turn that around and go back to getting statements in the mail.

With a paper statement in hand, it’s easier to prove that you had the money in the first place in the event funds go missing. If you are set up for electronic info only, well, that’s going to hurt. So the best precaution I can give is for you to go back to getting the paper.

So, which is safer? In my opinion, for most things they are equivalent. Paper statements can be lost, stolen, or destroyed (i.e. house fire). Electronic statements can be lost, hacked, or destroyed (i.e. hard drive crash). You can protect yourself with redundant copies of either one (i.e. safe deposit box, extra USB drive, cloud backup). Keeping a nice long history of either paper or paperless statement can help you prove ownership or status of assets. Indeed, the IRS accepts electronic copies as equivalent to paper, so why shouldn’t we?

(I would agree with the implication that those repeated calls for you to “go paperless” are less about eco-friendliness and more about saving printing and mailing costs. I am also curious to know if credit card companies have found that paperless statements lead to more missed payments and thus more interest and late fees. It certainly is less wasteful, though.)

The safest thing would be to keep both. In the event of some Fight Club-esque event where the digital records of your assets are lost, paper statements might help. In the event of some local disaster where my home and my bank is destroyed, then digital records in the cloud would be helpful. (It may be a good idea to read up on file encryption.)

What do I do? I maintain regular paper statements for my most important financial accounts. That’s basically my primary IRA, 401(k), brokerage, checking, and savings accounts. The main reason for the statements is that I am in charge of family finances, and if I am injured or worse, then my spouse will be able to track everything simply by opening up the mail (plus other estate documents). I also keep paper copies of our monthly bills coming in for the same reason. I still enjoy my ritual of sitting down with physical bills and paying my bills (online) once a month as I use the opportunity to review our monthly spending. Important statements are sent to a P.O. Box instead of my house to reduce chance of theft and protect privacy.

I also have several other financial accounts that are either dormant, temporarily opened for reviews or experiments, or have low balances. Those are all set to paperless and tracked online by Mint.com. I’d rather give Mint my passwords and keep a virtual eye on all of them, rather than the likely alternative of never checking in on them at all.

E-File Your Federal and State Tax Extension Online For FREE!

stopwatch2Updated for 2015. The deadline for federal tax filing is Wednesday, April 15th, 2015. If you file for an extension, you will automatically be extended by six months to October 15, 2015. Here’s how to e-File a official federal extension with the IRS in minutes for free (plus state extensions too!). Why bother with paper and stamps – do it all online, avoid getting hit with penalties, and get confirmation of receipt within hours.

Option #1: TaxACT

ta200This is how I did my extension for the last two years. Use the online tax prep software TaxACT.com and e-file your extension for free through them. You don’t need to actually use them to file your taxes later, although TaxACT is also free for federal taxes with e-File included regardless of income and $21.99 for state returns with e-File included. (See my TaxACT review.)

Directions
First, register for free at TaxACT.com with your e-mail address and pick a password. To go directly to the extension form, click on the “Filing” tab on the top, and then the “File Extension” link right below it (see below). You will then be guided through the Form 4868 in a question-and-answer format. TaxACT will file the form electronically for you (or you can print and snail mail).

taxact_ext2015a

taxact_ext2015b

If you don’t think you’ll owe any taxes, you can just put down zero as your expected tax liability. If you wish to make a tax payment, you will be able to choose to pay with direct withdrawal from a bank account (account and routing numbers required) or pay with a credit card (IRS fees apply).

Afterward, you can confirm the status of your extension e-file by going to efstatus.taxact.com. They will even send you a confirmation via e-mail or text message. I got my confirmation less than 3 hours after submission.

Free state tax extensions. As you can see above, TaxACT will now even file out your state tax extension online if possible, otherwise they will provide guidance fill out all the paper form entries for you and all you have to do is print it out and mail it in. That’s how it worked for my state extension.

Option #2: TurboTax

tt2014_logoTurboTax.com recently also started allowing users to file an extension online for free. They will do your Federal extension and try to assist you with your State extension as well. Again, you will need to sign up for an account at TurboTax.com first, but you don’t have to file your actual taxes with them if you don’t want to. (See my TurboTax review.) After logging in, look for the big search box on the top right and type in the keyword “extend“, hit Enter, and then click on the link “Jump to extend”.

turbotax_ext2015a

turbotax_ext2015b

It will walk you through the information needed for Form 4868. If you don’t think you’ll owe any taxes, you can just put down zero as your expected tax liability. If you wish to make a tax payment, you will be able to choose to pay with direct withdrawal from a bank account (account and routing numbers required) or pay with a credit card (IRS fees apply).

According to the Turbotax website, you should receive a confirmation email from the IRS within 48 hours of filing the extension.

[Read more…]

H&R Block Online Review – 2014 Tax Year Features and Screenshots

hrb2014_1

Here is my 2014 review of H&R Block Online DIY tax preparation software, to complement my TurboTax 2014 review and TaxACT 2014 review. I filed my personal tax return using each of the “Big 3″ and I will try to share the overall experience along with their specific strengths and weaknesses.

Price
H&R Block Online comes in Free, Basic, Deluxe, and Premium tiers. Due to having stock sales but no self-employment deductions, I am going with H&R Block Deluxe Online which costs $29.99 for Federal and $36.99 for State (free state options may be available separately). I am reviewing the more popular online software, not the desktop download software which may be different both in user experience and price.

hrb2014_0

Tax Situation
Here’s a quick summary of our personal tax situation.

  • Married filing jointly, subject to state income tax
  • Both with W-2 income, as well as some simple 1099-MISC forms.
  • Interest income and dividend income from bank accounts, stocks, and bonds (Schedule B).
  • Contribute to retirement accounts (401ks and IRAs).
  • Capital gains and losses from brokerage accounts (Schedule D).
  • Itemized deductions (Schedule A), including property taxes and charitable giving.

User Interface and User Experience
In terms of overall visual feel, the 2014 user interface is clean and pleasant. If I was comparing with TurboTax and TaxACT, I would say H&R Block is a little less pleasing than TurboTax and a little more pleasing than TaxACT. All of them are perfectly acceptable, but that is my personal ranking. See screenshots throughout this review.

In terms of user experience, H&R Block also uses a question-and-answer format like other tax prep software, but I actually think they have the best layout for intermediate to advanced users (i.e. you’ve done your taxes online before). Before each major section (Income, Deductions, Credits), it present a long checklist of potential items to enter in. You just tick off the ones you need, instead of repeatedly reading a new screen for each little thing and clicking Yes, No, No, No, Yes, No, etc. It know it may sound insignificant, but it really does speed things up with everything on one screen. Here are partial screenshots to help explain:

hrb2014_4

hrb2014_9

Importing Data From Previous Years
You can pull up all of your old tax information for free from any of the Big 3 providers (H&R Block, TurboTax, TaxACT) as long as you are using Basic, Deluxe, or Premium (no Free). You may need to have the information downloaded in PDF format. You’ll get filing status, dependents, address, DOB, SSN, etc.

Importing W-2 and 1099 Forms Directly From Providers
Similar to TurboTax, H&R Block also automatically imports many W-2 and 1099 forms. You can pull up W-2 data using your employer’s tax ID number (EIN). My data point: the same W-2 that TurboTax imported, H&R Block did successfully as well (TaxAct could not).

H&R Block does not appear to publish a list of all their 1099 import partners, but I would say it is a little smaller than TurboTax and much more than the 6 partners that TaxACT supports. You just start typing the name and it tries to autocomplete if available:

hrb2014_5

Here is a partial sampling of eligible financial institutions:

  • ADP Retirement Services
  • Alliant Credit Union
  • Ally Bank
  • Ameriprise Financial
  • Bank of America
  • Betterment
  • Charles Schwab
  • Chase Bank
  • Citibank
  • Discover Bank
  • E*Trade
  • Edward Jones
  • Fidelity
  • Gainskeeper
  • Interactive Brokers
  • Merrill Lynch
  • Navy Federal Credit Union
  • Pentagon Federal Credit Union
  • Scottrade
  • Sharebuilder
  • T Rowe Price
  • TD Ameritrade
  • TIAA-CREF
  • TradeKing
  • USAA, USAA Federal Savings Bank
  • Vanguard Brokerage, Mutual Funds
  • Wells Fargo Bank, Advisors

I’m a fan of automatic import because it both saves time and reduces data entry errors. I did have a couple of hiccups with the import, however. I suspect that the problem is the same as I had with TurboTax – that the file is not ready for electronic import yet even though it is available in physical form. Some patience may be in order?

hrb2014_8

The Small Stuff

  • When entering charitable donations of physical goods, H&R Block did not provide any assistance as to valuing the object. (TurboTax and TaxACT did.)
  • When entering my 1099-MISC information, H&R Block quickly allowed me to indicate that it was not a business and instead a one-time event. That saved me from answering a lot of unnecessary questions.

    hrb2014_6

  • Starting in the 2014 tax year, you’ll have to have health insurance or else pay a penalty. I indicated to H&R Block that I had employer-provided coverage for the entire year, and it did not ask for further proof or documentation.

Upselling and Price Change Tricks?
I was not presented with any upsell attempts to their Premium tier and there were no price change shenanigans, which was nice. They also had no need to offer me $40 “audit protection” because it is already included in the price. H&R Block’s “Free In-person Audit Support” is definitely a differentiating factor for the audit-fearing folks out there. In the unlikely event of an audit, an H&R Block Enrolled Agent will help you communicate with the IRS, prepare for the audit, and will attend the audit with you (though they do not provide legal representation).

The only upsell was for their “Best of Both” package, which for $50 lets you have an H&R Block human discuss and review your return with you:

hrb2014_11

H&R Block also keeps your past returns for up to 6 years for free, so there is no option to pay more for “data archiving”. Seriously, how much space on a hard drive could it possibly take?

TL;DR Recap
hrb2014_logoH&R Block did my taxes properly and covered the same topics as their competitors. I actually liked H&R Block’s Q&A format a little better than either TurboTax or TaxACT, assuming you have done your taxes online at least once or twice before; it may save you some time.

I would say that H&R Block Deluxe’s value proposition is this: it offers most of the added import conveniences of the similar TurboTax Premium, all at a fraction of the cost ($30 vs. $55 Federal, both $37 State). If you have a lot of stock sales from a specific broker, sign up for a account (they are all free to try; you only pay when you file) and go straight to the 1099 section to see if the H&R Block supports it. H&R Block also offers free in-person audit support, which costs $45 from TurboTax and $40 from TaxACT.

Bottom line: H&R Block Online offers most of the time-saving features of TurboTax for a lower price ($30 vs. $55 Federal, both $37 State), plus it includes free audit support which costs $40+ with other services.

TaxACT Review – 2014 Tax Year Features and Screenshots

taxact2014_3

Having already done my TurboTax 2014 review, here is my review of TaxACT 2014. (H&R Block is next week.) For all three, I will be comparing the far-more-popular online versions.

Price
TaxACT come only in two basic flavors: Free and Deluxe. With the Free Edition, Federal (including e-File) is free, while State (included e-File) is $14.99. With the Deluxe Edition, Federal (including e-File) is $12.99, while State (included e-File) is $7. (The “Ultimate Bundle” is simply getting Deluxe + State for the same price of $19.99; there is no discount.) So if you do want Fed + State returns, the Deluxe bundle is only $5 more expensive than the Free bundle.

taxact2014_0

They also have a promotion where if you import a PDF copy of your 2013 TurboTax or H&R Block return, you can get TaxACT Free Federal + State for $5, a savings of $9.99 off the regular price. Similar $5 deal for US Armed Forces with qualifying EIN.

Unlike TurboTax and H&R Block, TaxACT supposedly does not base the tiers on your tax situation – for example if you have stock sales or itemized deductions. Instead, it’s more about the level of service and convenience. Deluxe includes things like telephone support, charitable donation valuation assistance, importing from previous year TaxACT returns, and importing W-2 and 1099 forms (where available).

Accordingly, I tried my best to just use the Free version, but as you’ll see below after multiple hurdles and upsell attempts, I finally gave up and upgraded to Deluxe. Note that after you agree to upgrade, there is no way to downgrade again. You have to start over with a new account and username.

Tax Situation
Here’s a quick summary of our personal tax situation.

  • Married filing jointly, subject to state income tax
  • Both with W-2 income, as well as some simple 1099-MISC forms.
  • Interest income and dividend income from bank accounts, stocks, and bonds (Schedule B).
  • Contribute to retirement accounts (401ks and IRAs).
  • Capital gains and losses from brokerage accounts (Schedule D).
  • Itemized deductions (Schedule A), including property taxes and charitable giving.

User Interface and User Experience
The 2014 user interface for TaxACT is also cleaner than in previous years. Overall I think it is just fine, but on on a relative basis it felt a little cluttered with smaller text (you can enlarge things with your browser using Ctrl+ or Command+, but then the graphics looked a little off). Everything worked without issue, I just felt more eye strain as compared with TurboTax. There will be screenshots throughout this review.

taxact2014_5

TaxACT uses the same question-and-answer format as other tax prep software. One way that they are different is that for filling out 1099-INT and 1099-DIV forms, you can use a special forms view where it looks like your actual paper form:

taxact2014_10

I liked the idea, but in practice it wasn’t that great. 1099 forms may have the same numbers but usually have different layouts from provider to provider, and their model form has spaces for information like address that you don’t even need to enter in the normal Q&A guided format. In the end, the regular way is probably faster.

Importing Data From Previous Years
If you used TaxACT the previous year, it will pull up all of your old tax information only if you upgrade to Deluxe. You’ll get filing status, dependents, address, DOB, SSN, etc. Ironically, you can also import a previous year’s return from another provider like TurboTax or H&R Block by uploading a PDF of your old return – all without upgrading to Deluxe (I guess they don’t want to put up another hurdle for potential converts). So much for rewarding loyalty!

Importing W-2 and 1099 Forms Directly From Providers
Technically, TaxACT does support some W-2 and 1099 direct imports for Deluxe users. But in reality, this feature is very limited as compared to bigger competitors H&R Block and TurboTax. The same W-2 form that I imported successfully while using TurboTax was not available on TaxACT. I got the impression that relatively few employers were supported.

TaxACT does not support 1099-INT from any banking institutions. None.

TaxACT does now support 1099-B direct imports, but only from the following six financial institutions:

  • TD Ameritrade™
  • ShareBuilder®
  • Form8949.com
  • GainsKeeper®
  • Raymond James®
  • Betterment

taxact2014_12

This is where I gave up and upgraded to Deluxe, as I wanted to test out this import feature. It worked fine, but you will need information from your paper 1099 form from TD Ameritrade and Sharebuilder, as opposed to just knowing your login information. Betterment import worked fine with just login information. You can also import via .CSV file as with other tax prep providers.

The Small Stuff

  • Having to input W-2 and 1099 forms manually increases the likelihood of data entry errors, and in fact I did make an error but TaxACT caught it as it didn’t make sense relative to my other numbers.
  • When entering my 1099-MISC information, TaxACT also led me down the same rabbit hole as TurboTax, asking the name and nature of my “business”, trying to determine if it was a hobby/farm/business, asking my business license number, and trying to claim various deductions like home office. I guess that’s just how it is done now by everyone.
  • Starting in the 2014 tax year, you’ll have to have health insurance or else pay a penalty. I indicated to TaxACT that I had employer-provided coverage for the entire year, and it did not ask for further proof or documentation.
  • When it came to the foreign tax credit, TaxACT’s questions made it easier to claim it as a credit rather than a deduction, as compared to TurboTax (it is more valuable as a credit).

Upselling and Price Change Tricks?
My goodness. The upsells with TaxACT Free were quite annoying this year, seemingly on every third screen. If you want to import a W-2, you’ll have to upgrade to Deluxe. If you want to import a 1099, you have to upgrade. If you want TaxACT to compare your tax refund if you file Married Joint vs. Married Separate, you’ll have to upgrade:

taxact2014_6b

If you have more than one “Life Event” like getting married, having kids, retiring, owning a home, breathing air (ok I’m kidding on that one), then you’ll have to upgrade to Deluxe. But they don’t make it very clear that this is all just “extra guidance” and not critical to finishing your return. You could easily assume that you need to upgrade if you did any two of the things on this very broad list. Here’s the page so you can see what I mean:

taxact2014_7

The thing is, TaxACT Deluxe is still cheaper than their competitors by more than $20 if you do both Federal and State! I would say just pay the extra $5, get all the features available, and save yourself the headache of reading their spiel and saying no over and over. It’s still a good deal. If you only have a Federal return and have relatively simple needs, then out of pure cheapskate principle I might try harder to get that $0 return. 😉

The final two upsells are Tax Audit Defense for $39.99 and Data Archive Service for $6.99. I would personally decline both as I’m not sure of the quality of their subcontracted personnel and I can just save a PDF of my final return thank you very much.

taxact2014_14

taxact2014_15

TL;DR Recap
ta200In the end, TaxACT did my taxes properly and basically asked the same questions in the same manner as their more expensive competitors. The full-featured version of TaxACT Deluxe costs at most $20 for both Federal and State returns including e-File for both. Their Free Federal version provides a full-featured free Federal return at any income level and for all tax forms. Many other providers have “free” editions that are restricted to certain income levels or are only for 1040-EZ forms with no investment income or business income.

Users should accept that the import feature set is rather weak and you will spend more time with data entry if you have multiple W-2 and/or 1099 forms, including stock sales. In addition, the repeated upsell attempts to Deluxe were a turn-off. I had to read every one carefully and decide “is it really worth the upgrade?” If I was going to pay for the State return anyway, I would have gone back in time and paid the extra $5 upfront just to avoid the hassle.

Bottom line: TaxACT is the best value choice if you just want accurate DIY tax return software and you don’t value the time-saving features of their competitors. If your return is relatively simple, why pay more than nothing (Fed only) or $20 (Fed + State)? If you are doing Federal + State returns and want to avoid repeated upsell attempts, I would pay the extra 5 bucks and upgrade to Deluxe right off the bat. You’ll still pocket some decent savings and you’ll be in a better mood. If you are converting from TurboTax or H&R Block and have a PDF copy of your 2013 return, note their $5 Fed + State deal.

TurboTax Review – 2014 Tax Year Features and Screenshots

tt2014_2

Although I’m still waiting on some 1099 forms (*cough* TD Ameritrade), I’ve already got most of my paperwork in order for my tax returns. I plan on comparing the three major tax preparation websites again this year: TurboTax, H&R Block, and TaxACT. I like shopping around as with all of these services, you only pay when you file. First up is Intuit TurboTax, the more popular online version.

Tax Situation
Here’s a quick summary of our personal tax situation.

  • Married filing jointly, subject to state income tax
  • Both with W-2 income, as well as some simple 1099-MISC forms.
  • Interest income and dividend income from bank accounts, stocks, and bonds (Schedule B).
  • Contribute to retirement accounts (401ks and IRAs).
  • Capital gains and losses from brokerage accounts (Schedule D).
  • Itemized deductions (Schedule A), including property taxes and charitable giving.

Price
TurboTax comes in Free, Deluxe, Premier, and Home & Business tiers. Due to my stock sales, I am going with TurboTax Premier Online. Although their website shows a “retail” price of $79.99, anyone who visits the site will automatically see a discounted price of $54.99 for Federal including e-File. TurboTax State Online an optional add-on at $36.99 including e-file. There are additional discounts out there available through various financial firms like Vanguard or Fidelity.

tt2014_1

This year, TurboTax also has an “Absolute Zero” promotion where you can get Fed + State + Fed eFile + State eFile for $0. However, you must have a very simple tax situation so that you can file Form 1040A or 1040EZ – that means taxable income of $100,000 or less, no itemized deductions, no investment income, no stock sales. I remember those days… my entire tax return fit on a single sheet of paper.

Note: I was able to enter the data from 1099-MISC forms without having to upgrade to Home & Business, even though this could be technically called “self-employment income”. I’m pretty sure if you don’t enter any business expenses and/or deductions then you won’t have to make the upgrade.

User Interface and User Experience
The 2014 user interface is probably the cleanest one I’ve seen from Intuit. It feels like I could fill it out on an iPad, with its clear text, lots of pictures, and big buttons. I’m sprinkling several screenshots throughout this review, which you can click to enlarge.

tt2014_2

tt2014_4

As in previous years, TurboTax uses a question-and-answer interview format. I still remember filling out paper 1040 forms, and this is definitely easier to understand and less intimidating. I did feel like there were two slight changes from previous years though:

  • There was an increase in probing questions. For example, just entering a simple $700 1099-MISC from some random bonus deal led me down a 5-minute rabbit hole where TurboTax was trying to decided if this was really a W-2 job or independent contractor pay, if it was a business or hobby, and if I could deduct my cell phone usage and mileage for it. It should have asked me first if I actually wanted to figure these things out.
  • The software’s “personality” was more friendly and positive. For example, after entering in my property taxes, it said something like “Good news! The $X,XXX you paid is deductible and just reduced your tax bill!”

Importing Data From Previous Years
If you used TurboTax the previous year, it will pull up all of your old tax information. Filing status, dependents, address, DOB, SSN, etc. They also had all my old W-2 and 1099 providers to reduce my data entry needs a little bit more. For example, all my Employer Tax IDs and addresses were pre-filled. This did feel rather convenient, and it helped make sure I didn’t forget any 1099s from old bank accounts. I think most other competitors do this as well, however.

I did not use the option to try and import a previous year’s return from another provider like TaxACT or H&R Block. Please share in the comments if you used this feature.

Importing W-2 and 1099 Forms Directly From Providers
One of the major reasons to use TurboTax is that you can directly import your W-2 and 1099 information from a hundreds of partner providers, more than their competitors. The W-2 import function has been improved; you now simply type in your employer’s tax ID number (EIN) and if they can they’ll import your entire W-2 electronically. It worked seamlessly for me.

tt2014_8

However, 1099 forms are the real time saver for me. If you have a lot of stock sales, this could save you hours of tedious data entry. Now that 1099-B forms include cost basis, the benefit is even greater. Example 1099-INT, 1099-B, and 1099-DIVs that I was able to import: Vanguard, Fidelity, Betterment, Motif Investing, Sharebuilder, Scottrade. (The big banks like Bank of America and Chase are also available, but who actually earns any interest from them?) I did have a hiccup: Pentagon Federal Credit Union was on their partner list above, but I could not find it as an option while filing my return. I created a community question about it, my guess is perhaps it won’t be supported until later in the year? (Update: My guess was right, PenFed 1099s will be available starting February 23rd.)

In addition, it can prevent costly errors. In a previous year, I found that I had made a data entry error of $300 with one wrong digit when manually entering all those capital gains and losses from stock sales. The TurboTax import would have avoided that mistake, which I don’t think I would have caught if I wasn’t comparing these three tax software side-by-side.

The Small Stuff
A few observations:

  • As in previous years, TurboTax automatically enters commas when you reach thousands (ie. 3,459 instead of 3459). It helps with data entry, as I have already shown that I am error-prone! I think it’s a nice touch.
  • If you donate goods to a charity like the Salvation Army, you’ll get a free walkthrough using their ItsDeductible software which helps you value your donations. It’s a good double-check, although somehow it thinks a used jogging suit is worth $20, but you can edit their suggestions as needed.
  • Starting in the 2014 tax year, you’ll have to have health insurance or else pay a penalty. I indicated to TurboTax that I had employer-provided coverage for the entire year, and it did not ask for further proof or documentation.
  • When it came to the foreign tax credit, it was again much more work to claim it as a credit rather than a deduction (it is more valuable as a credit). In previous years, it was much easier in TaxACT to do so but I haven’t tried this year yet.

Upselling and Price Change Tricks?
This year, I noticed much fewer upsell attempts during the tax return, but that may be because I already started with Premier and not Deluxe. However, I was never upsold to Home & Business and the only offer I had was a final pitch for a product call Audit Defense for $44.99, which provides you “professional representation in the event of an audit” and covers both federal and state returns. In the end, the final price was the same as quoted in the beginning with no tricks.

tt2014_9

TL;DR Recap
tt2014_logoIn the end, TurboTax.com showed why it is both the most expensive and widely-used tax software. It covers all of the tax aspects as well as the others, perhaps with a bit more thoroughness (sometimes even too much thoroughness). However, where it separates itself is with the extra features including ItsDeductible and the ease of importing data from many financial institutions. The design is clean and direct, without the air of desperate upsells. I should also acknowledge here that TurboTax did receive negative publicity this year due to an poorly-handled price increase for their Desktop users (download and CD versions).

Bottom line: TurboTax is more expensive than its competitors – but if it saves you both time and effort in data entry (and potentially prevents errors), then I can definitely see how people would be willing to pay a premium. If your return is simple, you are less likely to need the additional features.

Free State Income Tax E-File Options For All 50 States (Updated 2015)

50stateefile2

Completely updated for Tax Year 2014 returns. With commercial tax prep software, it is always wise to note the cost of your state return and e-File as it just may cost more than your federal return. Based on their regular published prices:

(* This year, TurboTax has an “Absolute Zero” promotion where you can get Fed + State + Fed eFile + State eFile for $0. However, you must have a simple-enough tax situation so that you can file Form 1040A or 1040EZ, including a taxable income of $100,000 or less and claiming the standard deduction rather than itemizing deductions.)

Now, the convenience that these programs offer may be worth the extra money to you. But there may be other options available. States that levy individual income taxes fall into three categories:

  1. They offer all taxpayers free electronic filing via official state-supported software.
  2. They offer all taxpayers access to free “fillable forms” which are basically electronic versions of the paper forms where you can type in numbers and any mathematical calculations are done for you. If your state tax returns are relatively simple, this is all you really need.
  3. They allow commercial vendors via the “FreeFile Alliance” to offer free online filing for certain groups, usually through income limits, age restrictions, and/or active duty military personnel. The vendors in turn make money when you end up not qualifying and have to pay up at the end.

Below, you’ll find free e-file information for all 50 states. As a baseline, remember that you can get both Federal and State tax prep including both free Federal and free State e-File from TaxACT.com under $20. See my lightning review of TaxACT, TurboTax, and H&R Block for why it may be worth it for some folks pay more for the time-saving or audit-protection features of the “brand name” products.

In alphabetical order (just click on the state):

State Restrictions
Alabama Free electronic filing using through My Alabama Taxes (MAT). No income restrictions.
Alaska (no state income tax)
Arizona File using AZ-specific fillable forms; No income restrictions. FreeFile options also available; income and/or other restrictions apply.
Arkansas Various FreeFile options; Income and/or other restrictions apply.
California Free electronic filing using through CalFile. No income restrictions. No capital gains/losses or Schedule C income allowed.
Colorado Free electronic filing using through Revenue Online. No income restrictions.
Connecticut Free electronic filing using through TaxPayer Service Center (TSC). No income restrictions.
Delaware Free electronic filing through official state website. No income restrictions.
Florida (no state income tax)
Georgia FreeFile options available; income and/or other restrictions apply.
Hawaii Free electronic filing through Electronic Filing (ELF). No income restrictions.
Idaho FreeFile options available; income and/or other restrictions apply.
Illinois Free electronic filing through MyTax Illinois. No income restrictions.
Indiana FreeFile options available; income and/or other restrictions apply.
Iowa FreeFile options available; income and/or other restrictions apply.
Kansas Free electronic filing through KS WebFile. No income restrictions.
Kentucky FreeFile options available; income and/or other restrictions apply.
Louisiana Free electronic filing through Louisiana File Online. No income restrictions.
Maine Free electronic filing through Maine FastFile. No income restrictions.
Maryland Free electronic filing through their iFile service. No income restrictions.
Massachusetts Free electronic filing through WebFile for Income. No income restrictions.
Michigan FreeFile options available; income and/or other restrictions apply.
Minnesota FreeFile options available; income and/or other restrictions apply.
Mississippi FreeFile options available; income and/or other restrictions apply.
Missouri FreeFile options available; income and/or other restrictions apply.
Montana Free electronic filing through Taxpayer Access Point (TAP). No income restrictions.
Nebraska Free electronic filing through NebFile. No income restrictions.
Nevada (no state income tax)
New Hampshire Free electronic filing through e-File New Hampshire. No income restrictions. (No state personal income tax, but there is tax on investment income.)
New Jersey Free electronic filing through NJ WebFile. No income restrictions.
New Mexico Free electronic filing through New Mexico WebFile. No income restrictions.
New York Free electronic filing of select forms online with New York State Income Tax Web File, but note that New York law prohibits commercial software from charging an additional charge for e-filing.
North Carolina FreeFile options available; income and/or other restrictions apply.
North Dakota FreeFile options available; income and/or other restrictions apply.
Ohio Free electronic filing through Ohio Online Services. No income restrictions.
Oklahoma Free electronic filing through Oklahoma Taxpayer Access Points (OkTAP). No income restrictions.
Oregon File using OR-specific fillable forms; No income restrictions. FreeFile options also available; income and/or other restrictions apply.
Pennsylvania Free electronic filing through PA DirectFile. No income restrictions. Free Fillable PDF Forms also available.
Rhode Island FreeFile options available; income and/or other restrictions apply.
South Carolina File using SC-specific fillable forms; No income restrictions. FreeFile options also available; income and/or other restrictions apply.
South Dakota (no state income tax)
Tennessee Free electronic filing through state website of Hall Income Tax. No income restrictions. (No state personal income tax, but there is tax on investment income.)
Texas (no state income tax)
Utah Free electronic filing through Taxpayer Access Point (TAP). No income restrictions.
Vermont FreeFile options available; income and/or other restrictions apply.
Virginia File using VA-specific fillable forms; No income restrictions. FreeFile options also available; income and/or other restrictions apply.
Washington (no state income tax)
Washington DC File using DC-specific fillable forms; No income restrictions. FreeFile options also available; income and/or other restrictions apply.
West Virginia FreeFile options available; income and/or other restrictions apply.
Wisconsin Free electronic filing through Wisconsin efile. No income restrictions.
Wyoming (no state income tax)

Whew, that took a while. Please share this if you think it’ll help others! Also let me know if you find any errors or changed links.

TurboTax 2014 Feature Change + Free H&R Block Offer + Free TurboTax Upgrade

ttboxIt’s that time of year again, where we await our W-2 and 1099 forms and decide which tax software to use. I’m working on product-specific reviews, but for now I figured I’d summarize the drama surrounding TurboTax 2015 for those that don’t follow these things as closely.

  • Last year, TurboTax Deluxe Online 2013 started requiring you to upgrade to Premier in order get guidance on stock sales (Schedule D) and self-employment expenses (Schedule C). You can see this as either a feature delete, or price increase. However, the TurboTax Deluxe Desktop 2013 version kept this ability. There was a little outrage but really not that much from what I recall.
  • This year, TurboTax Deluxe Desktop 2014 no longer included Schedule D or C. In other words, the 2013 change to the online version was propagated to their desktop download/CD version. This time, break out the pitchforks! There are over a thousand 1-star reviews on the Amazon product page and articles from various media outlets including the NY Times and Time.
  • Why the outrage this year and not last year? TurboTax says 80% of people use the online version and only 20% use the desktop download, so you can see why Intuit thought everything would be cool. My theory is that desktop PC customers always pay for their software upfront (often at a physical store like Staples or Costco) and then don’t expect to be asked for any more money down the road. This has probably been their habit for years. Now in the middle of doing their taxes, you’re hitting them up for another thirty bucks?!
  • In contrast, with TurboTax Online you pay at the very end and the price is always a little different with various coupon codes and promotions.
  • Finally, the price difference between Deluxe and Premier for Online is $20, but for the Desktop version is $30. The software only cost $40 or $45 initially. That $30 upgrade fee is a 66-75% price increase.

Intuit needed to communicate this price change much more upfront and clearly. They don’t hide it, but you can see how repeat customers won’t notice since the Deluxe name doesn’t change.

ttstock

Trying to pick up the fumble, H&R Block is offering any impacted TurboTax customer a free copy of the H&R Block Deluxe + State for 2014, which just so happens to still include Schedule D capital gains guidance.

Those who have already purchased TurboTax Basic or Deluxe and would like to try H&R Block may email H&R Block at SwitchToBlock@hrblock.com and include the following information:

  • Name, address, and phone number
  • Type of operating system in use (Windows/Mac)
  • A photo, scan, or email showing proof of TurboTax Basic or Deluxe purchase

H&R Block will then send a link for one free download of H&R Block Deluxe + State (a $45 value, State E-file is $19.95 extra, does include Schedule D). You can import from a previous TurboTax return. This offer is not on the H&R Block website – it is only available by e-mailing them as directed above.

What if you want to stick with TurboTax? TurboTax may offer you a free upgrade to Premier, *if* you ask correctly. Well, hidden in the Amazon comments and vaguely referenced in various articles is the fact that Intuit will help their customers on a case-by-case basis so they can “demonstrate customer service” and “do what’s necessary” to appease customers. That basically means the squeaky wheels get the grease. You have to e-mail them at their own special e-mail address: TurboTax_Advocate@intuit.com or call them at 800-445-1875 (8am – 8pm EST M-F).

Reports are that if you contact them and cite the unexpected feature change, they will offer you the upgrade to Premier for free (a $30 savings as noted above). You may also mention a TurboTax VP made statements in Amazon reviews and media articles that Intuit would remedy the situation. I don’t know if it will work for the online version, but you could try.

So there you have it. TurboTax committed a foul, H&R Block invites you over to their party instead, and TurboTax wants to take you aside and apologize privately. When comparing tax software prices, be sure to find the right version for your needs and also include the price of state e-File if needed.

Or, you could use the underdog, TaxACT.com. Both the online and desktop versions of their Free Federal edition and cover all the Schedules A/B/C/D/E and even includes a free Federal E-File. For them, the Deluxe option means addition of time-saving import features. Their Ultimate package with everything Federal and State included – all Schedules, free Fed e-File, free State e-File – runs $17.99 for Online or $30.99 for Desktop ($21.99 + $9.99 State e-File).

IRS Estimated Taxes Due Dates 2015

irsclipIf you have self-employment or other income outside of your W-2 paycheck this year, you may need to send the IRS some money before the usual tax-filing time. Here are the due dates for paying quarterly estimated taxes in 2015; they are supposed to be in four equal installments. This is for federal taxes only, state and local tax due dates may be different.

(Note: January 15th, 2015 is the last day to make an estimated tax payment for 2014. See bottom of post for fast payment options. This will prevent any penalty for late payment of the last installment. You do not have to make this Q4 payment if you file your 2014 tax return (Form 1040) and pay the tax due by February 2nd, 2015. If you miss these dates, file your return and pay as soon as possible to minimize penalties.)

IRS Estimated Tax Payment Calendar for Individuals

Tax Year / Quarter Due Date
2015 First Quarter April 15, 2015 (Wednesday)
2015 Second Quarter June 15, 2015 (Monday)
2015 Third Quarter September 15, 2015 (Tuesday)
2015 Fourth Quarter January 15, 2016* (Friday)

 
* You do not have to make the Q4 payment due January 15, 2016, if you file your 2015 tax return by February 1st, 2016.

Who needs to pay estimated taxes?
In general, you must pay estimated tax for 2015 if both of the following apply:

  1. You expect to owe at least $1,000 in tax for 2015, after subtracting your withholding and refundable credits.
  2. You expect your withholding and credits to be less than the smaller of
    • 90% of the tax to be shown on your 2015 tax return, or
    • 100% of the tax shown on your 2014 tax return. Your 2014 tax return must cover all 12 months.

If you forget to pay (like I’ve done before), then you should make a payment as soon as possible even though it is late. This will minimize any penalty assessed.

How do I pay? When does the payment count?

  • By check. Fill out the appropriate 1040-ES voucher (last page of the PDF) and snail mail to the indicated address. The date of the U.S. postmark is considered the date of payment. No fees besides postage.
  • By online bank transfer. You can store your bank account information and pay via electronic funds transfer at EFTPS.gov or call 1-800-555-4477. It takes a little while to set up an online account initially, so you’ll need to plan ahead. For a quick one-time payment, you can also use IRS Direct Pay (just introduced in 2014) which does not require a sign-up but it also doesn’t store your bank account information for future payments. Both charge no convenience fees. The date of payment will be noted online.
  • By debit or credit card. Here is page of IRS-approved payment processors. Pay by phone or online. Fees will apply, but the payment will count as paid as soon as you charge the card.

I usually pay online at EFTPS.gov for both convenience and to avoid fees. However, right now the lowest fee for a credit card payment is 1.87% from providers like PayUSATax.com, which I’ve used. Meanwhile, you can earn up to 2% cash back from a credit card like the Citi Double Cash card. So you can actually clear a small profit by making your tax payment with the right credit card, and it will officially count as paid to the IRS immediately.

Sources: IRS Pub 505, IRS Pub 509, IRS Form 1040-ES [pdf].

Flexible Spending Account Reminder: Use It Or Lose It!

rxbottleHere’s the annual reminder to use up your Healthcare Flexible Spending Accounts! I still dislike these things, but it is what it is. Note:

  • Some plans allow a grace period until March 15th of the following year as opposed to a December 31st deadline to use your 2014 funds, but it may only apply to claims and not late purchases. Check with your employer.
  • Alternatively, employers can allow participants to carry over up to $500 in unused FSA funds into next year. Check with your employer.

If you didn’t exhaust your funds with insurance copays or deductibles, check out these well-organized lists:

Effective January 1, 2011 items such as cough medicines, pain relievers, acid controllers, and diaper rash ointment now require a prescription and a manually-submitted claim for reimbursement. These FSA items are still available over-the-counter without a prescription:

  • Eye care (contact lenses, solution, drops)
  • First aid supplies (bandages, gauze, tape) for emergency kits
  • Wheelchairs, walkers, & canes
  • Family planning products (birth control, pregnancy tests)
  • Home testing aids (blood pressure, diabetes, thermometers)

2015 ACA Obamacare Income Qualification Chart

Open enrollment for obtaining health insurance from the Affordable Care Act-sponsored Health Insurance Marketplace for the 2015 calendar year starts on November 15th, 2014. (If you have a qualifying event like marriage, divorce, the birth of a child, loss employment, or loss of insurance then you can enroll at any time.)

Here is a chart to help you determine if you will qualify for lower premiums and/or lower out-of-pocket costs based on your estimated 2015 household income and household size. Get more details and sign-up for e-mail reminders at Healthcare.gov.

aca2015income2

The numbers above are for the contiguous 48 states. Income cutoffs are higher in Alaska and Hawaii.

Estimated prices for 2015 plans are supposed to be available in “early November” but there are only 9 days until enrollment actually starts. I would hope that the actual 2015 premiums will have been finalized by then!