Archive for the 'Taxes' Category
Monday, March 25th, 2013
I’ve gotten a few tax-filing questions regarding P2P lenders Prosper Lending and Lending Club. I finally got around to starting my taxes for the year as a results of my P2P Lending Experiment, and below are my notes.
Let me also recommend Peter Renton’s post at LendAcademy, the follow-up comments on that post, and this forum post by AmCap as good references for an intelligent discussion on the topic. Also see the LendingClub and Prosper tax pages, even though they aren’t especially helpful.
Corrected and amended 1099s! My first recommendation is to not print out or download any of your 1099s until mid-March. Both Prosper and LendingClub seem to regularly issue corrected and/or amended 1099 forms with new numbers late in February. If you already printed them out earlier, go back and make sure they haven’t been changed. After having to file an amended return a few years ago, I always wait until after mid-March to gather all my tax documents.
Where to find your tax documents. I don’t think either Prosper or Lendingclub sends you 1099 forms in the mail. The easiest way for me to direct you to these documents is for you to cut-and-paste the following URLs into your web browser and then log into your accounts. Here are screenshots of what the pages should look like for Prosper and LendingClub.
https://www.prosper.com/secure/account/common/statements.aspx
https://www.lendingclub.com/account/taxDocuments.action
Tax disclaimer. I am not a tax professional. The following is based on my best attempt at understanding the fuzzy world of P2P lending taxes. This is how I’m going to do my personal tax return, but you should consult a tax professional for an expert opinion. You may not get all or most of these forms.
LendingClub
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Posted in Investing, Taxes | 8 Comments »
Wednesday, March 20th, 2013
Updated for 2013. The deadline for filing your federal taxes this year is Monday, April 15th, 2013. Here’s how to do it electronically for free. If you file for an extension, you will automatically be extended to Tuesday, October 15, 2013. Here’s how you can e-File a official federal extension with the IRS in minutes for free (and possibly your state extension 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
This is how I did my extension for the last two years. Just sign up with TaxACT.com and e-file your extension for free through them. It’s quick. It’s easy. You don’t even 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 is only $14.95 for state returns with free e-File.
(That’s cheaper than TurboTax or TaxCut, although if you’re already familiar with those programs it may be worth the extra bucks to stick with them, since you can save time by importing your previous year’s data.)
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. You will then be able to have the form filed electronically instantly (or you can print and snail mail).
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 can 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 too! I just filed again this year and found out that TaxACT will now even file out your state tax extension online if possible, otherwise they will fill out all the paper form entries for you and all you have to do is print it out and mail it in.
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Posted in Taxes | 52 Comments »
Wednesday, March 20th, 2013
(Update: Both H&R Block and Intuit will be raising the price of TurboTax Online for everyone Saturday 3/23. This expiration deadline also applies to the various discounted offers you can get by going through your stock brokers like Vanguard, Fidelity, TD Ameritrade, etc. You must actually finish your taxes (not just start) by e-filing or printing via the “file by mail” option to lock in a price. Also, if you don’t think you can file by April 15th, here’s how to e-File your tax extension online for free in minutes.)
According to a MyMoneyBlog.com reader poll taken last year, 52% used TurboTax, 18% used TaxACT, and 14% used H&R Block at Home to prepare their tax returns, which agreed with the most popular software overall in the US. The remaining 16% either used an accountant (10%), filed on paper (4%), or used another software (2%).
Last year, I used each of “The Big 3″ to do my taxes in order to compare and contract in detail the three software programs. (As an example, my TurboTax 2011 review talks about comma-insertion as a feature…) I plan to do the same thing this year, but to help you early-birds, here’s the highly-condensed version of my reviews:
Accuracy and Maximum Refund Guarantees
In terms of accuracy and interview style, I think all three are comparable if not nearly identical. In fact, I’m certain they all dissect each other’s products annually to ensure this. As such, all three offer a “Maximum Refund Guarantee” as well as a “Accuracy Guarantee” that states that they will pay any penalty and interest assessed by the IRS or your state due to calculation errors on their part (though H&R Block limits this to $10,000).
In my opinion, the remaining major differentiating factors are price, time-saving features, and audit support. Now, there are various discounts and sales that pop up, but here I’m just comparing regular sticker prices.
TurboTax Online
- The most popular and most polished-looking user interface.
- Federal Deluxe regular price is $29.99. State return price is $36.99.
- Best import support from payroll providers and financial institutions for automatic import of W-2 and 1099 forms.
- Moderate audit support (you get help, but no in-person representation)
Bottom line: The time-saving choice if you have a lot of brokerage and/or bank 1099s to electronically import, or a lot of details to import from last year’s return and you used them last year. For those like me that would pay extra to avoid all that tax lot data entry.
TaxACT Online
- Cheapest overall with Federal Deluxe regular price at $9.99. Many can get by with Federal Free version. Cheapest state return at $8.00.
- Again, just as accurate as the others.
- Limited import support (worst of the three).
- Limited audit support (worst of the three).
Bottom line: The value choice if you just want reliable DIY tax return software and don’t need any extras.
H&R Block at Home Online
- Federal Deluxe regular price is $29.95. State return price is $34.95.
- Moderate import support for 1099s and W-2 (not as broad at TurboTax, better than TaxACT)
- Best free audit support, as it includes an H&R Block Enrolled Agent actually attending your audit in-person. Neither TurboTax and TaxAct not offer representation. However, you must think about whether you would hire your own representative in the actual event of an IRS audit (probably depends on severity).
Bottom line: The sleep-well-at-night choice if you want the assurance that a federally-authorized enrolled agent will guide you for free through a potential albeit unlikely audit.
Posted in Reviews, Taxes | 38 Comments »
Saturday, February 9th, 2013
Completely updated in 2013 for Tax Year 2012 returns. Whew, that took a while!
When shopping for tax prep software, always look at the total price including state return software and any additional charges for state e-file. For example, even the free version of TurboTax Online charges $27.99 for state returns with e-File, while other versions charge $36.99. If you buy the TurboTax Desktop version on Amazon with state software labeled “TurboTax Deluxe Federal + E-File + State 2012″, the state e-File is still an additional $20.
More and more states are offering their own in-house online income tax filing. This makes sense, as it reduces errors and saves the state from having to go through all those paper returns. Many other states have partnered with the “Free File Alliance” to offer free online filing for certain groups, usually limited-income households, senior citizens, young adults, and/or active duty military personnel. But again, read through the restrictions carefully and calculate the total price including Federal before committing.
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 for $14.95. 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.
Below, you’ll find free e-file information for all 50 states. I found it interesting how some states have sleek websites and some still seem stuck in 1997. Be sure to read all the details, as you might have to click through a specific link to qualify.
In alphabetical order (just click on the state):
| State |
Restrictions |
| Alabama |
Free through My Alabama Taxes (MAT). No major restrictions. |
| Alaska |
(no state income tax) |
| Arizona |
Various FreeFile options. Income and/or other restrictions apply, but free fillable free PDF forms for all. |
| Arkansas |
Various FreeFile options. Income and/or other restrictions apply. |
| California |
Free through CalFile. No capital gains/losses or Schedule C income allowed. |
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Posted in Deals & Offers, Taxes | 21 Comments »
Thursday, January 3rd, 2013
State Farm is again offering their bank customers TurboTax tax-prep software at a great discount. TurboTax Deluxe Online is free, Premier is $20, Home & Business is $30, and State is also included free with e-File for all versions. You can see the offer mentioned here, but with very limited details. Keep reading for how it only takes a one-time $25 deposit and a week’s time for anyone to open an eligible checking account and get this valuable perk.
According to my blog archives, from 2006-2009 State Farm offered TurboTax Deluxe for free to all customers including insurance policyholders. Starting in 2010 or 2011, they started offering it only to bank customers. However, it has been relative easy to maintain a checking account there with a small balance of $100 with no monthly fees. Even at 5% interest, that’s just $5 a year in exchange for what is worth over $40. Plus, it looks like now you only need to commit $25.
My experiment this year was to test if you could simply open up a new account and immediately get free access to TurboTax. I thought that perhaps you had to be a deposit customer for a certain period or there was a cut-off date. Well, it appears that from application to free access takes about a week. Here are my findings.
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Posted in Banking, Deals & Offers, Taxes | 26 Comments »
Monday, November 19th, 2012
The IRS recently announced increased contribution limits for various qualified retirement plans for tax year 2013. The limitations are indexed to increases in cost-of-living (inflation) as per section 415 of the tax code. In particular, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $17,000 to $17,500. However, the additional catch-up contribution allowed for those age 50 and higher remains $5,500.
The limits are the same for both Roth and “Traditional” pre-tax 401k plans, although the effective after-tax amounts can be quite different. Employer match contributions do not count towards the $17,000 elective deferral limit. (Although technically the total annual defined contribution limit is $51,000 for 2013… let me know if you have an employer that is so generous!) Curiously, some employer plans set their own limit on contributions. A former employer of mine had a 20% deferral limit, so if your income was $50,000 the most you could put away was $10,000 a year.
Here’s a historical chart and table of recent contribution limit increases:
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Posted in Retirement, Taxes | 7 Comments »
Sunday, November 18th, 2012
The IRS recently announced the Traditional and Roth IRA contribution limits for tax year 2013. The limitations are indexed to inflation, but only in $500 increments (as of 2010) which are triggered when the cost-of-living calculation reaches a certain threshold. The threshold was finally met, so the limit on annual contributions to an Individual Retirement Arrangement (IRA) increases to $5,500, up from $5,000. However, the additional catch-up contribution allowed for those age 50 and higher remains $1,000.
The limits are the same for both Roth and Traditional IRAs, but each one has their own unique set of eligibility requirements. IRAs are “individual” accounts by definition, so the limits are per person. The deadline for 2012 tax year contributions is the same as the 2012 tax return filing deadline: Monday, April 15, 2013. Tax return extensions won’t apply to this cutoff.
Since I like visual aides, here’s a historical chart and table of recent contribution limits. I’m proud to say that we’ve both done the max since 2004. Have you been taking advantage of your potential IRA tax break?
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Posted in Retirement, Taxes | 2 Comments »
Tuesday, October 2nd, 2012
Here’s a friendly reminder for those on the hunt for a new job. Many job-search expenses may be tax-deductible, so knowing the rules can save you money at tax time. As you might expect from the IRS, the rules aren’t straightforward:
- You have to be looking for a new job in your present occupation, even if you never get one.
- There cannot be a “substantial break” between the ending of your last job and your looking for a new one. Vague? Yep.
- You cannot be looking for a job for the first time. Sorry, recent graduates.
- Job search expenses are lumped in with many other “miscellaneous deductions”, such as the home-office deduction, union dues, work-related education expenses, bad business debt, tax prep fees. These are only deductible from your income if you itemize deductions and only to the extent that taken together they exceed 2% of your adjusted gross income. But if you’re out of work, 2% may not be a very high hurdle.
- If you get reimbursed for any your expenses, then it’s no longer deductible. At least that one makes sense.
What qualifies as an expense?
- Employment and outplacement agency fees. This includes “career consultants” and the like. I don’t know if paying these are necessarily a good idea in the first place, but they can be deducted.
- Resume preparation costs.. You can deduct amounts you spend for preparing and mailing copies of your resume to prospective employers. These include paper, postage, envelopes, and printing/copying costs.
- Travel and transportation expenses. If you travel to an area to look for a new job in your present occupation, you may be able to deduct travel expenses to and from the area if the trip is “primarily” to look for a new job. In other words, you need to spend more time looking for work than doing any personal activities. Roundtrip airfare, car rental, and hotel stays can add up quickly. If you drive, you can deduct the standard mileage amount (55.5 cents per mile in 2012).
Keep good records of your efforts and any meetings and/or interviews with prospective employers. Write down the time, date, and place of any event, and keep business cards and food receipts.
Things you can’t deduct include services like residential home phone service, cell phone plans, and high-speed internet.
This is all taken from the notoriously vague IRS Publication 529 – Miscellaneous Deductions. Look under Unreimbursed Employee Expenses > Job Search Expenses. Keeping great records for everything is key. If you have an accountant, be sure to ask them how to best take advantage of this area. Finally, if you do land a new job, don’t forget that you can also deduct moving expenses:
To qualify for the moving expense deduction, you must satisfy two tests. Under the first test, the “distance test”, your new workplace must be at least 50 miles farther from your old home than your old job location was from your old home. If you had no previous workplace, your new job location must be at least 50 miles from your old home.
Posted in Taxes | 8 Comments »
Tuesday, September 11th, 2012
Earn more. Save more. Those are the two ways to get out of debt and build wealth. I’m a big proponent of doing both, but for many people it may be easier to cut back on some luxuries rather than land a higher-paying job, start a side business, or become an investing wizard. It’s also more effective due to marginal tax rates. Let’s say you are single resident of California and your (taxable) gross income is $50,000 a year.
If you were to go out and earn another dollar as an employee, here’s how that additional $1 would get broken down:
You’d only keep 58 cents. On top of that, a lot of extra or freelance work is done as an independent contractor. That means you’re self-employed and get the happy task of paying another 7.65% of payroll taxes (the employer share), which brings your total tax hit to 49.6%! So in order to keep $1 in your pocket, you’d have to get someone to pay you $1.99. In that case, your choice becomes:
This relationship helps me visualize the power of spending less. Now when you save $1, you can feel good knowing that you’d have to have earned $2 of income to equal that. But on the flip side, when I get a check from a side project for $500, I know I’ll only keep $250 of it. 
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Posted in Frugal Living, Taxes | 76 Comments »
Tuesday, March 6th, 2012
I just finished filing my federal and state income tax returns (again) using TurboTax Deluxe Online edition. This is the 2nd part of my series comparing the three major tax preparation websites: TurboTax, H&R Block At Home, or TaxACT.
You can see my TaxACT 2011 review here.
Tax Situation
Again, 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 self-employed income (Schedule C).
- 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 mortgage interest and charitable giving.
Retail Price
Although their website shows a “retail” price of $49.95 for TurboTax Deluxe, anyone who visits the site will at most pay $29.95 for Federal including e-File. TurboTax State is $36.95 including e-file. If you are a Vanguard Flagship Services or Asset Management Services client, you get a TurboTax Online Federal Deluxe + State + efile for free. All other clients get discount of about 25% off; you must log in to get your discount. There is also a Federal Free Edition available if you have a very simple tax return – no itemized deductions, investment income, but remember that State is $27.95 extra in that case.
TurboTax Premier offers “additional guidance” for investment income from stocks and bonds and also rental income. However, I had the usual stock and bond sales and was able to complete my return without upgrading to Premier. I did not feel I needed any extra guidance, but if you do it will run an extra $20 for a total of $49.95. Finally, TurboTax Home & Business ($74.95) offers “additional guidance” for self-employment income including dealing with business expenses. However, if all you have is a couple of 1099-MISCs to report as I did, you can get by with Deluxe.
User Review
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Posted in Reviews, Taxes | 25 Comments »
Tuesday, March 6th, 2012
If you’re a newer investor in Lending Club P2P notes, you may be wondering how to handle your investments at tax time. Will I get a 1099? Even if you do get a 1099, it might not cover all your loans. Unfortunately, the documentation provided by LC is often inadequate on its own. Here is what their website says you will receive in terms of tax documents;
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Posted in Investing, Taxes | 3 Comments »
Friday, March 2nd, 2012
According to my tax software poll, it appears that the vast majority of readers are using one of the “big 3″ tax filing software: TurboTax, H&R Block At Home, or TaxACT. This matches industry-wide estimates; Did you know that H&R Block tried to buy TaxAct last year but was blocked by the Justice Department as it would hurt competition and basically create a duopoly?
Here is my hopefully-useful review of TaxACT.com, the first part of a series to try out each of these three products to do my real-life taxes and then compare each of them.
Tax Situation
Here’s a quick summary of our personal tax situation, which I think should cover the most common features of tax software. We don’t have any rental income, however.
- Married filing jointly, subject to state income tax
- Both with W-2 income, as well as self-employed income (Schedule C).
- 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 mortgage interest and charitable giving.
Retail Price
Of the Big 3, TaxACT regularly has the lowest retail price. I will be using the online version of TaxACT, of which there are two editions:
- Federal Free Edition (Basic): Free for Federal return + efile, $14.95 for State return + efile
- Deluxe: $9.95 for Federal return + efile, $8.00 for State return + efile
Both versions include all Schedules and all e-fileable IRS Forms. Reasons for upgrading to Deluxe (basically an extra $3 for Fed + State) are the ability to import information from your 2010 TaxACT return, import info electronically from Gainskeeper, help with valuing donation items, as well as free phone support. If you are not subject to state income tax, then you can indeed use TaxACT completely free including efile regardless of income level or complexity of return. Nice! There is also a desktop version available on CD and via download for Windows only.
User Review
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Posted in Taxes | 12 Comments »
