TaxACT Review – 2014 Tax Year Features and Screenshots

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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.

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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.

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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:

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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

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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:

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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:

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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.

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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

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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.

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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.

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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.

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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.

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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)

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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.

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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.

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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!

Infographic Map: Cell Phone Taxes By State

The nonpartisan Tax Foundation has released a new report on Wireless Taxation in the United States 2014. The average US wireless consumer pays 17% in combined federal, state, and local taxes and fees. Folks in Chicago, Baltimore, Omaha, and New York City have combined tax rates over 25 percent! Here’s their state-by-state map breakdown:

celltaxmap720

They also point out that these effective tax rates are much higher than normal sales tax.

Actionable advice? If your area is subject to high cell phone taxes, it may be better to switch to a prepaid plan rather than the traditional postpaid. I’m not sure exactly how these work, but somehow the taxes are averaged out and baked into the flat price. Note that depending on your area, you may still be subject to a e911 fee and sales tax. You can often bring your own off-contract phone and save even more. Most discount providers now accept phones like the iPhone and Galaxy.

I’ve heard of some people fudging their billing addresses to stay in a low cell tax state, but that may be more expensive or trouble than it is worth.

What Are The Real-World Benefits of Automated Tax Loss Harvesting?

scheduledTax-loss harvesting (TLH) is a technique used to minimize taxes on your taxable investments by “harvesting” capital losses during market declines. With DIY investors, losses are usually only harvested once a year. But with an computer as your portfolio manager, you could attempt to harvest losses continually on a monthly or even daily basis.

Wealthfront, Betterment, and FutureAdvisor all tout the benefits of their automated tax-loss harvesting services, each claiming that their service could increase your returns somewhere between 1% and 3% a year on average. Those are impressive numbers, and most importantly a much bigger number than the fees they charge. Great deal?

Elisabeth Kashner of ETF.com takes a closer look at those claims. Here is my summary of the noted concerns:

  • Tax-loss harvesting defers your taxes by lowering your cost basis. This means that you’ll have to pay more taxes later when you eventually sell (unless you die or donate it). Data presented by certain robo-advisors do not take this into account, and continue to avoid the subject even when confronted about it directly.
  • Most of the claims rely on theoretical backtested data, not the results of actual client portfolios. This is somewhat understandable as many of them are new, but we find that when real-world results are being published, those excess return numbers have so far been under 1% annualized.
  • More than one of them cherry-picked the period from 2000 to 2013 for their analysis, which has the ideal sequence of returns – big losses first (so you can harvest something) and then big gains afterward (so you can compound your tax-deferred money). If you choose other time periods the numbers can come out significantly less rosy.
  • Most of the analyses assume that the investor is in the highest tax bracket (35% or higher), which maximizes the tax benefit. However, many investors in these services could be in the 15% income tax bracket or even 0% capital gains tax bracket. That will also lower the actual tax benefit of TLH.

Read the article comments as well. There, finance author Rick Ferri adds:

I agree the benefit of TLH isn’t 1%, but it isn’t 0.09% either. The answer is someplace in the middle – and it is investor specific.

I think this quote from the author sums things up well:

My point was not that there is never any value to TLH. It’s that predicting this value is fraught, because there are many variables. Given this variability, I find it questionable that the robo advisors’s marketing materials present best-case scenarios, sometimes without accounting for the terminal capital gains liability caused by the lowered basis.

Essentially, temper your expectations as the numbers being marketed at you are based on best-case scenarios. It is impossible to know the true benefit of tax-loss harvesting ahead of time, but quite possibly less than 1% annualized. This still leaves the possibility for the benefits of automated TLH to outweigh the cost, but it is nowhere near a certainty.

Healthcare FSA $500 Rollover and Open Enrollment

rxbottleIn October of last year, the government announced that administrators of Healthcare Flexible Spending Accounts (FSA) could allow employees to roll over up to $500 of unspent FSA money into the following year’s balance . This change was designed up help address the (stupid in my opinion) use-it-or-lose-it nature of these accounts. Per this Reuters article, given the short notice only 8% of U.S. companies adopted this rollover policy in 2014.

As Open Enrollment season for benefits starts for 2015, keep your eyes out for mention of this rollover option. Adoption rates could jump up to 50% now that they’ve had a year to prepare, according to benefits administrator Alegeus Technologies.

If your company does offer a $500 carryover (and your job is stable), then it would be much more appealing to contribute at last $500 even if you are unsure of your future expenses. If you don’t spend all (or any) of it, you can simply roll it over year after year.

Despite the potential tax savings, we stopped contributing to our FSA last year because the company switched to a new (likely cheaper) FSA administrator that made you do everything online while also repeatedly rejecting half our claims without clear explanations as to why. So painful! Thankfully it sounds like everyone else hated them too, as they are back to processing FSA claims in-house.

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

Updated. The deadline for filing your federal taxes this year is Tuesday, April 15th, 2014. If you file for an extension, you will automatically be extended by six months to Wednesday, October 15, 2014. 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

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 $17.99 for state returns with e-File included.

(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).

taxactext

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 too! 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.

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Mortgage Interest Tax Deduction Doesn’t Help Homeownership?

The mortgage interest tax deduction primarily helps the wealthy buy bigger houses rather than increase homeownership rates, according to a new study quoted by this WSJ article. The study found that such tax benefits have help increase the size of house by as much as 18% in affluent areas. Here is a graphic of the average annual tax savings from 10 major metro areas, broken down into households earning over and under $100,000 a year.

wsjbigben

My non-political thoughts:

Don’t overestimate the benefit of the mortgage tax deduction. It is easy to simply take your marginal tax bracket (say, 28%) and say that you’re saving 28% on all your mortgage interest. But mortgage interest is only tax-deductible if you itemize, which encompasses just 30-40% of Americans. Even then, you should consider the incremental savings above the standard deduction.

Everyone can take the standard deduction, which in 2014 is $12,400 for married filing joints and $6,200 for single filers. Let’s say your mortgage is for $250,000 and the interest rate is 4%. That’s $10,000 in interest annually. So far, the married folks have no tax benefit at all! You would need a lot of other deductions like state income tax, property tax, and charitable contributions to push you over the hump. For example if you have $7,400 in other deductions, then only half of your mortgage interest ($5,000 out of $10,000) is actually saving you anything extra in taxes.

Accordingly, the study quoted above also found that homeowners with incomes above $100,000 were between three and four times as likely to claim the tax benefit as those earning less than $100,000.

Even if you do itemize and have a high income (~$254k for single, ~$305k for married filing joint), look up the new Pease Limitation which reduces the value of various deductions including mortgage interest, state/local taxes, and charitable contributions.

Be prepared that the mortgage interest tax deduction may go away. I’m not going to talk about whether or not it should go away, but realistically there is a chance that it will. If it does disappear, it think it would be done gradually to prevent a shock to housing prices. However, I wouldn’t buy a house where I am depending on the tax deduction to maintain affordability. Tax laws change.

My prediction is that the mortgage interest tax deduction is still too popular to be completely nuked. Most likely there will be more legislation that nibbles around the edges like the mentioned Pease limitation that does a income phase-out or the total loan amount allowed will be reduced from the current $1,000,000 cap.