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Tax Tips for Recent College Graduates

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Tax Tips for Recent College Graduates

When life changes, so do your taxes, and graduating from college brings several life changes that can affect your tax return. You may go from being claimed as a dependent by your parents to filing on your own for the first time. You may move out of state, collect a paycheck for the first time, and start paying off student loans. All of these events present opportunities to save — and costly pitfalls to avoid. To help you keep more of what you earn in this next phase of life, check out these tax tips for recent college graduates.

Figure out if your parents can still claim you as a dependent

If you just graduated, you may still be eligible to be claimed as a dependent on your parents’ tax return. Dependency rules are complex, but essentially, for your parents to claim you as a dependent:

  • you must be under age 24 at the end of the year,
  • you must be a full-time student (enrolled for the number of credit hours the school considers full time) for at least five months of the year,
  • you must have lived with your parents for more than half the year (you are deemed to live with your parents while you are temporarily living away from home for education), and
  • your parent must have provided more than half of your financial support for the year.

If you meet all of these tests, your parents can still claim you as a dependent and take advantage of the dependency exemptions and education credits.

Even if your parents claim you as a dependent, you may still be required to file your own return if you had more than $2,600 of unearned income (interest, dividends, and capital gains) or more than $7,850 of earned income (wages or self-employment income).

Get reimbursed for moving expenses if you moved in order to take a new job

If you moved for a new job after graduation, you might be able to deduct any unreimbursed moving expenses, as long as the new job is at least 50 miles away from your old home. Those expenses include costs to pack and ship your belongings and lodging expenses along the way, but not meals. You can also take a deduction for 17 cents per mile driven for 2017 (down from 19 cents per mile in 2016).

If you moved out of state, you might have to file two state returns if you had taxable income in both states. Many students have a part-time job while in school and take a full-time job in another state after graduation. Rules vary drastically by state. In some states, you will have to claim 100% of your income on your resident state return, then receive a credit for any taxes paid to another state. In this case, you may be better off working with a professional who can help guide you through filing in both states.

Make sure you’re withholding the right amount from your paycheck

When you start your new job, the human resources department will ask you to complete a Form W-4 to indicate how much of your paycheck you’d like your employer to take out for taxes. Working through the questions on the form is simple enough, but it doesn’t take into account how much of the year you’ll be working.

Most new graduates end up having too much federal tax withheld in their first year, effectively giving the government an interest-free loan, says Bradley Greenberg, a CPA and partner at Kessler Orlean Silver & Co. in Deerfield, Ill.

That’s because graduates rarely start new jobs right at the start of a new year. You may graduate in May and start working in June, or graduate in December but not find a job until February. Yet you are taxed as if you have been earning that pay for the entire year.

“The withholding tables are designed with the assumption that one makes the same amount of money for each pay period of the year, regardless of how many pay periods were worked,” Greenberg says. “For example, a June graduate starting a job on July 1 for $50,000 will have the same taxes withheld per pay period as a colleague with the same salary, marital status, and number of exemptions, but who worked the entire year.”

Greenberg recommends two courses of action for new graduates:

  1. Set up your withholding in your first year of employment so less tax is withheld. Then make sure you adjust it on the following January 1, so you don’t have too little tax withheld in your first full year of employment, or
  2. View this as a savings plan and file your taxes as early as possible next year to get your refund from the IRS.

Take advantage of student tax credits

If your parents can no longer claim you as a dependent, you may be eligible to claim valuable tax credits for any tuition you paid during the year. There are two tax credits for higher education costs: the Lifetime Learning Credit and the American Opportunity Credit.

For 2016, there is also the tuition and fees deduction (Congress failed to renew this deduction, which expired on December 31, 2016, so it is not available for 2017). The rules and income limits for each credit and the deduction vary, but the IRS offers an interactive tool on their website to help you determine which tax break applies to you.

If you used student loans to pay for your education, you can take a deduction for up to $2,500 of interest paid on a qualified student loan. If your parents made loan payments on your behalf, you are in luck. Typically, you can only deduct interest if you actually paid the debt, but when parents pay back student loans, the IRS treats it as if the money was given to the child, who then repaid the debt.

Don’t ignore your 401(k) or health savings account at work

New college graduates may be financially strapped and hesitant to divert part of their paycheck into a retirement plan or health savings account, but opting out means missing out on substantial tax-saving and wealth-building opportunities.

If your employer offers a matching 401(k) contribution, as soon as you’re eligible you should contribute at least enough to get the employer match. Otherwise, you’re missing out on free money. If you select a traditional 401(k), you can save on next year’s taxes. That’s because any contributions you make will be tax free, and they will reduce the amount of your income subject to federal income tax as well as Social Security and Medicare (FICA) taxes.

For better or for worse, many employers now offer high-deductible health insurance plans. These plans often come with health savings accounts (HSAs). Any money you set aside in an HSA can be used for any qualifying medical expense, from co-pays to prescriptions. The best part is that money you put into your HSA is not taxed, so you can potentially save a lot by using your HSA for medical expenses rather than paying out of pocket.

HSA funds stay in the account until you use them and are portable, meaning you can take it with you even if you leave your job. If you have big medical bills down the road, the funds can come in handy. If not, think of them as another tax-advantaged way to save for retirement.

Bring in a professional if you think you need help

If this is your first time filing on your own, you may be wondering whether you should do it yourself or pay someone to prepare your return for you. If you have a simple return with just a Form W-2 and perhaps some interest income, you could save money by buying some tax software and doing it yourself. MagnifyMoney’s guide to the best tax software is a great place to start.

But if you have dependents, investments, or a small business, you may be better off going to a reputable accountant.

Doing your taxes is never fun, but for recent college graduates, they may not be as big a headache as you might have heard. Keep in mind that tax laws often change, and everyone’s situation is a little different. But taking the time to know which tax breaks apply to you can make your post-college life significantly easier.

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9 Essential Tax Tips for Entrepreneurs

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

9 Essential Tax Tips for Entrepreneurs

For many entrepreneurs, there is no topic more fraught than taxes. In fact, a 2015 survey of small business owners found that 40% say dealing with bookkeeping and taxes is the worst part of owning a small business and that they spend 80+ hours a year dealing with taxes and working with their accountants. Taxes can be time-consuming, confusing, and a drain on your finances if you don’t prepare well. So whether you choose to do your taxes on your own or hire a professional, this guide can provide some sound advice and hopefully make tax time a little less taxing.

 

#1 Select the Right Entity for Your Business

 

One of the first decisions you’ll make when setting up your business is whether to function as a sole proprietor, partnership, LLC, or corporation. In her recent blog post, Wendy Connick, an IRS enrolled agent and owner of Connick Financial Solutions, says “the type of business entity you choose will have a huge effect both on how you pay taxes and how much tax you pay. It’s wise to consider the pros and cons of each business structure before making a final decision.”

Sole proprietorship

A sole proprietorship is the simplest way to form a business, as it is not a legal entity. The business owner just needs to register the business name with the state and secure the proper local business licenses. The downside is that the sole proprietor is personally liable for the business’s debts.

Partnership

A partnership is similar to a sole proprietorship, but two or more people share ownership. Both partners contribute their money, labor, or skill to the business and share in its profits and losses.

Limited liability company (LLC)

An LLC provides more protection from liability than a sole proprietor or partnership but with the efficiency and flexibility of a partnership.

Corporation

A corporation is more complicated and usually recommended for larger companies with multiple employees. It is a legal entity owned by shareholders, so the corporation itself, not its shareholders, is legally liable for business debts.

Unlike other business entities, corporations pay income tax on their profits, so they are subject to “double taxation,” first on company profits and again on shareholder dividends.

To avoid double taxation, corporations can file an election with the IRS to be treated as an S Corporation. S Corporation income and losses “pass through” to the shareholder’s personal income tax return instead of being taxed at the corporate level.

Some small businesses and freelancers may save on self-employment taxes by registering as an S Corporation and paying themselves a salary. Sole proprietors, partners, and LLC members pay self-employment tax on their entire business net income, but S Corp shareholders only pay self-employment taxes on their wages. They can receive additional income from the corporation as a distribution, which is taxed at a lower rate.

Connick says “many small business owners start out as sole proprietors and adopt a different structure once the business gets big enough to make it worthwhile (which would typically be when the business is making over $50,000 a year).”

 

#2 Get an Employer Identification Number

 

All businesses, even sole proprietors should get an Employer Identification Number (EIN). Technically, sole proprietors can use their Social Security number (SSN) as the business’s identification number, but that means providing an SSN to any clients or vendors who need to issue a 1099, a move that can leave you more exposed to identity theft.

Applying for an EIN from the IRS is free and can usually be done in a matter of minutes using the IRS’s online form.

#3 Make Sure Your Business Isn’t Just a Hobby

 

You know you’re in business to make money, but would the IRS agree? If your company is operating at a loss, the IRS could reclassify your business as a hobby, resulting in some serious tax consequences.

A business is allowed to offset taxable income with business expenses, but hobby expenses cannot be netted against hobby income. Instead, they are deducted as miscellaneous itemized deductions on Schedule A and limited to the amount of hobby income reported on Schedule C. This means a hobby business can never result in a net loss, and you may be prevented from deducting hobby expenses entirely if you don’t itemize deductions.

If you’ve been making money in your business for a while and just have one bad year, you don’t have to worry about the IRS reclassifying your business as a hobby. If you’ve been losing money for a while and especially if your business involves some element of personal pleasure or recreation (such as horse racing, filmmaking, or restoring old cars), you’ll want to make sure you’re treating your business like a business in case the IRS challenges your losses.

The IRS takes several factors into consideration:

  • Does the amount of time you put into the business suggest an intention of making a profit? Side projects are more likely to face scrutiny because you’re spending the majority of your time at another full-time job.
  • Do you depend on the income you receive from the business?
  • Were any losses beyond your control or occur in the startup phase? Losses due to poor management and overspending are less likely to hold up under examination.
  • Have you changed operation methods to improve profitability? Many business experience setbacks. If you learn from mistakes and try to correct your course, the IRS is more likely to agree that you have the intention of running a profitable business.
  • Do you have the knowledge and experience necessary to be successful in your field?

If you are concerned about an IRS challenge of your losses, there are a few steps you can take to treat your activity as a business:

  • Keep thorough business books and records.
  • Maintain separate business checking and credit accounts.
  • Obtain the proper business licenses, insurance, and certifications.
  • Develop and maintain a written business plan.
  • Document the hours spent working on your business, especially if it is a side project.

 

#4 Track Income and Expenses Carefully

 

Maintaining separate business checking and credit card accounts is not only a good way to demonstrate that your business is not a hobby, but it’s also an excellent way to simplify tracking business income and expenses.

Benjamin Sullivan, an IRS enrolled agent and a certified financial planner with Palisades Hudson Financial Group LLC in its Austin, Texas, office, says “small business owners can get a tax benefit from almost anything that is an ordinary and necessary business expense. Travel, meals, advertising, and insurance costs are just some of the popular deductions.”

Use small business bookkeeping software

Small business accounting software like FreshBooks, Xero, or QuickBooks Online can help you easily and quickly track your business revenues and expenses. They can usually be set up to import transactions from your business checking account automatically and let you snap pictures of receipts with your phone.

Whether you choose to use a software program or just a spreadsheet, establish a system for organizing records and receipts right from the beginning. “Little expenses can add up quite a bit over the course of a year,” Connick says, “but you can’t deduct them if you don’t know what they are.”

Special rules for travel, meals, and entertainment

It is especially crucial to maintain good records for business travel, meals, and entertainment expenses. The IRS allows taxpayers to deduct 100% of their business-related travel and 50% of the cost of business meals and entertainment expenses, whether you are taking a client out for a meal or traveling out of town. Because these categories are prone to abuse, the IRS requires documentation to substantiate that these expenses have a legitimate business purpose.

For meals and entertainment, in addition to a receipt that shows the amount, time, and place, taxpayers should also make a note of the individuals being entertained and the business purpose. Meeting this requirement can be as simple as jotting down a note on your receipt or in your calendar regarding who you dined with and the business matters discussed.

For travel expenses, hotel receipts must include a breakdown of the charges for lodging, meals, telephone, and other incidentals. Your hotel should be able to provide an itemized receipt at checkout.

Save cash instead of taxes

One trap that small business owners often fall into is spending money to save on taxes. At year end, many entrepreneurs look at business profits and think they need to spend their cash to avoid a big tax bill. Don’t spend a dollar to save forty cents in tax. If you truly need a new computer, extra supplies, or a new vehicle, buy it. Don’t spend money just to avoid a tax bill. Remember, taxes are a cost of doing business. If you’re paying taxes, you’re making money.

#5 Set Aside Money for Taxes

 

When you set up a separate business checking account, it’s also a good idea to set up a separate savings account to help you organize funds and set aside money for taxes.

Our tax system is a “pay as you go” system. When you receive a paycheck from an employer, money is regularly withheld on your behalf. When you are self-employed, making estimated tax payments is your responsibility. If you don’t pay in enough during the year to cover your income tax and self-employment tax, you may have to pay an underpayment penalty.

Estimated tax payments are due on the 15th day of April, June, September, and the following January. You have a few options for calculating what you owe each quarter:

Use Form 1040ES

This form includes a worksheet to help you estimate how much you owe for the current year. (Corporations use Form 1120-W to calculate estimated taxes.)

Look at last year’s return

If you’ve been in business for a while and there are no significant changes this year, you can aim to pay 100% of last year’s tax as a safe-harbor estimate (110% if your adjusted gross income for the prior year was more than $150,000).

Make a quarterly estimate

If your income fluctuates, you may prefer to make a quarterly calculation. Calculating estimated payments is complex. It depends on your tax bracket, deductions, credits, etc. In this case, it’s best to work with a tax professional who can consider all of the factors and recent changes in the tax law.

Sullivan says, “Tax planning isn’t a one-time exercise that should be done at the end of the year or at tax time. Instead, tax planning is an ongoing process of structuring your affairs in a tax-efficient manner.”

#6 Don’t Forget to Track Your Mileage

 

When you drive your personal vehicle for business, you have two options for deducting business automobile expenses: the standard mileage rate or actual expenses.

The IRS releases the standard mileage rate annually. The rate is $0.54 per mile for 2016. It goes down to $0.535 cents per mile for 2017. You simply multiply the standard mileage rate by the number of miles you drove for business during the year.

To use the actual expense method, total up all of the costs of operating your vehicle for the year, including insurance, repairs, oil, and gas, and multiply them by the percentage of business use. For example, if you drove 10,000 miles during the year and 5,000 of those miles were for business, your percentage of business use would be 50%. If it cost $7,000 to own and operate your vehicle, your deduction using the actual expense method would be $3,500 ($7,000 x 50%).

You can use whichever method gives you the largest deduction. However, if you want to use the standard mileage rate, you must choose it in the first year the car is used for business. In subsequent years, you can choose either method.

Whichever method you choose, you must track your business miles. You can do that with a paper log kept in your glove compartment or with an app such as MileIQ or TrackMyDrive. “Note that ‘business purpose’ is a pretty broad category,” Connick says. “If you drive to the supermarket and pick up some pens for your home office while buying groceries, the trip counts as business mileage.”

 

#7 Consider the Home Office Deduction

 

Some business owners avoid claiming the home office deduction, believing it to be an audit trigger. That may have been true in the past, but today’s technology has made home offices much more common. Connick suggests entrepreneurs shouldn’t fear the home office deduction if they meet the requirements. “It’s no longer audit bait,” she says, “especially if you use the safe harbor method to calculate your deduction.”

To take advantage of the home office deduction, you must use the area exclusively and regularly, either as your principal place of business or as a setting to meet with clients. The home office deduction is based on the percentage of your home used for the business. You can choose either the traditional method or the simplified method for deducting expenses.

Under the traditional method, you’ll calculate the percentage of your home that is used for business by dividing the square footage of your office by the square footage of your entire home. For example, if your home is 1,500 square feet and your office occupies 150 square feet, the business percentage is 10%. Then, you can deduct 10% of all of the expenses of owning and maintaining your home, including mortgage interest, real estate taxes, utilities, association dues, insurance, repairs, etc.

Under the simplified method, you’ll take a deduction of $5 per square foot, with a maximum of 300 square feet. So if your home office measures 150 square feet, the home office deduction would be $750 (150 x $5).

 

#8 Save for Retirement

 

For most self-employed people, the simplest option for retirement saving is an individual retirement account (IRA). Anyone can contribute to a traditional IRA, but with an annual contribution limit of just $5,500 ($6,500 if you are age 50 or older), you may want a retirement savings option that allows you to save more.

Connick says her number one tip for entrepreneurs is to open a SEP-IRA. “These retirement accounts are cheap to open and maintain,” she says. They also “have a high contribution limit, and contributions are fully tax deductible.” SEP-IRAs allow entrepreneurs to contribute up to 25% of their net earnings from self-employment, up to a maximum of $53,000 for 2016.

The deadline to contribute to a SEP-IRA is the due date of your return, including extensions. So 2016 contributions can be made until April 18, 2017, or October 15, 2017, if an extension is filed.

 

#9 Get Help from a Professional

 

Connick recommends that entrepreneurs hire a professional to do their taxes. “If you pick someone who knows their stuff,” she says, “you will likely save more than enough off your tax bill to pay for their fees. For that matter, tax preparation fees are deductible!”

When choosing a tax professional, look for someone with experience working with self-employed taxpayers. The IRS maintains an online directory of return preparers who have additional credentials, such as EAs, attorneys, and CPAs. Search the directory to find a professional near you with the credentials or qualifications you prefer.

If there is one thing all entrepreneurs can agree on, it’s that everybody dreads tax season. Having a basic understanding of tax law, maintaining organized records throughout the year, and working with a professional can help you make the most of this least wonderful time of the year.

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The Best Tax Software of 2017

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

 

If you’re like most Americans, you dread filing your taxes. You have to track down the right forms, deal with the IRS, and try to remember all your deductions and credits. That’s why so many people turn to online tax software to help file taxes. Great tax software simplifies the filing process without draining your pocketbook. But choosing the right software can be as much work as filing your taxes.

To help you choose the right software, we’ve tested 11 of the leading online tax software packages. We’ve ranked each software on the following criteria: usability, helpfulness of support articles, availability of audit support, and accessibility of tax and technical support. Then, we compared these criteria to the price to determine which software package is best for your situation.

Which tax software fits your needs? Find out below.

Best Tax Software of 2017

Best Free Filing Service

Of the 11 tax software packages we reviewed only two allow all users to file state and federal taxes for free.

Best Software: Credit Karma Tax

Credit Karma Tax features an outstanding user interface with easy interview questions. The built-in calculators make Credit Karma appropriate for even complex filers. You can’t import information, and Credit Karma doesn’t have robust help, but it’s easily the best software you can use for free.

 

Runner-up: DIY Tax

DIY Tax is a joint partnership between Liberty Tax Services and eSmart Tax. Their user interface is clunky, but it has all the functionality you need. Their software interface allows you to import prior tax returns, and they have excellent support articles.

Best for Simple Filing

Simple filers are W-2 employees who claim the standard deduction. You typically file as Single or Married Filing Jointly. You don’t have dependents, and you earn less than $100,000.

Best Software: TaxAct, free edition

TaxAct offers completely free state and federal filing options for simple filers. However, they do charge $10 for prior year import. The user experience is easy, and TaxAct offers free tax and technical support.

Runner-up: Credit Karma Tax

Credit Karma Tax offers free filing for all users, and they have an easy-to-use interface. While they only offer email tech and tax support, Credit Karma allows simple filers to explore more complex credits and deductions for free.

Best for Maximizing Deductions and Credits

Charitably inclined people, most homeowners, parents who pay for child care, and people who qualify for the earned income tax credit may want to maximize deductions and credits.

Best Software: Credit Karma Tax

Most software packages require you to upgrade to itemize deductions or claim credits. With Credit Karma Tax you can claim them for free. The only problem with Credit Karma Tax? If you fail to qualify for a credit, they don’t offer great explanations.

Runner-up: TaxSlayer Classic

TaxSlayer Classic offers federal filing for $17 and state filing for $22. The software is easy to use and intuitive. It even allows you to upload your W-2 form. For maximizing deductions and credits, you won’t find a better software for the price. TaxSlayer gives you access to technical support, but you need to upgrade to ask tax-related questions.

Easiest for New Filers

We assume that new filers have simple forms to file, but they want a clear user interface and ready access to tax and technical support.

Best Software: 1040.com EZ

1040.com offers free federal filing, and state filing for $9.95. Normally, we don’t recommend paying for a service that you can get for free elsewhere, but new filers will love 1040.com’s user interface and live chat support. Their tax and tech professionals can quickly guide you if you get stuck.

Runner-up: Credit Karma Tax

Credit Karma Tax has an excellent user interface that you can use for free. Even new filers can use the interview questions to determine whether they qualify for credits or deductions. Unfortunately, Credit Karma only offers email support.

Best Audit Protection

The IRS has the right to audit anyone, but people with complex taxes run a greater audit risk. No tax software (or accountant) can prevent you from getting audited. However, some tax software will give you access to a tax specialist or accountant if you undergo an audit. These are the software services that can lend a hand if you need it.

Best Software: FreeTaxUSA Deluxe

FreeTaxUSA Deluxe costs $6.99 for federal filing and $12.95 for state filing. FreeTaxUSA does not feature an intuitive user interface, but they have built-in calculators that most complex filers need. They also promise to give you personal assistance if you’re audited. If you can stand the software, it’s the best price for audit protection.

Runner-up: TaxSlayer Premium

TaxSlayer Premium costs $35 for federal filing and $22 for state filing. At the Premium level, trained tax professionals will help you if you’re audited after using the TaxSlayer software. The software is generally easy to use. However, the amortization and depreciation calculators can be confusing.

Why H&R Block and TurboTax didn’t make the cut

Historically, H&R Block included audit assistance with all of their paid programs. This year, you can only get that protection if you purchase the desktop software. If you purchase H&R Block online, you can pay an additional $79.99 for a “Best of Both” package. In this package, a tax professional reviews your filing, and they offer in-person support if the IRS audits you.

In the past, TurboTax included audit assistance with their paid package. This year, if you want audit assistance from TurboTax, you have to pay for the $44.99 “MAX” package. They give some additional security measures and access to in-person support if you’re audited.

Because of the increase in price, these historic powerhouses didn’t make the cut for best audit protection.

Best Interface for Health Care Premium Tax Credit

Health insurance isn’t only confusing during open enrollment. Tax time means that you’ll need to figure out how much of the premium tax credit you qualified for during the year. If you were on an Obamacare health plan for any part of the year, you’ll need to look for software that can handle this credit.

Best Software: OLT.com

OLT.com offers free federal filing and $9.95 state returns. It’s got a poor user interface, but their Affordable Care Act section offers excellent support articles, and it’s easy to use. You can’t import forms, but it’s easy to copy data from your 1095-A onto the software.

This software is only appropriate for simple filers with a marketplace plan. Everyone else should look elsewhere.

Runner-up: TurboTax Deluxe

TurboTax Deluxe costs $34.99 for federal filing and $36.99 for state filing. This is a steep price if you want to itemize deductions and maximize credits. However, TurboTax offers the best Affordable Care Act information on the market. They even allow you to upload your 1095-A form to the software.

Best for Investors

If you buy and sell stocks, bonds, or options outside of your tax-advantaged retirement accounts, you need a tax software that can handle all your information. Tax software for investors needs to handle dividends as well as short-term and long-term capital gains.

Best Software: H&R Block Premium – Online version

H&R Block Premium online software costs $54.99 for federal filing and $36.99 for state filing. But the price is well worth it in this case. H&R Block allows you to import all major forms from many financial institutions. If you actively trade, you need this capability. H&R Block also has accurate accounting for short-term gains and losses, which will help investors minimize the tax they owe. H&R Block also has helpful community forums and unlimited real-time chat support if you need help.

Runner-up: Credit Karma Tax

Credit Karma Tax offers a free solution for all kinds of investors. You must manually enter all your trading information, but Credit Karma calculates capital gains and losses and the appropriate tax rate. It’s a decent (and free) solution for less active investors.

Best for Real Estate Investors

Real estate investors need to calculate depreciation. They need to amortize certain expenses and deduct others. This can be confusing for DIY tax preparers. The best tax software for real estate investors needs to feature helpful support articles, intuitive depreciation and amortization calculators, and as many import features as possible.

Best Software: TurboTax Premier

TurboTax Premier costs $54.99 for federal filing and $36.99 for state. The real estate portion of TurboTax is second to none. If you use QuickBooks software to manage your real estate accounting, you can connect it directly to TurboTax. If you don’t, you can still upload a Schedule E or use the robust calculators.

Runner-up: H&R Block Premium

H&R Block Premium also costs $54.99 for federal filing and $36.99 for state. The software allows users to import many documents including an entire Schedule E. The depreciation and amortization calculators offer standard inputs, but they are flexible enough for special events. H&R Block also makes it easy to import last year’s tax return. Most real estate investors need this to accurately report depreciation.

Best for Self-Employed People

Are you a freelancer or contractor? If so, you know that you can deduct many business-related expenses. This means that taxes can get messy in a hurry. The best tax software for self-employed people makes it easy to claim business deductions. It will also offer robust explanations that will help you understand amortizing equipment expenses and whether you qualify for a home office deduction.

Best Software: Credit Karma Tax

Credit Karma Tax makes it easy for you to find and deduct appropriate expenses if you’re self-employed. Their built-in amortization calculators are easy to use, and Credit Karma offers helpful explanations. Outside of the most complex self-employment situations, Credit Karma is a simple filing solution.

Runner-up: Jackson Hewitt Basic

Jackson Hewitt Basic software offers one of the lowest cost Schedule C-EZ forms if you’re self-employed. The cost is $19.95 for federal returns and $36.95 for state returns. Their extensive support articles and helpful interface mean that you can find the help you need at the right price. Plus, you can get unlimited live chat support from technical assistants. If you need help from tax experts, you will have to pay for a consultation at a local Jackson Hewitt office.

Best Bargain for Self-Employed People

When you’re self-employed, you don’t always have the luxury of choosing the best-value product. Sometimes, you just need the cheapest product that will get the job done. If that’s you, these are the software products you should consider.

Best Software: Credit Karma Tax

Credit Karma Tax is the best 100% free option if you’re self-employed. It offers all the functionality you need.

 

Best Software: FreeTaxUSA

FreeTaxUSA allows free federal filing and $12.95 state filing. Their calculators and website are adequate for self-employed people. This software allows you to deduct mileage, amortize expenses, and categorize meals and entertainment. FreeTaxUSA isn’t beautiful, but it gets the job done at a low price. If you upgrade to Deluxe, you’ll even get audit assistance.

Best for Small Businesses

Sole proprietors and single member LLCs can also use tax software for self-employed people. As long as the software supports a Schedule C, it will work for your small business needs.

If you’re part of a partnership, a corporation, or a multi-member LLC, then you need more than the standard tax software that we reviewed above.

Corporations need software that supports Form 1120. S Corporations (with more than one member) need tax software that supports Form 1120S. Partnerships and multi-member LLCs need software that supports Form 1065.

If you need business tax software consider one of these options.

TurboTax Business

$149.99 federal (up to five federal e-files); $49.99 per state + $24.99 per state e-filing fee.

TurboTax Business offers the same interview style interface that consumers love, but it offers increased functionality. Small business owners will especially love that they can use it to create unlimited W-2 forms and 1099-MISC forms.

H&R Block Premium and Business

$79.95 federal (up to five federal e-files); first state software free, after that: $35 per state + $19.95 per state e-filing fee. H&R Block offers an excellent interview style user interface with increased functionality such as creating employee forms. This software supports the major forms for businesses, plus the form for nonprofit organizations.

TaxAct for Small Businesses

TaxAct bundles federal and state filing and software for a total of $100. You can purchase federal filing only for $60. TaxAct has a slightly more stripped-down user interface than H&R Block or TurboTax, but business owners can easily complete everything. You can even create as many employee tax forms as you need.

 

Tax Software Pricing, Plans, and Insights

Credit Karma Tax

Credit Karma Tax offers free federal and state filing for all users. With a robust and easy-to-use interface, it’s an excellent default choice for most filers. Their guided path through the tax software is as good as the most expensive tax software on the market. But it has a few shortfalls. You can’t import your prior year’s taxes. This makes year-to-year comparisons impossible within the software. You also can’t import any forms, which can be a pitfall for active traders and real estate professionals.

Credit Karma offers tax and tech support via email. They currently have at least a 3-day wait time for answers. Credit Karma doesn’t offer audit support either.

Superlatives: Best Free Filing Service, Best for Maximizing Deductions and Credits, Best for Self-Employed People, Best Bargain for Self-Employed People, Runner-up Best for Simple Filing, Runner-up Easiest for New Filers, Runner-up Best for Investors

DIY Tax

DIY Tax offers 100% free federal and state filing for everyone. Their user interface is a bit clumsy, but it proves accurate and usable. They even allow you to import your prior year’s taxes for your reference. Real estate investors and small business owners need to be careful with this platform. The depreciation and amortization calculators can be confusing. Their software offers technical support, but they push Liberty Tax Service offices for tax support. The software doesn’t come with an audit support guarantee.

DIY Tax is sponsored by Liberty Tax, and you will see ads for their offices in the software. Remember, filing in a Liberty Tax office isn’t free.

Superlatives: Runner-up Best Free Filing Service

eSmart Tax

eSmart Tax and DIY Tax are the same software package. However, you have to pay for eSmart Tax. Why would you pay? The Deluxe and Premium packages offer unlimited phone or email support from tax specialists, which can prove helpful. But in most cases eSmart Tax isn’t a great option.

 

Free Basic Deluxe Premium
Price $0 Federal $29.95 State $14.95 Federal
$29.95 State
$19.95 Federal
$29.95 State
$34.95 Federal
$29.95 State
Best For 1040EZ Homeowners, people with dependents, sole proprietors Stock market investors without capital gains or losses Freelancers, real estate investors, people who sold a home in the previous years

Superlatives: None

TaxSlayer

TaxSlayer has an incredible user interface and helpful support articles. When it comes to itemizing deductions or finding credits, it is one of the easiest to use tax software packages on the market.

Unlike most tax software, TaxSlayer supports all forms on its second-tier Classic level. This means that anyone could complete their entire tax return at a relatively low price. Their Premium level gives you access to live chat support, audit protections, and help from tax professionals.

However, TaxSlayer has two demerits. First, you cannot import a prior year’s tax return from a competitor. The only tax information you can use is information you entered into TaxSlayer during a previous tax year. Second, TaxSlayer doesn’t allow you to see internal calculations for depreciation and amortization. That makes TaxSlayer inappropriate if you’re a real estate investor or self-employed.

 

Simply Free Classic Premium
Price $0 Federal
$0 First State ($22 each additional)
$17 Federal
$22 State
$35 Federal
$22 State
Best For 1040EZ All others (itemizers, stock market investors, real estate investors, self-employed, etc.) Comes with audit assistance, ask a task professional, and live chat support

Superlatives: Runner-up Best Audit Protection, Runner-up Best for Maximizing Deductions and Credits

TaxAct

When does free really mean free? When it comes to simple tax filing through TaxAct. People who file a 1040 or 1040EZ can file federal and state taxes for free through TaxAct. Even if you don’t qualify for free filing, TaxAct usually represents an excellent value. At any level, you can receive phone and email support from tax and technical professionals. TaxAct doesn’t offer audit support, but it is priced accordingly.

For the most part, TaxAct simplifies tax filing. It uses simple questions, helpful knowledge articles, and easy navigation to help you complete your taxes. They even make it easy to import your prior year’s taxes into their software. TaxAct also offers some of the best guidance if you’re a stock market investor or self-employed.

Despite all these praises, the software stumbles somewhat on its real estate coverage. The depreciation calculator seems clumsy in certain areas. Outside of this flaw, TaxAct offers tremendous value for the price.

 

Free Plus Premium
Price $0 Federal
$0 State
$27 Federal
$33 State
$37 Federal
$33 State
Best For 1040EZ, 1040A (no dependents, claiming standard deduction) Itemizers, stock market investors Self-employed, real estate investors

Superlatives: Best for Simple Filing

OLT.com

OLT.com offers bargain basement pricing, but it shows in the interface. You have to pay $7.95 for tax and technical support. Nonetheless, the $7.95 also brings audit support, which offers some value.

Their clumsy user interface only allows you to import prior year tax forms from its own database. Their support articles send you to the even more confusing IRS website.

However, OLT.com offers a few bright spots. The health insurance coverage is easy and accurate. It is the only tax software that makes it easy to claim the premium tax credit for part of the year. Also, the real estate depreciation calculators are flexible enough to deal with complex circumstances.

In most cases, we don’t recommend OLT.com, but a few people may benefit.

 

Free Premium
Price $0 Federal
$9.95 State
$7.95 Federal
$7.95 State
Best For All major schedules supported Anyone who wants audit support

Superlatives: Best Interface for Health Care Premium Tax Credit

1040.com

According to 1040.com, tax filing should be smart and simple. If you’re a new filer or a freelancer with basic expenses, 1040.com delivers. 1040.com offers free live chat and email technical support. They also have support articles that are approachable and informative.

In fact, their entire software is friendly and informative. New filers are likely to appreciate the high-quality and low-cost support from 1040.com, but other simple filers can find better deals elsewhere. Their friendly interview style interface starts to falter if you’re a real estate or stock market investor. You will need to add forms that don’t have built-in calculators. This means that 1040.com is best for people with less complexity in their filing.

 

Free $19.95 $39.95
Price $0 Federal
$9.95 State
$19.95 Federal
$14.95 State
$39.95 Federal
$19.95 State
Best For 1040EZ Stock market investors Self-employed, real estate investors, itemizers

Superlatives: Easiest for New Filers

H&R Block Online

H&R Block is one of the biggest names in tax software for good reason. People with complex tax returns will love the value that H&R Block offers. H&R Block offers unlimited technical support to all filers, and phone and chat tax support for those who pay. The only disappointment is that H&R Block online filing customers do not get a free in-person audit support. This is reserved for those who purchase a $79.99 “Best of Both” upgrade or who download H&R Block’s software.

However, the H&R Block interface offsets this disappointment. H&R Block offers easy navigation, helpful interview questions, and robust articles that can help you untangle even the most complex filing situation. H&R Block’s built-in calculators are flexible enough to deal with uncommon filings. Plus, you can import most major forms, including prior year’s tax returns from competitors. This makes H&R Block ideal for anyone with complex filings.

Their software isn’t quite as easy to use as TurboTax, but it’s quite a bit less expensive. In particular, freelancers and self-employed people with basic expenses will see huge value since they can purchase the Deluxe edition.

 

Free Deluxe* Premium*
Price $0 Federal
$0 State
$34.99 Federal
$36.99 State
$54.99 Federal
$36.99 State
Best For New filers, basic filers (allows for earned income tax credit), homeowners Stock market investors, self-employed with basic expenses, other itemizers Real estate investors, self-employed with more complex expenses

*Deluxe and Premium filers can upgrade to a $79.99 “Best of Both” package. This means that a CPA will review your return and you’ll receive in-person audit assistance.

Superlatives: Best for Investors, Runner-up Best for Real Estate Investors

TurboTax

If you’re looking for the Cadillac of tax software, TurboTax emerges as the winner. Their interface is easy to use and navigate. TurboTax even allows you to import last year’s taxes from any of their competitors. 1040EZ filers will even get to file federal and state returns for free. After that, the price climbs quickly. But for many filers the high price is well worth the cost.

The interview style format makes tax filing simple, even if you’re facing a complex situation. Paying customers who get stuck can get help from tax or technical professionals. TurboTax takes their support seriously. With your permission, support staff can “draw” on your screen to guide you through tough situations.

Real estate investors, self-employed people, and small business owners will appreciate TurboTax’s robust interface. The one thing they won’t appreciate? The price of audit support. TurboTax’s MAX costs $44.99. This is the only way to get audit support from TurboTax this year.

 

Free Deluxe Premium Self-Employed
Price $0 Federal
$0 State
$34.99 Federal
$36.99 State
$54.99 Federal
$36.99 State
$89.99 Federal
$36.99 State
Best For 1040EZ/ 1040A Itemizers Investors, real estate investors Self-employed

*Anyone can upgrade to TurboTax’s MAX for $44.99.

Superlatives: Best for Real Estate Investors, Runner-up Best Interface for Health Care Premium Tax Credit

FreeTaxUSA

FreeTaxUSAand TaxHawk offer the same tax software at the same price. They are owned by the same parent company, and you can even move your profile from one site to the next. The websites aren’t pretty, but experienced filers will find everything they need to complete their taxes. You can even upload prior year’s tax returns from competitors. This is a huge value given the bargain basement pricing.

FreeTaxUSA offers two pricing tiers. Both levels support all major tax forms. You can also access chat support from tax and technical specialists from both levels. However, upgrading will give you priority access to specialists. Upgrading also gives you access to a tax specialist if you’re audited.

The name might lead you to believe you’re getting free tax filing, but you’ll have to pay at least $12.95 for state filing. Nonetheless, FreeTaxUSA is a great bargain — especially if you have a complex filing situation.

 

Free Premium
Price $0 Federal
$12.95 State
$6.99 Federal
$12.95 State
Best For All major schedules supported Anyone who wants audit support

Superlatives: Best Audit Protection, Best Bargain for Self-Employed People

Jackson Hewitt Online

Jackson Hewitt brings the neighborhood tax filing office online. They feature excellent knowledge articles and easy interview style tax filing. It’s easy to import your taxes from any major competitor or from Jackson Hewitt. This makes switching to Jackson Hewitt Online easy.

Built-in calculators make depreciation and amortization easy. However, Jackson Hewitt doesn’t offer many import options. This makes their relatively high pricing difficult to justify. Simple filers (1040EZ) and self-employed people with basic expenses may see high value in the Jackson Hewitt software. After all, they offer live chat tech support to all their customers. If you need tax support, you’ll have to upgrade to Premium to get the phone support.

Jackson Hewitt also allows online filers to pay extra for an in-person tax consultation. Prices for these meetings vary by location.

It’s important to note that this review is only for the online Jackson Hewitt software package. Magnify Money did not review Jackson Hewitt office preparations.

 

Free Basic Deluxe Premium
Price $0 Federal
$0 State
$19.95 Federal
$36.95 State
$34.95 Federal
$36.95 State
$54.95 Federal
$36.95 State
Best For 1040EZ Freelancers Investors, families with dependents, homeowners, itemizers Small business owners, real estate investors

Superlatives: Runner-up Best for Self-Employed People

 

Tax Software FAQs

Is online tax software safe?

Tax-related identity theft is the number one reported form of identity theft. However, most theft isn’t the direct result of using online software. Any time you apply for a credit card or use online banking, your information enters the digital world. If this information gets stolen, you’re at risk. Nobody can eliminate the possibility of identity theft, but you can work to protect yourself.

Part of protecting yourself involves only giving out your information on trusted websites. When you file your taxes, you provide all your personally identifiable information to a software service. You need to know whether or not that information is safe.

Every software company that we reviewed is an Authorized IRS e-File provider. This means that these sites comply with the security and business standards set forth by the IRS.

None of the software packages we reviewed will sell your personal information to a third party. Each of the software packages we reviewed requires you to use multi-factor authentication. This makes it difficult for hackers to access your personal information. These websites are as secure as possible, but they are not 100% safe.

If you think you’ve been the victim of tax fraud, contact the IRS immediately at 1-800-908-4490 to work with their resolution specialists. You will need to file an identity theft affidavit that explains that someone filed taxes in your name.

What if I don’t want to use tax software?

If you don’t want to use tax software, you can choose a paper filing option. Each state requires you to mail your check to a different office.

You can also use the IRS’s free electronic fillable forms. However, these offer limited guidance and can be difficult to use. With so many other free options, these should be a last resort.

Finally, you can hire a professional tax preparer to do your taxes for you. Be sure that the person you hire is in the Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

Should I hire an accountant?

An accountant can save you time, headache, and in some cases, money. Tax professionals must follow the tax code, but their specialized knowledge helps them pick up on deductions or credits that you might miss on your own.

In general, the more complex your tax return, the more you may want to hire an accountant. If you choose to hire an accountant, be sure that they are an authorized tax return preparer. They should sign your return as an authorized preparer.

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Featured

TRUMP VS. CLINTON: Where the Candidates Stand on Job Growth, Taxes, and Housing

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

TRUMP VS. CLINTON: Where the Candidates Stand on Job Growth, Taxes, and Housing

With the election a month away, presidential candidates Hillary Clinton and Donald Trump have just a few weeks left to woo voters across the U.S.

If you’re still on the fence about which candidate to vote for, your final decision may hinge on how their policy ideas could potentially impact your wallet.

We have simplified and broken down each candidate’s stance on three key issues — job growth, taxes, and housing — to help you understand exactly how each candidate’s proposals could affect your wallet.

Read more about their stances on college costs, health care, and family leave here > 

Jobs

hillary_final

 

Hillary Clinton plans to create new jobs by investing $50 billion in programs that promote youth employment, small business growth, and re-entry programs for the formerly incarcerated. She plans to invest another $50 billion in the Rural Infrastructure Opportunity Fund, a publicly funded initiative that seeks to invest in public infrastructure in rural areas to attract more businesses and, as a result, more jobs for the under- and unemployed.

Clinton is also a supporter of the “ban the box” movement to get rid of the box on applications that requires job seekers to select whether or not they have a criminal past. She has proposed banning such questions on applications for federal employees and contractors. She will also require companies to only consider criminal history when it is related to the job applied for and grant the right of appeal to those who are rejected because of a criminal past.

Clinton says she will invest $25 million in small business and private investment. She wants to do that through mentorship programs and by expanding federal funding for programs that target small business development.

Donald Trump

 

Donald Trump has said he plans to relax federal regulations in order to lower the cost of doing business for major corporations in the U.S., an effort he hopes will dissuade them from moving their business (and jobs) overseas.

Trump’s plan points to energy as a source for new jobs in the future. He says will make the U.S. the world’s dominant leader in energy production by scraping programs like the Environmental Protection Agency’s Clean Power Plan, a 2015 initiative led by President Obama to reduce carbon emissions and increase regulations on coal-powered plants. The plan has been stalled since February, when the U.S. Supreme Court agreed to hear a case that questions the constitutionality of the plan.

Taxes

Hillary Clinton

 

Clinton’s tax plan focuses on raising taxes on high-income taxpayers (the top 1%) and closing tax loopholes. Her plan also includes increasing estate and gift taxes. The majority of her proposed tax policies won’t affect the bottom 95% of taxpayers, according to the Tax Policy Center.

Part of Clinton’s plan is to raise taxes on higher-income taxpayers with a 4% “Fair Share Surcharge,” which would apply to those making $5 million or more annually. She also says she’ll close tax loopholes favored by the wealthiest earners in part by supporting the Buffett Rule, which would levy a 30% income tax on any individuals earning $1 million or more. The Tax Foundation, a nonpartisan research group, has warned that such a plan would provide a meager boost to tax revenue.

In addition, Clinton wants to restore the estate tax to its 2009 level. Doing so would increase taxes on multi-million dollar estates — to as much as 65% for an estate valued at more than $1 billion for a couple — and close loopholes that deflate the value of the estates.
According to the Tax Policy Center, a left-leaning think tank, which in March completed an analysis of Clinton’s tax proposal, the plan would generate an additional $1.1 trillion in tax revenue. Households earning less than $300,000 would see little to no change in their federal income taxes, according to the analysis.

Donald Trump

 

At the core of Donald Trump’s plan are tax cuts for everybody — with an emphasis on corporations and middle- and high-income Americans. Trump says he will reduce the number of tax brackets to three from the current seven.
Under his plan, the new tiers would be:

  • 12% (married filing jointly households earning less than $75,000)
  • 25% (married filing jointly households earning between $75,000 and $225,000)
  • 33% (married filing jointly households earning more than $225,000)
    *Brackets for single filers would be half of these amounts.

The Trump plan would also increase the standard deduction for joint filers to $30,000, from $12,600, and the standard deduction for single filers to $15,000. His plan would also eliminate the death tax (aka. the estate tax) and gift taxes.
Trump’s plan would reduce the nation’s income by about $4.4 trillion to as much as $9.5 trillion over the next decade, according to several independent research groups. It would also mean increased income for all income levels, with the largest gain going to the top 1%. The top bracket could see its average annual income boosted by as much as 16%, while the bottom 80% would see a 0.8% to 1.9% rise according to the Tax Foundation. The Tax Policy Center estimates that Trump’s plan could increase the national debt by as much as 80% if it isn’t counterbalanced with huge spending cuts.

Housing

Hillary Clinton

 

Hillary Clinton’s proposed policies include a $25 billion investment in housing. She plans to offer a federal match of up to $10,000 for savings going toward a down payment for people who earn less than the median income in their area. She also plans to increase access to “lending in underserved communities, support housing counseling programs and police abuse and discrimination in the mortgage market.”

Clinton says she will raise support for affordable rental housing and wants to motivate communities to try land-use strategies that may make it easier to build lower-cost rental housing near businesses. Clinton says she will also make efforts to expand living options for recipients of housing vouchers.

Donald Trump

 

Donald Trump doesn’t have a housing policy outlined on his campaign site.

Make sure to register to vote by Oct. 14.

Illustrations by Kelsey Wroten.

Read more about their stances on college costs, health care, and family leave here > 

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Life Events

Can’t Find Your Previous Years’ Federal Tax Returns? Here’s How to Get Access

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Federal Tax Returns

There are several circumstances when having a previous year’s Federal tax return can be helpful. Perhaps you need a copy for a loan application, the Internal Revenue Service (IRS) is auditing you, or you’re in the process of becoming a citizen and want to bring it to a naturalization interview. But, what happens if you can’t find it or a vindictive ex-spouse is withholding access to the document?

No matter if you lost your files, they were destroyed, or you simply didn’t keep great records, you may be able to request a copy of your federal tax return.

How to order a copy of your tax return 

If you hired a tax preparer to file a previous year’s return, he or she may have a copy of your return. Check with them first as you may simply need to make a phone call or send an email. If you filed on your own or the preparer doesn’t have a copy, you can request a one from the IRS. Copies are generally available for the current and previous six years according to the IRS website.

To request a copy of your tax return, complete and mail the one-page Form 4506 to the appropriate addresses listed in the instructions. You’ll need to fill out your name; Social Security number (SSN), Employer Identification Number (EIN), or Individual Tax Identification Number (ITIN); current address; and previous address if you moved. There is $50 fee for each copy, which you must pay with a check or money order. For copies of previous joint returns, both partners’ names and Tax Identification Numbers must be listed, but only one person needs to sign the form.

It may take up to 75 calendar days for the IRS to process your request. However, if you live in a federal disaster area, you may be able to get a copy expedited to you for free.

A transcript may suffice

Instead of paying and waiting for a copy of your tax return, a transcript may serve just as well. The transcript is on overview that includes many of the attached forms and schedules and shows most line items from your return. You may be able to satisfy the requirements of lenders, including mortgage and student loan issuers, as well as immigration services with a transcript. However, only the current and previous three years’ complete tax return transcripts are available. Transcripts of the information from W-2s, 1099s, 1098s, and 5498s may be available for up to 10 years.

You can request a copy of a transcript from the IRS for free by online, over the phone, by mail or fax, or in person.

  • Online: Fill out an application online with the Get Transcript You’ll need to provide your SSN or ITIN, date of birth, and address. When you request a transcript online, it may not include information from W-2s, 1099s, 1098s, or other income forms.
  • Phone: Call 1-800-908-9946 and follow the prompts. You’ll need to verify your SSN and the number portion of your street address. Directions are available in English and Spanish.
  • Mail or Fax: Complete Form 4506T or 4506T-EZ, which require the same identifying information as Form 4506, and fax or mail it as directed in the instructions.
  • In-Person: To request a copy of your transcript in person you can visit a Taxpayer Assistance Center (TAC). Some TACs offer appointments, but others provide services on a first-come-first-served

After making a request online, by fax, or over the phone, it can take five to 10 days to receive your transcript. It can take up to 30 days if you mail a request. An IRS representative at a TAC may be able to get you a transcript immediately although there could be a wait to meet with someone if you can’t make an appointment. An alternative way to quickly get a transcript is to call the IRS at 1-800-829-0922 and request the representative fax you a copy. You’ll need access to a fax machine and may need to wait on hold, particularly during the busy tax season.

Safe ways to keep copies in the future

Sometimes the loss of tax return is inevitable, but there are steps you can take to decrease the likelihood of missing a tax return in the future. Always print or store a copy after you file a return. Consider purchasing a fireproof safe to store paper copies of your returns at home. You can also save electronic copies on a thumb drive and keep it in a safe deposit box at a local bank. Although it’s a relief to know that the IRS keeps records for a while, there may be times when you need copies of even older tax returns.

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News

7 Ideas for What to Do With Your Tax Refund

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Tax return check

If you’ll be getting a refund on your taxes from 2015, you might consider this one of the best times of the year.

A tax refund can make it all too easy to take what feels like a windfall and spend it haphazardly. Now, if you’ve been scrimping and saving throughout the year, we’re all for using some of your hard-earned cash to tactfully splurge every now and again, but with even just a little bit of a plan, you can probably figure out the best way to spend that tax refund money that won’t leave you feeling like it was a complete waste.

Here are some ideas.

1.Restock your emergency fund

Particularly if your emergency fund took a hit this past year for whatever reason, or if you’ve not yet started one at all, using some — if not all — of your tax refund to get a leg-up on rebuilding it is a great idea. Think of this plan as having multiple benefits. For starters, it’ll provide you with piece of mind that if something happens that’s out of your control (your car breaks down, the roof starts leaking or you end up with hospital bills outside of your health insurance coverage), you’ll be able to pay for it, and even more than that, taking care of it won’t require you to go into credit card debt to do so, because you’ll have the cash on hand to pay. Remember, this money should be easily accessible in a savings account, and now is a great time to set one up. Check out this piece for some of the best online savings account options right now, and this one for how you can earn even more money by opening a high interest savings account.

2. Put it into your retirement account

Whether it’s your 401(k), your Roth or a Traditional IRA, putting your tax refund into your retirement account is a great way to grow your money. Just make sure you stay on top of contribution limits for the year so you don’t get penalized. Check out this page for more info on what the IRA contribution limits are for 2016.

3. Pay off debt

Whether or not you’re already on a path to pay down debt, every little bit that can help you reach that goal more quickly should be taken advantage of. If putting even a small tax refund towards your credit card debt will help you pay it off in a shorter amount of time, that would definitely be money well spent in our book. Check out this article for three ridiculously simple methods to pay off debt.

4. Paint your house (or invest in that new front door, get those new kitchen cabinets, upgrade those bathroom fixtures, etc.)

If you’ve been holding out for the perfect time to do a little home improving, your tax refund might be just the incentive to get moving. Not only is spring the perfect time to take on a few projects (it’s ripe for home sellers, and the weather’s perfect for all those DIYers out there), but investing your tax refund into upgrading your house will help you enjoy it for however much longer you live there plus it could seriously help with the resale value of your home whenever you do decide to sell. Just be sure you know when to stop funneling cash into home improvements.

5. Plan a vacation that you can pay for

If you’ve always had to put your vacations on a credit card before, use your tax refund as an opportunity to actually start saving now for the vacation you deserve, that way when the time arrives you can really relax, knowing you haven’t put yourself into more debt to get away for a couple days. Use this article to figure out some big ways to save on travel.

6. Invest in your career

Whether it’s that coding class you’ve been itching to take, the leadership seminar you’ve wanted to attend or the totally out-there, pie-in-the-sky children’s book writing intensive that you’ve had your eye on, investing in classes, seminars, talks and hobbies that will help further your career (or the career you want to have) is almost always a good idea. While we’re at it, here are five other things that it’s almost always worth spending a little extra money on.

7. Put it into your child’s college fund

If you have kids, one of the best things you can start doing for their future today is to begin putting money into a college savings fund for them. While it doesn’t have to be a 529 plan, exactly (although it could be – check out this story about three things you might not have known about 529 college savings plans, and this one about three alternatives to 529 college savings plans) every little bit you can start putting away today will really help them in the future when it comes to determining just what colleges they can afford to attend.

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Reviews

Review: OnLine Taxes Tax Prep Software

Advertiser Disclosure

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

OnLine Taxes Tax Prep Software

OnLineTaxes, or OLT.com, is an online tax preparation platform that provides free service to those with even the most complicated returns. It doesn’t matter if you have to report dividend interest, freelance income, or rental properties; the one-size-fits all price is $0.

Tax Prep Process

To start using OnLine Taxes, you will need to set up an account. No credit card information is requested. From there you start giving your basic information, including name, address, Social Security number, dependents, and health care coverage information.

OLT1

Health care information, such as Form 1095-A for those who bought a plan on the marketplace, and W-2 input forms are set up almost identically to the paper forms you received in the mail, making the input process relatively easy.

OLT2

Under “Additional Information,” you will be asked to provide your driver’s license or state ID card information. Many states have started asking for this information when filing state tax returns in an effort to reduce fraud. At this point in time, the only state that has mandated it as a requirement is Alabama.

OLT3

You’ll then move through all of your income information. OnLine Taxes provides an interactive checklist that allows you to enter only the sources of income applicable to your specific situation. It is grouped conveniently by: wages, salaries and tips; interest and dividends; investment income; retirement and pension income; miscellaneous income, which is especially common for freelancers; self-employment, landlords and farmers; other investment income; gambling income or losses; and “other types of income,” which catches all the other random ways you may have pulled in money in 2015.

As you move through the process, OnLine Taxes keeps you updated on your estimated return or tax due via the “Federal Tax Due” box in the upper righthand corner.

OLT4

For those that are required to file a Schedule C, OnLine Taxes essentially walks you through the form line-by-line. Wording isn’t made any more user-friendly than if you were filling the form out yourself, but the sidebar contains an interactive glossary and “Useful Links” section that serves to clear up any questions you may have.

OLT5

After completing your income, you’ll move into adjustments that could potentially lower your adjusted gross income (AGI.) This section is set up categorically in a similar vein to the income user interface. You will then be asked if you would like to itemize or take the standard deduction.

Next, you’ll input any additional taxes due. When we ran this test, the program automatically calculated additional healthcare-related taxes, though it is a good idea to run through each potential tax in case there are any other areas in which you may owe.

Credits, payments, and other miscellaneous information are set up in a checklist like previous sections, and need to be completed before you’ll be able to review your summary. The summary will pull up any incomplete data and warnings before allowing you to file. For example, our fictional filer needs to get an IRS-issued PIN, find out the contact information for their school and file additional forms for tax penalties owed.

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Overall, OnLine Taxes is intuitive, but not as user-friendly as some other, higher-priced programs. It requires a bit more manual labor, and a basic understanding of how tax law applies to your individual situation.

[7 Best Online Tax Prep Software for the Self-Employed]

Pricing

It is difficult to beat OLT.com’s pricing. Federal returns are free for everyone, with state returns available for $9.95. Customer service is only available via email, but if you upgrade to Premium Edition, live chat and phone support is available. This package also gives you access to audit support. Premium pricing is $7.95, and state returns are reduced by two dollars to $7.95 under this pricing model.

The only additional fee you could end up paying to OnLine Taxes is a $29.95 charge for paying for your state return filing fee or Premium Edition via a reduction from your tax return. If you pay upfront, there is no additional charge.

[Best Tax Software for 2016]

Who Should Use OnLine Taxes?

If you have a firm grasp on the tax regulations you are subject to, you’ll have a hard time beating OnLine Taxes when it comes to value. The pricing model is particularly attractive to those who have complex tax situations that require filing multiple forms. Since customer support is so limited, you may want to steer clear if you have burning questions about deductions, credits or liabilities.

However, if you’re willing to cough up $7.95 for the Premium Edition, access to phone support may negate those concerns. It is a far cheaper option than paying for a simpler user interface on competitors’ products, which can run you over $100 if you are filing a complex return.

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News

The Lesser-known Way to Save Some Money on Taxes

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Way to Save Some Money on Taxes

Right about now is the time you’re probably chomping at the bit to figure out any and every deduction and write-off you possibly can in order to not pay an exorbitant amount of taxes this year. Business expenses, dependents, first-time home purchases … these are all things most people are already aware can help save them some cash when tax time rolls around. One thing some people might not consider, though, is how their retirement account — and specifically their IRA — can help reduce their tax obligations.

When it comes to retirement accounts, the gist with traditional IRAs is that an account holder gets to invest her money now and avoid paying any taxes on that money until the time when she takes that money out later.

More specifically, here’s how a traditional IRA works when it comes to:

  • Returns on your investment: For things like interest, dividends and capital gains, someone with a traditional IRA isn’t required to pay taxes right away, which means they might be able to save more (and earn more in interest) over the long haul than they could have if they had to account for paying taxes on top of their savings efforts.
  • Your current income: Depending on your income, marginal tax bracket and the amount of money you’re able to put into your IRA this year, you might receive a nice little deduction on the amount of earned income you claim for taxes. This is because you aren’t required to pay any income taxes on that amount until you remove the money from your IRA. In most cases, in order to qualify for this type of deduction you must not have access to an employer-sponsored retirement plan. (So someone who is self-employed, for example, would be eligible for this benefit.) The exception would be if you make less than $61,000 in any one year. In that case, you would be able to deduct your IRA contributions regardless of whether or not you have access to another retirement account through work.

All of this is to basically say, if at all possible, it’s always a fiscally responsible idea to put as much as possible (the actual amount you can put away each year changes and varies based on income, check with the IRS site to be sure) away in an IRA. This will not only help you build a more solid financial future for retirement, but it will also help you out when it comes to taxes in the present day. We like to call that a win-win situation, and it’s pretty cool when that happens.

Check out this piece for more on how traditional IRAs can help you save on taxes.

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News

Why a Tax Refund Advance Might Not Be the Best Way to Go

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Tax return check

It’s March, so we’re sure taxes are weighing heavily on your mind right now. With only a few weeks left to get them done, you might be struggling to gather together all the information you need, and one small question might still nagging you throughout the whole process — just how long will it take me to get my refund once I do all this, anyway?

No one likes having to wait around for money, so the idea of a tax refund advance — where a lender loans you the money (in “advance”) for your refund that you will then repay for a fee (usually based on what your tax refund will be) — might seem like a good idea right about now.

But they’re really not, and here’s why.

For starters, let’s talk about those fees. For the most part, they are usually extraordinarily high. If that’s not enough, the amount of interest you’ll owe is based on what you expect your refund to be, meaning that even if your refund ends up being less than that number, in most cases you’ll still owe interest based on the higher amount.

Unfortunately it’s getting easier and easier to find companies that offer tax refund advances these days, or other similar options for lines of credit. For example, be on the lookout for companies like US Tax Center at IRS.com (this is NOT the real Internal Revenue Service, and this company has no affiliation with the true IRS whatsoever, despite however “official looking” their website may appear) or Income Tax Advances.

Rather than using a tax refund advance service that will rip you off, try e-filing to ensure you get your refund as fast as possible (which helps eliminate long waiting periods), consider a personal loan (here are some of the best ones) or look into a credit card balance transfer, if it’s credit card debt you’re hoping to pay off.

For more on tax refund advances and why they should be avoided, check out our in-depth post here.

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Reviews

Review: Free1040taxreturn.com Tax Prep Software

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Tax Prep Software

Do a quick web search for tax filing software and you’ll get thousands of hits, one of them being Free1040taxreturn.com.

Free1040taxreturn.com is available to any consumer, but also through the Free File program lead by the Federal government. The purpose of the program is to give middle-income earners an opportunity to file their tax return at no cost.

If you’re under 70 years old with an adjusted gross income of $62,000 or less, you can qualify for Free File through this website, unless you live in Florida, New Hampshire, Nevada, South Dakota, Tennessee or Texas.

In this post, we’re going to go over how to file a tax return on Free1040taxreturn.com from start to finish.

[Free Tax Filing Options for Every State]

The Tax Prep Process

The first step of this process is similar to most online tax software. You create an account and choose the tax form you want to fill out. The options on this website are the 1040EZ, 1040A and 1040.

For the purpose of this example, I used the 1040ez form. This is an express form for taxpayers who make under $100,000, don’t have dependents and are single (or married filing jointly). When using the 1040EZ form, the only credit you can take is the earned income credit. And you can’t claim any adjustments to income.

These are the fields you’re asked to fill out in the first section:

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Next, you’ll answer questions about your filing status including whether you have dependents, if you’ll be using the earned income credit and if you’re exempt from health care coverage.

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The final page of introductory questions are the birthdates of you and your spouse, if you’re filing jointly, and which state you need to file taxes for.

[7 Best Online Tax Prep Software for the Self-Employed]

Entering Taxable Income

Moving on to wages. In the income section, you enter the information from your W-2. Unlike other online tax software like TurboTax and H&R Block, your information doesn’t auto-populate when you put in the Employer ID. So, you’ll have to check and double check the W-2 page to make sure you’re reporting the right wages, tax withheld, etc.

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State Tax Returns

From the W-2 section, Free1040taxreturn.com takes you directly into a state questionnaire. There you answer questions to figure out how much you owe for State tax.

And that’s it for form 1040EZ. You move on to a page to calculate your tax return and it will tell you how much you’re going to get in a refund or how much you owe for Federal and State tax.

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The Free1040taxreturn.com Help Center

The website has a help area, but it’s antiquated. There’s a pull-down menu you can click through to find answers to your own questions. If you have questions not answered in the support center you can submit a message form on the “contact us” page. A customer service representative will get back to you within 24 hours.

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Free1040taxreturn.com Benefits and Costs

Free1040taxreturn.com guarantees security, has a 100% accuracy guarantee and no hidden charges. If you used the site in the past you can transfer information from your last return to help you answer questions for the current year.

According to Free1040taxreturn.com, refunds will be in your account within 21 days of the IRS accepting your return. This site also provides federal tax return extensions for free which can come in handy if you can’t file your taxes before the April 18th deadline.

As mentioned, Free1040taxreturn.com is free unless you live in Florida, New Hampshire, Nevada, South Dakota, Tennessee or Texas. If you live in any of these states the tax return will cost $9.95.

If you meet the requirements for free Federal filing and live in Arkansas, Iowa, Louisiana, Oklahoma or West Virginia, you can also file your State tax return for free. Otherwise, State tax returns cost $19.95.

[Best Tax Software for 2016]

Who Should Use Free1040taxreturn.com?

This site is for someone with a very simple tax return. The software is compatible with many tax forms including the Schedule C, 1099-INT, 1099-MISC and others (find a full list here), but the website loses points with user friendliness.

There isn’t a robust help center section you can turn to for guidance. There doesn’t appear to be a phone number on the site you can use to reach out to someone directly either. And when you’re finished with the tax return (at least for the 1040EZ form) there isn’t an audit process other than reviewing a .pdf of your tax return.

If you’re looking for a software that’s intuitive, this probably isn’t the one. And for those hoping to take advantage of the Free File program, there’s other easy-to-use online tax software available.

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