By now, if you live in the US, you should have received all (or most) of the forms you need to file your taxes. If you haven't already finished filing yours, you may want to look below for some timely reminders.
Before we get to the good stuff, I have an administrative note: I recently revamped the mailing list for announcing these diaries. If you want to get an email announcement each week when a new diary is posted, send me email: frugalfridays (at) gmail.com and I'll add you to the list. If you didn't get an email this week, you are not on the current list.
Free and Easy Filing
Free is one of my favorite words, and here are some great ways you and file your taxes at no (or minimal) cost:
- Free Tax Software: If you have a fairly straightforward return, you can use free versions of the most popular tax software to fill out your forms and efile your return all for free. All three of the big software providers: TurboTax, H&R Block and TaxAct offer this service, but the features and forms you have access to are not identical. You will need to do a bit of investigation to determine which software is best for you. Warning: Be very careful when you are clicking through the program that you don't accidentally accept an upgrade. That can add $30 or more to your "free" filing before you realize it.
- Free Forms from the IRS: If your taxes are too complicated to use the free software, but you don't need someone to check your math and your entries, you can use the on-line forms from the IRS and then file your return electronically. It's more work than using helpful programs, but it is about as cheap as you can get.
- California Ready Return: If you live in California, and you have a very straightforward return, you are in even more luck. The state has a pilot program called Ready Return that actually completes your state return for you. All you need is your social security number and the state will use the information that has been filed with the state by employers and such. You don't even need to enter your W-2 information, the state has it all for you already.
- SnapTax for California iPhone users: This is only available for California residents, and it's not free, but for $9.99 you can download an app to your iPhone that lets you take a picture of your W-2 and then file your taxes from your phone. It doesn't get a whole lot easier.
- Free Tax Help: If you need some free tax advice, you may be in luck. There are free programs for low and moderate income taxpayers, elderly taxpayers and members of the military:
- If you earned less than $49,000, the Volunteer Income Tax Assistance Program (VITA) can help you fill out your tax forms. Call 1-800-829-1040 to find a location near you.
- If you are aged 60 or older, the Tax Counseling for the Elderly Program can assist you. Call 1-800-829-1040 for more information.
- If you are a low or moderate income earner, particularly if you are elderly, the AARP would like to assist you as well. Click here to find more information and a site near you.
- If you are member of the armed services, The Armed Forces Tax Council can help. Again, call 1-800-829-1040 for more information
If your tax situation is too complicated for filing using these free options, you may want to purchase software to help you. There are several options for you to consider: which software? which version (they all offer multiple versions with different features)? online or desktop version? To help you sort through these options, you may want to look at this comparison from CNET: Taxes 2009: TurboTax vs. H&R Block vs. TaxAct or this one from the New York Times: A Side-by-Side Look at Tax Software.
What Can Trigger an Audit?
If you are like most people, the mere words "IRS audit" are enough to make your blood run cold. Here are some things you can do to help avoid audits or to help you escape the process unscathed:
- Don't make much income: Just like Willie Sutton and his bank robberies, the IRS is more likely to go after high income earners, since "That's where the money is." If your AGI is over $200,000 you are more likely to be audited than a lower earner.
- Don't be too charitable: The IRS can be suspicious of high valued charity donations, particularly if they are large compared to your income level. If you do donate a lot to charities, but sure to get receipts. You may want to use a program like TurboTax's ItsDeductible or H&R Block's DeductionPro to help you accurately value your donations. If you are wondering which of these is better for you, check out this review from Consumer Reports.
- Have a business, not a hobby: The IRS is highly suspicious of self-employed people who report net business losses. If you have your own business, you need to have made a profit in at least 3 of the last 5 years. Any less than that, and the IRS will consider this a hobby, not a business. If you do own your own business, keep your business bank and credit accounts separate from your personal ones and keep thorough records.
- Report your overseas bank accounts: Foreign banks are now cooperating with the IRS to report on activity by US residents. If you have overseas accounts and don't report them, that can raise a flag at the IRS.
- Check your math: One nice thing about using tax software is that you can rest assured that your return is free from simple math errors. If you fill in forms by hand, check them twice to make sure that you not only did the calculations correctly, but that you entered the right number in the right spot and didn't make any typos.
Often Overlooked Deductions
Another benefit of using tax software is that it will often prompt you to take deductions you may have forgotten, or not been aware of. Here are some deductions that are often overlooked. Some of these are subject to the 2% AGI threshold, which is why you may need to consider every little thing to make them add up.
- Homes:
There are a bunch of deductions associated with home buying, owning and selling, other than the mortgage interest and property tax deductions, here are some more you may qualify for:
- Homebuyer's credit: If you bought your first home in 2009, or if you bought a replacement home, you may be eligible for a tax credit.
- Property Tax Deduction for those who don't itemize: No longer do you need to itemize your deductions to take a property tax deduction for your home. Even those homeowners who file forms 1040A can add $500 ($1000 for married filing jointly) to the standard deduction.
- Expenses when selling your home: Some of the expenses you incurred when selling your home, such as realtors commissions or closing fees, may be deductible. In addition, any improvements you made during your ownership may increase your basis and thereby decrease your gain.
- Home Improvement Tax Credits: If you made an energy efficient improvement to your home, you may be eligible for a tax credit.
- Cars: In general, owning a car is a money pit, but there are some tax advantages:
- Vehicle license fee: A portion of the fees your pay to the state to license your car each year may be tax deductible.
- New car purchase: If you bought a new car in 2009, you can deduct the state, local and excise taxesyou paid.
- Charities:
- Haitian Relief: If you donated to a Haitian relief charity in 2010, you can take a deduction on your 2009 taxes. Donations made between January 12 and February 28, 2010 qualify.
- Out of Pocket Costs: Expenses you incur for charitable causes also may be deductible. These can include mileage and parking expenses if you drove your car, other transportation costs if you paid for transport, and out of pocket expenses, such as the ingredients you bought to make cookies for the bake sale. You can even deduct any wages you paid to someone so that you had time to volunteer. For example, if you hired a babysitter so that you could go to a volunteer event, you can deduct those fees.
- Many, Many More: This list just scrapes the surface of some of the tax deductions you may qualify for. Here are some more lists to look at: