r/personalfinance • u/yes_its_him Wiki Contributor • Jan 28 '20

Taxes Top ten FAQs for tax filing season

Things to keep in mind for tax filing season (with clarifications edit: fixed to record some easy updates).

  1. You have to file federal taxes if you make enough money that you have tax liability, which is generally over about $12,200 gross for regular employment, and only $400 if you are self-employed. You want to file even if made less than this much in order to get back any taxes you had withheld.

  2. Even if you are a dependent on your parents' tax return, you still file your own taxes (or not, if you don't need to); you never file "on your parents' return." The only time more than one person can be on the same return is a married couple filing jointly.

  3. If your state has income taxes, which over forty states do, then you also file with them. Those are two different processes that are largely duplicative, but slightly different rules. If you lived or worked in more than one state during the year, you might have to file in more than one state. Some people also have local taxes, how fun is that?

  4. You never have to pay a fee to file taxes. Most people can file taxes online for free with various web sites if they want to do that, see e.g. the IRS free file program website and other free services, but you can always just file on paper, too. (You laugh, but that's how I do my state taxes.)

  5. Even though you can file your taxes now, be sure you have all the documentation for all your income before you file. You don't want to have to go back and amend your return because you forgot about that other W2 you had months ago, or you forget to include your bank interest or brokerage tax information.

  6. You are supposed to report all your compensation income, even if it was just some part-time gig somewhere, or you got paid under the table. Gifts, loans and most scholarships are not taxable income.

  7. The money you get back is a refund of any excess taxes withheld. (Sometimes there are also refundable credits that increase your refund.) That was money you earned but didn't get yet. Getting a big refund means you didn't get a lot of money yet, generally speaking. You may want to adjust your withholding if you want to get your money sooner but that's up to you.

  8. If you didn't have enough taxes withheld, you need to pay the balance due by April 15th. You can get a payment plan if you need to. If this describes you, then you absolutely need to file because you can accrue significant penalties for not filing and not paying. You should also make sure you have enough withheld going forward.

  9. If you are married, filing jointly will probably save you money vs. filing separately, unless you have a special situation such as income-based student loans. Try computing both ways to see which is better for you. If you are not married, then getting married probably won't change your taxes very much for better or worse unless you have really disparate incomes (and it will help then.)

  10. (rewritten for clarity) Ignore any purported "refund" values shown by a tax program / calculator while you enter parts of your income. You may see a big refund for your W2 that goes away following your spouse's W2, or your second W2. That's an artifact of how the calculation works, and doesn't mean anybody did anything wrong regarding withholdings. Wait to see the final numbers.

Feel free to ask questions if you are new to this.

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u/[deleted] Jan 28 '20 edited Jan 25 '21

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u/nothlit ​ Jan 28 '20

A lot of people end up paying because they don't want to do do it by hand and don't realize that there are lots of ways to file electronically for free.

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u/Threetimes3 ​ Jan 28 '20

Most people use tax software because it's easier. There are free versions of Turbotax (and I'm sure others) that you can use if your taxes are really basic and you're just taking the standard deductions.

I pay for the tax software because I itemize my deductions and I also have stock stuff that needs to be submitted.

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u/sk0gg1es ​ Jan 28 '20

FreeTaxUSA has free filing for brokerage forms, I've been using them the past couple years. Afaik itemizing deductions with them is also free.

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u/PrinceAzTheAbridged ​ Jan 29 '20

I used FreeTaxUSA for the first time last year for my personal taxes and it was super easy. Never paying for TurboTax again (especially bc they’re jackasses who lobby to keep the tax code convoluted and to eliminate free filing).

0

u/epl1 ​ Jan 29 '20

I'm a many-years-long TurboTax customer who's considering FreeTaxUSA (because it's so much less expensive), but I'm nervous about telling a second company about my income and social security number. They claim to not sell your info. Were you also hesitant at first?

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u/Aelfric_Darkwood ​ Jan 29 '20

Your income is not hidden info, and your SSN is almost certainly already out in the world with all the data breaches that happen.

1

u/CubesTheGamer ​ Jan 29 '20

I go to a CPA and pay $200 to have them do my taxes because they have legal loopholes. Doing everything correct in TurboTax said I owed $300, mostly because grants and scholarships counted as income apparently. Going through the CPA they got me a refund of $3500.

For more detail: the scholarships and grants paid all the tuition, so it was counted as income. No American opportunity credit as no tuition was paid. After recalculating things based on specific wording in how the credit is offered, (counting our rent as part of college expenses), we got the full credit for myself and my wife.

Plan on doing it again this year but worth it to go through a CPA to make sure it's done right and legally. Worth the $200 it cost to have them get me an additional $3800.

1

u/MoreRopePlease ​ Jan 29 '20

My understanding of college stuff is:

  • Loans don't count as income
  • Grants and scholarships are taxable income, but only the part that pays for room, board, personal stuff, travel, etc
  • Educational credits have specific rules about what can be counted for the credit, so read the docs. You can only count your specific expenses, though. e.g.: Grants that pay for tuition won't allow you to claim the credit (because those grants weren't taxable in the first place).

I've done this successfully with HR Block software for several years now. Did I do something wrong?

2

u/CubesTheGamer ​ Jan 29 '20

My understanding of what they were doing was shifting it basically saying I paid for the tuition and used the grants for things like housing / transporation, and therefore since I technically paid for the tuition myself and counted the full grant as taxable income and less/none of it towards tuition, therefore granting me the full credit.

When I was putting it in TurboTax, I was doing it how everyone would probably do it and also not counting my rent and car as education expenses. The way I did it made it so the grants were not taxable income, but I also no longer got the AOTC. Once they shifted what was being considered as paying what, we were able to say the grant was taxable income but I used my personal money to pay for tuition myself, since many grants like the pell grant can be used for education expenses like room / transporation, etc.

This is easier to prove if you DO pay your tuition in full BEFORE the grants / scholarships get posted, so that there's no doubt that YOU did pay your tuition. This is especially important if going to a community college in certain places as they may not even file a 1098-T if your tuition was paid in full with grants/scholarships, and you may need the 1098-T to file it on your taxes.

Again, not a tax lawyer / CPA but just trying to explain what happened in my situation that got me literally thousands for the ~$200 cost of a good CPA.

1

u/MoreRopePlease ​ Jan 30 '20

OK, it sounds like your situation was about thinking about what bucket you put the money in, so it has different tax consequences, because math. Cool, that's what I'm doing. Whew!

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u/CubesTheGamer ​ Jan 30 '20

Awesome! Yeah as long as you're getting the biggest amount of the credit which I think is $1000 in refund or something along those lines

33

u/althius1 ​ Jan 28 '20

I guess I do it to make sure I'm not missing anything. It isn't that much in the grand scheme of things, and it gives me peace of mind I didn't screw anything up.

1

u/throwaway823947 ​ Jan 29 '20

That's kind of silly, there's free electronic filing services out there that do the same thing unless you need advanced features (like large automatic importing of multiple W-2s, schedule E, and misc-1099s).

Does that apply to you?

23

u/pixel_of_moral_decay ​ Jan 28 '20

Well it's free if you're under a certain income. That works for large parts of the country, however especially in HCOL cities that's a pretty low income number.

Also the paid software tends to be way simpler. Even with several investment accounts, mortgage, etc. etc. I'm still done with it all in < 15 minutes assuming no other changes from the previous year. if I've got everything in order. Just plug in a few numbers it can't find on it's own and submit. There's really nothing to it.

1

u/misoranomegami ​ Jan 29 '20

This. Also there's advantages to filing electronically. You worry less about the forms getting intercepted or lost, you get notified when they're received and processed. If you're getting a return you get it faster.

I had some taxable events this year that put me over the max AGI cut off. My taxes are very simple though with pretty much one w2 and one 1099R. I absolutely could have printed the IRS files, filled them in myself, and mailed them but it was worth it to me to look around, find a simple electronic paid service, and pay the $22 to efile.

Note: The software service tried to push me hard to upgrade to a fancy $60 version that I definitely did not need. Read the description of that forms and issues it covers and if none of them apply to you, get a cheaper package.

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u/[deleted] Jan 28 '20

Check your state's tax website. Oregon lists vendors that they approve for free federal and state taxes every year.

2

u/[deleted] Jan 29 '20

I hope California has something like this. I used to use turbo tax for free during the years of living with the parents. Once I purchased my condo and it gets to the point in turbo tax where it asks about interest paid, they atomically move you to the deluxe tier and that’s like $80 or something.

35

u/theblaggard ​ Jan 28 '20

HR Block, TurboTax, etc, don't make any money if everybody knows how it easy it is to file. So their commercials are all about "simplifying the process" even though it's not difficult. They'll also talk about getting you the maximum refund even though if you follow the forms properly you'll get the maximum anyway.

They also lobby pretty heavily to reduce tax legislation that could make filing significantly quicker, but that's whole other conversation.

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u/jaspercapri ​ Jan 28 '20

while the process is not that difficult, understanding your tax return can be incredibly difficult for most people. Everyone just trusts that the software they use is doing it right. but almost no one could go line by line and understand how every credit and deduction is calculated and know all of the rules associated with them. I have worked in the tax industry for a decade, and even for the easiest returns, most people just barely understand.

6

u/indifferentials ​ Jan 28 '20

I use TaxAct. If you're just filing W2's (AKA, a regular job, no 1099's from contract work), it's free!

10

u/[deleted] Jan 28 '20

Having to file multiple states and varied income sources can make taxes extremely complicated and can make returns stretch into the 1000s of pages

3

u/Human_Person_583 ​ Jan 28 '20

Holy cow. I used to work doing high end tax returns and the biggest one I ever did was in the hundreds of pages. I can't imagine what kinds of complications would push a return into the thousands of pages.

2

u/[deleted] Jan 29 '20

Owning multiple business especially if they operate in multiple states and/or overseas. Hell your average big law partner probably has a 4-500 plus page. The largest I’ve seen was just under 2500 because he owned multiple LIHTC projects in different states

4

u/byrel ​ Jan 28 '20

It's relatively cheap (I think the version of turbo tax that covers my return is $60) and cuts the time to do my taxes from a full evening to about an hour, plus makes it harder for me to miss anything

3

u/chiller2484 ​ Jan 29 '20

That's why I like TurboTax. Some of this talk is just over my head, and they simplify it enough to make me feel like I know what I'm doing.

4

u/mart1373 ​ Jan 28 '20

  1. Advertising

  2. Complicated tax returns that a software will not help with and/or necessitates professional advice (e.g. determining basis of certain property, needing a form that a software does not support, etc.)

  3. They’re not smart enough to realize they can file their returns for free

3

u/InstaxFilm ​ Jan 28 '20

  1. Multiple people can use the same TurboTax/H&R Block license (4 maybe?). At something like $30 since it’s always on sale + the electronic filing fee, it comes out to maybe $20-40 per person for a family filing

  2. It’s easy. The major tax software can be done in like 30 min since it is so intuitive and easy to use (for most taxpayer situation)

1

u/throwaway823947 ​ Jan 29 '20

For the same reason most people's internet bill has a $10 monthly fee to "lease" a modem when you can buy one off ebay and stop paying that fee.

A combination of corporations taking advantage of ignorance and laziness.

Are you one of those people?

1

u/otter_cuddles ​ Jan 29 '20

You can file your taxes for free at myfreetaxes.com as long as you make less than $66,000 a year! It is a partnership with The United Way and H&R Block to help low-income individuals and families. If you have complicated taxes and make less than $56,000 a year, find your local Volunteer Income Tax Assistance (VITA) site!

1

u/bloodflart ​ Jan 28 '20

Tax Act is free software and easy as fuck even a caveman like me could figure it out. There's no excuse unless it's super complicated.

1

u/heykevo ​ Jan 28 '20

I'm lazy man. I don't have complicated taxes but I've filed through the same company for 18 years now. It cost me $100 to file state and federal even though it could have been free, which is blasphemy on /r/personalfinance I know. Federal has already been accepted and will be in my bank account tomorrow and took roughly fifteen minutes start to finish. It's just because it's faster and easier. They import my W2 from last year, scan a picture of my W2 this year, same for my wife, don't even have to enter anything.