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Archive for 'Tax' Category

How to choose the right tax software

Published 3/27/13

How to choose the right tax software By Peter Andrew

When I wrote 3 tips for avoiding an IRS audit last month, I was amazed by two statistics my research turned up: The National Taxpayer Advocate's 2012 report reckoned that nearly 60 percent of federal filers hire tax preparers, while another 30 percent use commercial software for their filings.

In my mind, another icon of Americana crumbled: No longer do most moms or dads perform the annual ritual of grim evenings spent at kitchen tables, growling at passing kids and muttering under their collective breath as they wrestle with piles of forms, receipts, pencils and erasers. Now, it's all outsourcing, laptops, tablets and even smartphones -- appropriate, I suppose, for modern America.

Of course, it's the ritual, not the reality, I miss. It's hard to get nostalgic about an annual stress-fest that saw millions with lousy arithmetic skills struggle to meet their obligations. How much better to let someone else or an electronic device take the strain. And, as families cut back further on unnecessary spending, it may well be that cheap -- or free -- software applications and e-filing services could become increasingly popular. So what do you need to know when choosing your tax-filing package?

Online or on-board tax-filing applications?

The first thing you have to decide is whether you want to buy or download an application that's going to save your results onto your computer, or one that operates in the "cloud" as a browser-based e-filing service.

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The problem with that large tax refund

Published 3/21/13

The problem with that large tax refund By Jennifer Goforth Gregory

I excitedly told my father that I was getting a large tax refund, expecting him to be as happy as I was. I was 22 years old. I had been working at my first professional job for less than a year and struggling each month to pay rent. To me, the $4,500 IRS check headed my way was the equivalent of winning the Powerball lottery.

But instead of being happy for my windfall, my father, who has worked his entire career in the financial and banking industries, gave me a gentle but firm lecture about how I had given the government an interest-free loan on my money.

Who doesn't like lump-sum payments?

I was not alone in my joy over a large refund. According to a March poll from the National Foundation for Credit Counseling (NFCC), 58 percent of people intentionally receive an income tax refund instead of keeping a larger portion of their take-home pay throughout the year. But as my dad so wisely pointed out, this really isn't the best financial move.

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3 tips for avoiding an IRS audit

Published 2/22/13  (Modified 3/14/13)

3 tips for avoiding an IRS audit By Peter Andrew

One of my favorite films is "Le Dîner de Cons" (The Dinner of Fools). Yes, it's French. But it comes with subtitles, and I can read. And it's about the funniest movie I've ever seen.

In it, a group of ghastly, elitist Parisian businessmen meets for dinner every week, and its members take turns to invite the most boring and/or stupid person they can find -- just so they can make fun of him or her. One week, one of these insufferable snobs brings along a minor civil servant, whose hobby is (guffaw, guffaw) making matchstick models of public buildings. Unfortunately for the group, the man is also a tax inspector, who subsequently sets out to wreak righteous revenge through his job. Add in troublesome wives and mistresses, and you have all the ingredients of a truly hilarious farce.

Tax audits may be funny when they happen to other people (especially, perhaps, if they're European snobs), but they're a whole lot less amusing when you're the one on the receiving end of them. You can't eliminate the chance of your being audited, because a small number of filers are chosen at random each year by computer. But here are three ways in which you can keep improve the probability of your flying below the IRS's radar:

1. Check your work

Nobody enjoys filling out tax forms, but it pays to take care when you do. One of the commonest audit triggers is incorrect math. Unless one of the characters in "The Big Bang Theory" was based on you (and not the ditzy neighbor), use a calculator or specialist software.

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Which is better, a tax deduction or a tax credit?

Published 3/22/12  (Modified 3/30/12)

By Marc Pearlman

A common misconception among taxpayers is that a tax credit is the same as a tax deduction. This is not only false, it's a potentially expensive case of mistaken identity.

Simply stated, tax deductions reduce taxable income. A lower taxable income translates into fewer taxes paid by the taxpayer. The IRS has created two methods for utilizing tax deductions. A taxpayer can either take a standard deduction or take itemized deductions. There are a few factors to consider when deciding which route to go.

The easier of the two routes is the standard deduction, which the IRS makes available to the majority of taxpayers. However, familiarize yourself with eligibility requirements before arbitrarily going this route. For example, a married individual filing a separate return whose spouse itemizes deductions must also itemize.

The standard deduction amounts are set forth by the IRS and are adjusted yearly based on filing status and inflation. While taking the standard deduction is the easier of the two methods to calculate, the standard deduction may not save you the most money. This is when the itemized deductions may come into play. If itemizing your deductions will save you more money, then it is prudent to itemize and is worth the extra work.

Itemizing deductions often benefit taxpayers who paid interest or taxes on a home, had big out-of-pocket medical expenses, made large charitable donations or had sizable unreimbursed employee business expenses.

A tax credit, on the other hand, is a dollar-for-dollar reduction of taxes owed. Tax credits are valuable and you Read the full article »

How your tax withholdings can teach you the power of saving

Published 2/20/12  (Modified 3/2/12)

How your tax withholdings can teach you the power of saving By Justin Boyle

With tax season in full swing, people from coast to coast are finding themselves either happily or unpleasantly surprised by the size of their refund. Here's a simple method to help increase the size of your refund while also making a point about personal financial responsibility.

I was a teenager when I took my first job, cooking and topping pies in the kitchen at a local pizzeria. My first job also meant filling out my first W-4, and, admittedly, I didn't understand all the official terms and numbers right off the bat.

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Emerald PrePaid MasterCard: Enough perks to make it worth your while?

Published 1/30/12  (Modified 2/15/12)

Emerald PrePaid MasterCard: Enough perks to make it worth your while? By Megg Mueller

By now, the W-2s are in the mail and filing your 2011 taxes is imminent; some of us will get it over with as quickly as possible, while others will prefer to wait until the middle of April. Whichever way you file, one thing is true for pretty much everyone; we'd like to send Uncle Sam as little of our money as possible and if we're due a refund, we want it fast.

Since this blog isn't about accounting methods, I'll address the second desire, the fast refund. H&R Block, the venerable tax return people, are offering a fast refund for clients willing to sign up for its Emerald PrePaid MasterCard when you have your tax return prepared at an H&R Block office...

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