I spoke too soon! Shortly after I prepared my taxes, H&R Block offered me a copy of their online software to review. They also offered me five Premium edition  codes to give away. This will allow you to file a free Federal online return using the Premium version of the software, a $55 value including sales tax. State returns are an additional fee. I haven’t been paid for this review and all opinions are my own. Please read the  end to find out how to enter the giveaway. I will be choosing a winner at 6 PM PDT, Tuesday, March 22.

H&R Block Overview
Just like last year, I found the interface very user friendly. It’s almost comforting the way it guides you through the process. It starts with a series of check boxes concerning life events. Each section also has additional introductory check boxes that cover items in each of them.

Because I used the boxed software last year, and the online edition this year, I couldn’t import last year’s information, but that wasn’t a huge deal. I will say that you should choose one software version and provider and then stick with it every year. That will save you time on the initial name and address fields. In addition, it imports your employer and deduction data, so you can usually just update the fields.

The Navigation
I went back to correct the charity section, and it started to walk me through the rest of the deductions, too. Like TaxAct, I couldn’t just go directly into the one subtopic I wanted and then leave when that one subtopic was complete. I’m not sure which software allowed me to do that in past, but I liked it. Note to developers – allow quick drop-ins and offer easy outs!

Charity Calculator
Some things I like better about the charity calculator, some I don’t. It asked me if I wanted to use the DeductionPro tool, so I opted yes. It took me to another domain where I filled everything out. But then the online software couldn’t import it. I entered my deductions directly into the software, and the screens turned out to be exactly the same. I wasn’t sure the DeductionPro tool was at all necessary.

I did like that I only had to enter one address for my charitable goods donation. For my cash/credit donations, I simply listed the charity name. TaxAct made me list more addresses, which was irritating.

The State Form
The state form was easier to use than TaxAct’s version. They had more detailed answers about a couple of the confusing items. The adjustments that TaxAct asked me about either weren’t there or were in a list of items the H&R Block software said it didn’t think I had to worry about.

I did have one odd thing happen, and this is just a rounding difference, but it did result in a tax difference. For this year only, my husband and I qualified for the student loan interest deduction, but we didn’t qualify for all of it, just some of it. H&R Block calculated our deduction at $1 less than TaxAct. That $1 difference resulted in a $12 tax difference, because it put us into a different bracket on the tax table! That’s a problem with the tax code, not the software, but it’s ridiculous nonetheless. These days, all taxes should be calculated by percentage, not tables.

As I said before, I highly recommend H&R Block for first time homeowners or other people who have a big life change that requires extra support. If you  have a simple 1040 EZ, the additional cost isn’t worth it, but I felt much better using the more expensive software my first year itemizing.

How to Enter the Giveaway
To enter the giveaway, simply comment on this post by 6PM PDT on Tuesday, March 22, 2011. I will email the five winners individually to connect you to the PR rep at H&R Block. She will provide your code. The drawing has ended. Lisa, Cregan, Jessica, Richard, and Daniel won. Happy tax filing!

I prepared my taxes a couple weeks ago using my favorite tax software: TaxAct. I threw caution to the wind and only prepared my taxes with one type of software! I ended up getting a larger refund than I expected. As I’ve said before, I try to avoid owing taxes when I file or getting a refund, but because my husband was on disability for four months, we ended up majorly over-withholding.

TaxAct had a few new features that I appreciated, although I did long for the easier H&R Block navigation from last year. Maybe I just couldn’t find it, but in order to review a single tax question, I had to review the entire section.

Still, it got the job done in less than an hour, and was certainly cheap at $17.95 for Federal and State – Deluxe addition.

The Interface
The interface has been prettied up a bit since I first start using TaxAct several years ago. It’s got a bit of color and more of a “Web 2.0” feel. There are also videos that walk you through several sections. It offers more help than ever for first timers, but some aspects can still be confusing if you don’t know what you’re doing.

The life features section was more robust than last year, and allowed me to review several sections where I needed to pay closer attention.

There are step-by-step questions for W-2s and other forms, but I preferred to use the quick data entry method.

The State Form
I did have a challenge with the state form. Maybe I should have used secondary software as a check, but I didn’t. I’m not sure this is a software problem, so much as a “my state writes terrible instructions” problem. I tried to read the California instructions, which TaxAct provides, for adjustments to Federal deductions, but they were very unclear. Most of the items I’d never heard of, and the instructions provided no insight! Hopefully other states are better than mine at writing their forms.

Filing was super-easy, but that’s true of any software. I did spot one thing that I found annoying. I’m not sure if other companies do the same thing, but I suspect they do. I was given the option of paying by credit card, or of having the fee deducted from my refund. The tax software fee was $17.95. The fee to have the fee deducted from my refund was $16.95! Obviously, I chose the credit card. That’s almost a 100% mark-up!

As usual, I don’t recommend TaxAct for a first-time filer or if you have a complicated tax situation. I was grateful for the H&R Block Online handholding when I itemized for the first time last year. But if your return is relatively the same as last year, or you’ve itemized many times, I don’t see a strong reason to pay more for the same thing.

What I’m Doing with My Refund
The answer is simple: saving it. It replaces the funds we couldn’t save while my husband was on disability. If I’d adjusted our withholding, we would have saved the money earlier in the year. We didn’t even put the money into our budget.

Many people view the refund as a windfall, but remember – it’s your money. If you received a refund and didn’t do anything special this year that would result in a big refund (such as the home buyer tax credit from last year), adjust your withholding to get more of your money during the year. Rather than using a big refund to pay off a big chunk of credit card debt, you can pay it off slower throughout the year, and save interest in the process! The government certainly won’t pay interest on your tax refund.

It’s the beginning of the year, which means the IRS is busy sending out all sorts of tax changes and alerts. Let’s break them down.

Deadline Extension
First, let’s start with a bit of good news: Your taxes aren’t due until April 18. That’s because there’s a little known holiday in Washington, DC that will be observed on April 15, and April 16 and 17 fall on the weekend. Taxes can’t be due on holidays or weekends, so you get an extra weekend!

Of course, if you’re getting a refund, there’s no reason to wait to prepare your taxes. The software makes it so easy, that you might as well get it down early. If you discover you owe, you can wait until the last minute to send your payment, but at least you’ll have the paperwork monkey off your back.

Filing Delay
Along with the extension comes a delay for tax filers who itemize, claim the Higher Education Tuition and Fees deduction, or claim the Educator Expense deduction (teachers). That’s because Congress changed the tax laws at the last minute and the IRS needs extra time to reprogram their computers. But, you can still file around mid-February. I often find that some of my documents don’t drift in until the end of the first week of February anyway, so the delay shouldn’t be a huge burden for most people.

Updated Withholding Calculator
If you were planning to update your withholding because you received a raise, received a pay cut, or had a life change, you’re going to have to wait a little longer to use the calculator at IRS.gov. It also has to be updated to reflect the new tax rates and laws. You can use it to get a rough estimate now, because this year’s brackets and deductions haven’t changed that much from last year, but check back in February to make sure your withholding is correct.

Updated Income Tax Brackets
This year’s income tax brackets have been released. The lowest rate increased the income threshold by $500 and the rest are equally small. The standard deduction only increased $200, which is to be expected given our current economic situation/low inflation.

Brackets courtesy of FiveCentNickel.

Remember, you don’t pay the same amount of tax on the whole salary if you’re in the higher tax brackets. You only pay the higher rate for the amount above the lower threshold. So, if you earn $70,000, you don’t pay 25% on all of that, while someone who makes $68,000 only pays 15%. You both pay 15% on the amount up to $69,000, then you would pay 25% of the remaining $1000.

When I said last week that my husband and I were getting a refund because his four months without taxable income pushed us into a lower tax bracket, I was actually saying that we had less taxable income, therefore all of it is in the same tax bracket, which saved us a tiny bit on our taxes. Not earning money for four months was the big saver, but it also put a dent in our financial goals!

So, Congress has passed the tax deal and Obama has signed it. In case you weren’t paying attention to all the whining and cajoling that’s been going on for the last month, here’s what you need to do know about the “tax cut” as it’s being called.

Your Tax Bracket Won’t Change
The Bush-era tax cuts have been extended for another two years, which means your tax bracket won’t change, regardless of your income. Of course, if you receive a raise that pushes you into a new tax bracket, that will still happen. However, you don’t need to adjust your withholding or massively adjust your budget if you haven’t received a year-end raise.

Your Social Security Taxes Will Go Down
This is actually a significant change that could put real money back in your pocket. The current social security tax of 6.2% (the employee’s share) has been reduced by 2%. If you earn less than $106,000, you can expect to get an extra $20 per $1000 salary. So, if you make $50,000, you should receive $1,000 over the course of the year, or about $41 per paycheck if you get paid twice a month. You may not see the change in your first paycheck because it usually takes employers a few weeks to implement payroll changes, but it must all be straightened out by the end of the first quarter of 2011. The Making Work Pay credit is going away, however, so your total pay increase for the year will be $600 more than last year, or roughly $25 per pay period.

If your individual salary is more than $106,000, then you’ll receive an extra $2120 this year. Once you exceed that level, social security taxes will stop being withheld as usual. You’ll receive the full increase over last year because you didn’t qualify for the Making Work Pay credit.

If you earn less than $20,000 (or $40,000 for a family), then you will actually receive less money this year. That’s because the Making Work Pay credit is going away, and it was worth more to you than the social security tax reduction.

Unemployment Insurance Will Continue
If you’re unemployed and have not yet received a full 99 weeks of benefits (or reached the cap for your state if it’s lower than 99 weeks), then the tax deal extends your eligibility for another year. However, if you’ve reached the 99 week cap, you will not qualify for additional benefits.

The Estate Tax Is Reinstated
2010 was unique in that there was no estate tax, even for the very, very wealthy like George Steinbrenner. Starting in 2011, the estate tax will be reinstated at 35% for estates valued at more than $10 million. If the tax deal hadn’t been negotiated, the tax rate would have been 55% of estates valued at more than $1 million. While the lower rate would have significantly impacted many families, it’s estimated that the new limit will result in taxes for just 6,600 families. If you’re among those 6,600, speak to your financial advisor about strategies to
reduce your estate over time. Having a trust will not shield those assets from the estate tax. It will shield them from the probate process, which can be costly and time-consuming.

For most people, the new deal will result in more money in your pocket, and more money for your heirs when you die. However, this deal is only good for two years, so you can expect more wrangling in 2012. If Congress holds true to form, they won’t do a thing until after the election. It’s just too juicy a campaign issue, so you may want to make plans to avoid your televisions for most of 2012.

Late last week, the IRS announced that it will no longer be mailing tax forms. Apparently, they only mailed the forms to 8% of the population last year, and not mailing the forms will save $10 million. That’s not a small amount. If you really, really, really want to file on paper, you’ll still be able to get them at the post office or library, but it’s probably faster and easier to download them at IRS.gov. Of course, using tax software is the fastest and easiest way to file your taxes.

Help Older Relatives Get the Forms
If you’re reading this blog, then you probably already file your taxes online, so this warning isn’t for you. It is for your older relatives however. If you know that a parent, grandparent, aunt, or uncle still files on paper, gently let them know that they should not expect to see those forms in the mail this year. Offer to download the forms for them. If they need instructions, swing by the post office or library to pick up the packet (it’s long, so you don’t want to print it.) If it’s a parent, offering to fill out their taxes for them is a great way to become familiar with their finances. It may even help you spot potential problems early on. For example, if you notice inaccurately entered numbers, forgotten payments, late notices, etc., that will provide an opportunity to discuss who should handle their financial matters.

If your relative won’t let you complete their taxes, refer them to the AARP, which offers free tax preparation for low-income filers. Contact your local AARP branch for help.

If you’re getting a refund, you’ve hopefully already filed your tax return. Why let the government keep that money any longer than you need to? If you’re a procrastinator, I hope you’ll make use of online tax software – I have reviews of TaxAct, TurboTax, and H&R Block at Home to help you decide. And to keep you fueled while burning the midnight oil, or to help you celebrate the fact that the nightmare is over, check out these Tax Day freebies!

Don’t Forgot to Enter My Giveaway
If you live near a McCormick & Schmick’s, enter my giveaway to win a $10.40 dining certificate. Simply comment on my earlier post, linked here, to enter. You can also eat in their bar for $10.40 on tax day, and walk away with a $10.40 dining certificate good for your next visit. Tax preparers get free dessert with your entrée on April 16.

Free Food for Tax Day
To keep you fueled up, there a giveaways for breakfast, lunch, and dinner. Here’s your plan:

Start at Chick-Fil-A, which is giving away free mini biscuits from 6 to 10:30 AM.

Next, head to Dunkin Donuts where they will give you a free donut when you buy a cup of coffee.

At lunch, go to Taco Del Mar to get a free taco with the printable coupon.

Or, go to Boston Market with a friend and this coupon to snag the buy one get one free entrée deal. (Also great for dinner time.)

Need an afternoon pick-me-up? Head to Starbucks with your own travel mug to get free coffee.

Then, on the way home, stop at Maggie Moo’s for a free sample of their ice cream pizza between 3 and 7 PM.

Next, hit up Cinnabon between 6 and 8 PM for 2 free cupcake bites.

Finally, visit Jack in the Box on Friday, April 16, for a sample of their fries to round-out the festival of freebies.

Discovered any other tax day deals? Share the knowledge in the comments.

It’s almost tax day. Have you filed already? Are you getting a refund or do you owe? If you’re getting a refund, how are you planning to spend it? Also, I have a special giveaway for you, my dear readers.

Giveaway Details
First, let’s start with a special Tax Day giveaway. On April 15, McCormick & Schmick’s restaurant locations nationwide will be featuring several $10.40 dinner specials in the bar – items like the ½-pound “Inflation” Burger and “Taxing” Fish Tacos – and all guests in the bar that day will receive a $10.40 dining certificate.

So, visit them to get one certificate. In addition, one reader of this blog will receive a $10.40 McCormick & Schmick’s dining certificate for commenting on this post. The $10.40 dining certificate is redeemable any day of the week in the dining room after 5:00 p.m. and is valid from April 17 through May 30, 2010. Just tell me how you plan to spend your tax refund (if you’re getting one.) You can enter if you’re not getting a refund. Just say you’re not getting one. All entries must be received by midnight Pacific Time on April 15. I’ll notify the winner on April 16.

How I Spent My Tax Refund
Last year I owed, owed, owed, so I didn’t get a refund. This year, the First Time Home Buyer tax credit got us a sizable refund, even though we tried our best not to. We didn’t withhold any Federal taxes for five months and still got money back!

Of course, we owed California taxes because our state raised the tax rate mid-year, but made it retroactive to January 1. So that’s how I spent part of my Federal tax refund – paying my state tax. Not a huge amount, but I did have better uses for that money!

I also went on a spending spree this month. My husband is heading back to work soon, so we’ve started buying furniture, rather than leaving several key rooms empty. So far, this month I’ve purchased:

Dining room table
Dining room chairs (6)
Leather arm chairs (2)
Foyer table

Most of it was bought at Cost Plus this weekend where they had a 25% coupon, so I got $1969 worth of stuff for $1476. The fridge was 10% off and had a $50 rebate, so I got it for $962 including delivery. I ordered it out of state, so I didn’t pay tax. I’ll also get another small rebate for having my local utility pick up our old fridge. The dining room table was $581, including tax and delivery.

In addition to all that, we need to buy 3 couches, a coffee table, a TV, a TV stand, and have some cabinet and plumbing work done. I plan to spend less than $1000 for each couch and the TV. The coffee table will probably be around $300 and the TV console I’d like to get for less than $600, but we’ll have to see what we like. So, we’re looking at around $6100 for all that.

Grant total is $9119, assuming I can’t find sales and discounts on most of this stuff. Of course, that’s more than our tax refund, but we have money saved for these purchases. Using our tax refund to buy 2/3s of it will allow us to keep more money in our emergency fund.

Do you have big plans for your refund? Tell me in the comments to enter the giveaway!

Tax refunds have started rolling in. Although the IRS told us not to expect our until mid-April, they actually sent it already. I quickly transferred that baby to our savings account where it will earn a few pennies until we start buying furniture.

This year’s refund is expected to average $3036. So what should you do with it? Here are a few tips:

Pay Off Debt
If you carry credit card debt, it’s very important that you pay it off. Although credit card issuers are now curtailed from shenanigans, it’s very likely they snuck in several rate hikes before the new rules went into effect. According to BillShrink.com, if you took your $3036 tax refund and put it against your credit card debt, you’d avoid $2810 in interest fees 5 years. Meanwhile, it would take you 44 years to save that same amount in a savings account at today’s high of 1.5%.

Upgrade Windows, Doors, and Energy Efficient Appliances
This year there are additional tax credits for weatherizing your home or installing energy efficient appliances, windows, and doors. If you’re in need of a new furnace or new windows, this is the year to put your tax refund to good use, and get a little extra in your next refund as a bonus!

Boost Your Emergency Fund
If you don’t have debt and don’t have any appliances or windows in need of upgrading, just deposit that baby into your emergency fund. I’m sure something will come at some point and you’ll need that money. Trust me, it might not be this year, but it will happen eventually.

Put It Into a Retirement Fund
If you have a 401K match through your employer and aren’t currently getting the full match, increase your retirement withholding to at least meet the match, or the amount of your tax refund, whichever comes first. Since you have the money in the bank, you won’t miss it in your paycheck. If you don’t have a 401K match or a Roth 401K, open an IRA or a Roth IRA with the money. Every little bit helps.

Open a CD Ladder
CD laddering is a way to get higher interest rates on savings, but always having some money close to being liquid. Basically, take $1000 and buy a one-year CD. Take another $1000 and buy a two-year CD. With the last $1000, buy a three-year CD. Spend the remaining $36 on something fun. These days, that’s probably one movie ticket and bucket of popcorn. At some point you’ll want to buy $1000 four and five-year CDs. Then, as each one comes due, roll it into a new five-year CD. So, you’ll have a portfolio of five five-year CDs, but one will always be due within the next 12 years in case you need the money.

Of course, you can also use the money for any pre-planned purchases you’ve been saving up for. In my case, that’s furniture and at some point this year a new car. For other people, it might be a vacation they’ve been squirreling away money for. Whatever you do, make a plan for your tax refund before you spend it. If you just deposit it into your checking account, it will quickly vanish on this and that. That’s now way to treat your money.

This year, as has happened before, some states are announcing that their tax refunds will be delayed due to budget woes. If you filed a Federal return and applied for the First Time Homebuyer Credit, you’re also in for a delay of two months or more. We filed in mid-February and the IRS says to expect our refund in mid-April.  In years past, many families budgeted around tax refunds. They planned to buy cars, pay for home repairs, or pay for a vacation with the money. That’s fine. However, if you’re counting on your refund to make a mortgage payment or pay a bill before it’s late, you should start looking for other ways to make the payment. While most people receive refunds in a few days or weeks, most states aren’t required to pay refunds until June or even July.

Change Withholding to Budget for Big Expenses
If you usually use your refund to pay for some last-minute budget item, like property taxes, consider changing your withholding so that you don’t receive a refund. Instead you’ll get the money in every paycheck. Set aside the amount you need each month to get you to the full payment when it’s due. That way you’ll avoid potential penalties if your tax refund doesn’t come on time.

Don’t Count on a Refund to Pay a Mortgage
I was stunned to see some homebuyers complaining that they wouldn’t be able to pay the mortgage if they didn’t get their refund immediately. If you can’t afford the mortgage payments without the homebuyer tax credit, you can’t afford the house. What will you do two months from now when the credit is gone? Don’t buy something you can’t afford and expect to pay for it with your refund. If it’s something you need, like a new car, wait until you have the money in your checking account to go shopping.

Call the Lender Now If Your Refund Will Be Late
If you know you can’t make a payment without your refund, call the lender now, before your payment is late, to work out a new payment plan.  This probably won’t work for mortgages, but credit card issuers and some other lenders can be more flexible if they know why the payment will be held up.

Schedule Vacations and Other Purchases Later in the Year
If you’re counting on a tax refund to pay for a vacation or a big purchase, don’t schedule it for April. Schedule it for July, by which time you should have the money so you can pay for it without incurring debt. And again, change your withholding so that next year you have the flexibility to travel whenever you want, without waiting for the tax man to pay up.

Remember, a tax refund is not free money (unless you get back more than you owe due to low-income credits). It’s YOUR money that you lent to the government interest-free.  There’s no reason to keep giving them loans. I assure you, they would not do the same for you.

TurboTax asked me to review their software and gave me a free Federal and State return filing to give away. This is a copy of the online version. To enter, simply comment at the bottom of this post by 6PM PST March 17, 2010. Leave a valid email address where I can reach you. And now on to the review. This was my third time doing my taxes, because apparently I’m a masochist. That’s a nice thing to learn about yourself!

Anyway, I used WebTurboTax about ten years ago when it was available free through Vanguard, but I haven’t used it since that became a paid service. Back then, I quite enjoyed TurboTax, and the ability to import some data from Quicken. That’s still an option in the new version, as well as a few other features I liked.

TurboTax Interface
Like the other programs, the TurboTax navigation and status bar are prominent and easy to use. I can quickly and easily skip between elements of the program or see how my return is progressing.

TurboTax navigation bar

Turbotax status barTurboTax Flags

I particularly liked the Flags feature, which lets you create a flag to go directly back to a portion of the return if you need to get some information and complete it later. Then you can continue with the information you do have. For example, if I needed to double-check some mortgage interest information after a refinance, but didn’t want to go dig out the papers at that moment, I could flag it to return later with the information. The same if I donated to a charity online and didn’t know what state they were located in (which was true of several of my charitable donations this year), or needed to find a few more medical bills.

Importing Data
Since TurboTax is a Quicken product, you can opt to import some data from that program. I didn’t choose this option. It also gives you the option to import your W-2. TurboTax didn’t require a passcode, but it wasn’t able to import my data because it wanted text in box 12, but my employer entered numbers. I had to enter the data manually, instead.

Import W-2

New Homebuyer Credit and Mortgage Deductions
The homebuyer and mortgage section started with questions about interest and points, then simply asked me if I bought a new home and wanted to apply for the credit. It asked me the necessary questions and then told me which documents I needed to send to the IRS to back up my claim.

Homebuyer Credit

Missed Deductions
Rather than wait until the end to check my inputs for errors or missing items, TurboTax runs an deduction check at the end of the section to see if there are any areas you missed that you shouldn’t have.

Charitable Donations
The charitable donations section was pretty easy. I simply had to enter the name and city where the charity was located, then select the type of donation I made. The screens were very easy to use and provided detailed information about determining a value.

Correcting Errors
Rather than continue straight through without telling me how many sections I had left, TurboTax takes you to a summary after each section. I could also easily go back to a section and re-answer the questions by selection the subcategory (deductions, for example), then selecting Explore On My Own. Then it showed me the summaries with the option to go back and update any item.

Overall Opinion
TurboTax is another good program for people with more complicated returns or those who are itemizing for the first time. If you use Quicken already, the ability to import data could be a huge time-saver, assuming you’ve accurately tracked all your information throughout the year.

I wasn’t asked to calculate things myself, although I could if I wanted to. I also didn’t have to enter a great deal of information that doesn’t appear on the actual tax forms.

I found that this was a nice balance between the streamlined TaxAct and the heavy guidance of H&R Block At Home.

The online prices are:

Free for Federal e-File only (State $27.95)

$29.95 for Deluxe (Federal only, State $36.95)

$49.95 for Premiere (Federal only, State $36.95)

Remember, enter my giveaway by March 17, 2010 at 6 PM EST to win!

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