Money Blue Book

Death and taxes. You can try to fight them both tooth and nail, but at the end of it all, it’s a losing proposition. Especially when it comes to taxes, the government is going to want its fair share cut of your salary and business profits one way or another, whether you like it or not. Rather than engage in tax evasion and possibly live the remaining years of your life on the run as a tax fugitive from the long arm of the Internal Revenue Service (IRS), you might as well confront the issue of taxes head on. All we can do is try our best to understand how income taxes work and take reasonable steps to minimize their effects on our financial lives as much as possible.

One of the most introductory ways to plan for the effects of income taxes is to recognize how the various marginal rates are applied to the corresponding tax brackets. Because the United States does not yet currently engage in a flat tax system, our taxable incomes are broken down into different taxation ranges with specific taxation percentages assessed depending on where they fall along the tax bracket spectrum. Although our 2010 tax returns won’t be filed until April 15, 2011, for planning purposes, it’s always good to find out the new changes to the tax code as early as possible. Let’s examine some of the upcoming tax rate changes that are being projected for 2010 and compare them to the previous year’s 2009 tax brackets.

Projections Of New IRS Tax Rates Have Historically Been Extremely Accurate

Year after year, even before the official IRS income tax brackets are released, a select number of tax experts have gotten together and crunched a determinative number of officially released statistics by governmental agencies – to project and extrapolate the upcoming year’s tax brackets. Year after year, the tax rate predictions released by these groups have yielded results in advance with near 100% accuracy. Such an income tax bracket projection ahead of time is possible because many of the major tax code numbers are pegged to officially released inflation statistics – including the standard deduction, the personal exemption, the actual income ranges of the tax brackets, and contributions limits for the investment retirement accounts (both the Traditional and Roth IRA account).

One of these tax prognosticating groups is the Tax Foundation, a Washington D.C. think tank which collects data and publishes research studies on federal and state tax policies. The other notable group operates under the auspices of the Wall Street Journal and is comprised of a merry band of private tax professionals and economists – namely William E. Massey, a senior tax analyst from the Tax and Accounting arm of Thomson Reuters; George Jones, a senior federal tax analyst from CCH; and James C. Young, an accounting professor from Northern Illinois University. For numerous years now, both the Tax Foundation and the Wall Street Journal group have consistently released to the public very accurate, albeit unofficial, early bird peaks at the following year’s projected income tax brackets based on available financial data – well in advance of the official IRS releases. If you’re eager to get a head start on tax year 2010, read on.

IRS Tax Rate Schedule Updates For Tax Year 2010

This year, citing a very sluggish economy and extraordinarily low inflation rates for 2009 to which upcoming 2010 tax rates shall be pegged to, the Tax Foundation and associated experts are predicting very little year to year change for the 2010 federal tax brackets. If there’s anything good that came out of this global economic recession that has been plaguing us for the entirety of 2009 – it’s that the combination of low gas prices, depressed consumer spending, and high jobless numbers with so many people filing for unemployment – have enabled inflation rates to stay quite low during the span of 2009 – at a mere 0.19%. Just compare that to the incredibly high inflation rate of 4.26% during the previous year of 2008 when gas prices were skyrocketing, and it’s clear the recent sudden and precipitous drop in inflation has been extremely unprecedented.

As a result of low inflation, for the most part the 2010 tax bracket ranges will likely stay relatively unchanged. As noted by the tax pundits, for the very first time since the IRS started to index the official federal income tax rates to inflation during the mid 1980’s, taxpayers will get virtually no significant benefit from inflation in 2010. As such – year 2010 tax brackets, standard deductions, personal exemptions, and even retirement account contribution limits will see very little (if any) alterations from prior year numbers.

I will update the table below to reflect the official IRS tax rates for 2010 if decidedly different numbers are ultimately released by the IRS. However, with tax bracket projections by the experts having enjoyed a near perfect accuracy rate for quite a few years now, I don’t have any reason to doubt that the displayed figures below will ultimately wind up as official.

Federal Income Tax Brackets For 2010 – Based On Taxable Income Ranges

Beyond some slight numerical shuffling of the taxable income ranges, there will not be too many significant tax changes from 2009 into 2010. Here is a breakdown of the projected changes (if any) for 2010 as they compare to the prior year:

• Personal Exemption: No change. For the very first time, the standard exemption for 2010 will not be going up and will stay unchanged at $3,650, the same as it was in 2009.
• Standard Deduction: No change, except for Head Of Household filers. The standard deduction for married couples filing jointly will remain unchanged at $11,400. For those filing as single, the standard deduction will remain at $5,700 as well. However, Head of Household filers will see a slight increase by $50 – from $8,350 (year 2009) to $8,400 (year 2010).
• Overall Tax Bracket Thresholds: Will increase across the board for all tax filing statuses, albeit at a significantly lower amount compared to past tax year increases.
• Annual Gift Tax Exclusion Amount: No change. For tax year 2010, the current gift tax exclusion limit of $13,000 will stay the same. Often overlooked by most taxpayers, the gift tax stipulates that gift givers must pay a special tax on gift amounts that exceed a certain amount per year.
• Traditional and Roth IRA Contribution Limits: No change. Despite the fact that IRA and Roth IRA contribution limits did not rise in 2009 in response to strong inflationary pressures in 2009, there will still be no corresponding change in the maximum contribution limits to individual retirement accounts for 2010. The standard IRA contribution limit for 2010 will remain unchanged at $5,000. The catch up contribution limit for those 50 or older will remain at $6,000 as well.

Update: Projected 2010 Tax Brackets Have Been Released!

The following represents the Internal Revenue Service (IRS)’s officially released 2009 federal income tax brackets. Read ‘em and weep – or perhaps rejoice, depending on where you stand on the whole federal income tax bracket sliding scale. Regardless, you’re going to be getting close and personal with the marginal rates when you file your 2009 tax return in early 2010. Let’s have a look at some of the tax changes shall we?

Official IRS Tax Rate Schedule Updates For Tax Year 2009

Via the Wall Street Journal, the following graphical table below gives you the official marginal tax brackets for married couples filing jointly as well as the marginal rates for single filers for 2009. The previous year’s numbers are also provided to give you an idea of some of the more noticeable changes since 2008. The income numbers listed in the chart below are taxable incomes, and thus they have taken into consideration all available personal exemptions as well as any of either the standard or itemized deductions, including all pre-tax above the line 401k and deductible IRA contributions.

As key portions of the marginal tax tables are pegged to inflation, quite a few numbers must be annually revised. Thus you will note that there are quite a few key changes for the 2009 tax year compared to the year prior. However, while overall tax numbers appear to have nominally increased on the whole, taking into consideration the effects of inflation, effective tax rates may actually have remained level or even dipped a bit.

Despite the text below that says “projected”, the official IRS numbers have been released and they now represent official federal income tax rate brackets, locked in for 2009.

To summarize, here is a run through of some of the more notable tax rate changes for 2009 and even a quick blurb about some of the key tax benefits that did not change based on official IRS releases thus far:

• Personal Exemption and Exemption For Dependents – Increased to $3,650 from $3,500 (up $150) from 2008, but is phased out at higher income levels.
• Standard Deduction – The great majority of American taxpayers take the standard deduction rather than itemizing deductions for expenditures such as mortgage interest, charitable contributions, and state & local taxes. The standard deduction increased to $11,400 from $10,900 (up $500) for married couples filing a joint tax return, increased to $5,700 from $5,450 (up $250) for singles and married individuals filing separately, and increased to $8,350 from $8,000 (up $350) for heads of household.
• Overall Tax Bracket Thresholds – Increased across the board for all tax filing statuses. This means that if your annual income did not increase since last year or if you did not receive an inflation based pay raise, you may likely pay a little less in taxes in 2009 than in 2008. As the IRS notes as an example on one of its press releases, in regards to a married couple filing a joint return, the taxable income threshold separating the 15 percent bracket from the 25 percent bracket is $67,900, up from $65,100 compared to tax year 2008.
• Earned Income Tax Credit – Increased to $5,028 from $4,824 (up $204) for low and moderate income workers and working families with two or more children. The income qualification limit to take the earned income tax credit (EITC) for joint return filers with two or more children also increased to $43,415 from $41,646 (up $1,769).
• Annual Gift Tax Exclusion Amount – Increased to $13,000 from $12,000 in 2008 (up $1,000). Often overlooked by people, the gift tax requires the gift giver to pay a special tax on the gift amount if it exceeds a certain amount per year. For 2009, that threshold will be bumped to $13,000.
• Social Security Contribution and Wage Benefit Base – Increased to $106,800 from $102,000 (up $4,800). This means that 2009 income sources over $106,8000 will not be subject to Social Security taxation. With the Social Security tax rate at 6.20%, this also means that the maximum a person will shoulder in Social Security taxes for 2009 is $6,622.
• Traditional and Roth IRA Contribution Limits – No change from 2008. Despite inflationary pressures that increased tax bracket rates across the boards, sadly, IRA and Roth IRA contribution limits will be staying the same – stuck at a crappy and paltry $5,000 per year for those under age 50, and $6,000 per year for those 50 or above.
• Roth IRA Contribution Limits (Income Threshold) – Increased to $166,000 from $159,000 (up $7,000) for married filing jointly couples, and increased to $105,000 from $101,000 (up $4,000) for singles and others.

Watch Out For Possible Upcoming 2010 Tax Bracket and Tax Rate Changes

While official IRS federal income tax brackets are not usually released for the following tax year until the late fall, it’s frankly never too soon to get your hands on the earliest reliable marginal tax bracket predictions. Year after year, a group of private tax experts and economists associated with the Wall Street Journal get together and crunch officially released inflationary data to provide news readers an early bird peak at the following year’s projected income tax brackets. This group, comprised of members from the Tax and Accounting arm of Thomson Reuters, tax analysts from CCH, and an accounting professor from Northern Illinois University – usually releases their annual tax bracket projections and estimations on tax deduction numbers for the following year during early fall (around September), well before the official IRS numbers are issued.

As marginal tax brackets track changes in inflation and other economic data fairly closely, the annual tax rate estimations by the Wall Street tax team members have yielded pretty reliable and on par results over the years. If you’re antsy to get a head start on tax year 2010, stayed tuned in very early Fall 2009 for the newest updates on the 2010 projected federal income tax brackets.

Because of the election of Barack Obama as the new President of the United States and the handover of the country to a new political party, there are bound to be substantial changes in the tax code and income tax rates in the coming years. Working on an economic stimulus plan and advocating aggressive social agendas, President Obama has already proposed numerous changes to the ordinary income tax rates, such as raising the top rate from 35% to 39.6% – potentially boosting the tax burdens of higher income earners to new heights. He has also suggested the need to reduce tax deductions for American households earning more than $250,000 annually, and has also made proposals to increase taxes on capital gains and stock dividends. With a political and taxation platform that is decidedly against those those in the higher upper echelons of the U.S. tax code, those who have done well for themselves over the years seemingly have a lot to fear in Mr. Obama. Personally, while I feel Obama is doing a commendable job on the social and foreign policy front, I hope he doesn’t get too carried away with his taxation ambitions. His remarks on taxes always make me nervous.

In the mean time, many of us regular taxpayers can only just ride along and hope for the best. Regardless of what Obama ultimately decides to do and no matter how federal income tax brackets eventually look like in 2010 and 2011, we should try to wisely structure our actions today to reduce our future tax burdens as much as possible, regardless of what happens. Such smart tax moves would include taking advantage of employer sponsored pre-tax perks like flexible spending accounts (FSA), and investing  in tax deferred retirement vehicles like 401(k)’s and Roth IRA accounts.

Review Of Free Tax Filing Software Options – TurboTax, TaxCut, and TaxAct

Tax day is a stressful and confusing time for many people as we scramble around with our W-2’s and 1040 forms, but it doesn’t have to be. Currently, there is a wealth of free tax filing resources available to help people like us with timely and accurate tax preparation, courtesy of organizations like the IRS and the U.S. government. Thus, even those those who do not have the extra financial means to afford premium tax software programs like TurboTax and Taxcut still have a wide selection of competent tax assistance programs at their disposal. Depending on their individual demographics such as age or income, and depending on the availability of other special status factors such as active duty in the armed services, certain taxpayers may even qualify for free federal government sponsored tax preparation assistance and free tax filing.

Free Tax Filing With IRS Free File Offers and Non Profit Volunteer Tax Preparation Services

The various free tax preparation and free tax filing services available can be broken down into two broad categories – offers that stem from the federal government’s partnership program to bring affordable partially subsidized tax filing services to lower income people, and offers that are provided by volunteer tax organizations funded by non-profit interest groups.

Taxpayers who wish to prepare and file their taxes electronically for free can take advantage of the “Free File” tax return preparation program provided by private tax vendors such as Turbo Tax, Tax Cut, and Tax Act, in partnership with the Internal Revenue Service (IRS). While the federally sponsored tax preparation and filing programs are indeed free for those qualified, the program costs are only waived for the federal income tax portion. Those who use the online tax services of an IRS “Free File” software provider must be mindful of the inevitable up-sell of the state income tax portion – in which the “Free File” tax software vendors offer the federal portion for free but try to sell you on paying for additional (and often necessary) state tax preparation. Marketing strategy has shone that loyal customers of a proven free software product have a tendency to return to the same familiar product again, even when they may not qualify for the original free trial version anymore. The hopes of these free tax software providers is to get you acquainted with their free federal tax filing programs today so that one day when your income finally exceeds the “Free File” qualification limits, you will be will more receptive to paying for the same service.

Be Mindful Of Inevitable Up-Selling For Paid State Income Tax Preparation and Filing

Oftentimes however, taxpayers using the services of the “Free File” software vendors are surprised by the last second add-ons, tax refund anticipation loan solicitations, and other marketing sales pitches. While there is no obligation for taxpayers to buy any of the products or services marketed by the “Free File” tax providers, because many times these convenient add-ons (for services like state tax form preparation) crop up so late in the free federal tax preparation process, they oftentimes leave the taxpayer with little choice but to pay the extra requested charges or face having to start the lengthy process all over again with another tax software vendor. However, despite the up-sell tactics used, there is nothing really outrageously deceptive or harmful with the practice of product up-selling in the case of “Free File” offers (especially for things like state tax return preparation) as they frequently do save the taxpayer time and hassle, particularly since the tax provider may be able to transfer all of the prepared tax data from the completed free federal tax forms to the paid state tax forms automatically for you. Furthermore, the state income tax form upsales usually only cost an additional $15-20 for electronic E-file. Of course, one probably ought to check his or her state’s taxation authorities to see if he or she can e-file or mail in state income tax return forms for free.

As always with utilizing online programs, particularly ones that will necessarily request confidential data and information from you such as your social security number, it’s important to be extra careful of the myriad of tax preparation scams floating around the Internet during tax season. Remember, when dealing with a tax preparation and tax filing firm, you are inevitably providing them all of the information they would need to fraudulently steal your identity. Always seek out a trusted and “Authorized IRS e-file Provider”, or stick to the popular “Free-File” tax vendors and verified free tax preparation services in the list I’ve provided below. Remember, it’s important to stay vigilant against tax scams and tax frauds to avoid succumbing to the dangers and headaches of identity theft.

Free Tax Filing Is Also Available to Qualified Low Income, Elderly, Or Active Military Personnel

Those  who are puzzled or confused by the “Free-File” online tax preparation options may consider seeking more personalized live tax help from free volunteer-based tax assistance programs. The most popular free in-person tax preparation programs for qualified taxpayers include the IRS’ Volunteer Income Tax Assistance Program and the Tax Counseling for the Elderly Program via the AARP organization. If you need guidance with your tax return or are not sure which tax credits or deductions to take, you may want to visit one of these volunteer tax assistance sites for some one-on-one tax prep help. Most of the walk-in tax centers provide full service tax preparation help for both federal and state returns with the help of fully trained community volunteers and sometimes professional tax preparers, however, they are best suited for straightforward and uncomplicated tax returns. Most of these community tax assistance organizations are also need-based and limited to certain types of people – such as lower income taxpayers, elderly folks, or active military personnel.

Below is a list of the verified and legitimate free 2009 tax preparation and tax filing resources I am aware of for tax year 2008. Please share your personal experiences with any of the the ones I’ve listed or have failed to mention:

1) TurboTax Free File Edition – Intuit’s TurboTax currently offers a free online edition of its popular tax preparation software to taxpayers who only need to file 1040EZ or simple straight forward 1040 tax return forms. The TurboTax free edition is designed for those who have simple tax returns and don’t need much tax guidance regardless of income level. If you have complicated child care expenses, mortgages, medical expenses, have made charitable donations, own stock investments, rental properties, or run your own business, you may need to upgrade to a paid premium edition of TurboTax. The TurboTax Free Edition doesn’t cover tax Schedules C, D, E, and F (required for taxpayers who own a business or have sold investments). Otherwise, those who have simple tax returns with just the standard deduction or a few basic itemized deductions, should take a test run of the TurboTax free version. At the very least you can try the program without cost and decide whether your needs are fulfilled by the free entry level version or whether you will require a more sophisticated software upgrade.

The TurboTax online free edition offers an intuitive, interview format tax preparation process featuring data compatibility with Quicken and various personal finance spreadsheet programs, along with integrated electronic state filing (at an additional cost). TurboTax provides a list of all the tax schedules and tax forms included in the federal Free File Edition, and as you will note, most of the major forms such as Schedule A (for basic itemized tax deductions) are included under the free filing program. While TurboTax is indeed free for federal return preparation and filing, those of you who need to file a state return as well will have to pay a little extra ($25.95).

• TurboTax Freedom Edition – As a special promotion, TurboTax also offers free federal and state tax return preparation and e-filing to qualified taxpayers who either have an adjusted gross income (AGI) of $30,000 or less, qualify for the Earned Income Tax Credit (EITC), or can qualify as active duty military members with an AGI of $56,000 or less. Qualified taxpayers can prepare and file their federal returns for free with the TurboTax Freedom Edition. Freedom Edition participants may also qualify for free state tax filing as well if filed in a state that sponsors its own “Free File” state program. Free File Program states include: AL, AR, AZ, GA, ID, IA, KY, MA, MI, MN, MO, MS, NY, ND, NC, OK, OR, RI, SC, VT, and WV. Otherwise, if your state’s not included, you can still prepare and file a state return with the Freedom Edition for just $9.95. Still not a bad deal at all for lower income taxpayers who qualify. Although the TurboTax Freedom Edition supports the Form 1040 long form with itemized deductions in addition to the basic Form 1040EZ, it does not support tax situations that are uncommon to lower income taxpayers, such as complex investments, rental property, and royalty income.
• TurboTax Business (Free Download) - Those who operate their own small business, run a corporation, a partnership, or a multi member limited liability company (LLC) may wish to try out the free TurboTax Business Edition with free federal E-filing. Intuit is hoping that once you try their promotional product download (which is the same as the paid TurboTax Business version), you’ll come back to TurboTax for your future paid tax preparation needs.

2) H&R Block TaxCut Free File – HR Block offers a basic free online tax preparation software and free federal E-filing package with its TaxCut Free Federal Edition for those with simple returns, such as those who are filing 1040EZ’s or have run of the mill 1040’s. The TaxCut Free Federal Edition offers a simple tax preparation process via an easy to use, step by step tax interview with automatic error and anti-audit double checking. However, if you’re looking to import your prior year’s tax data or if you’re looking to get extra tax preparation guidance for your Schedule C, home mortgage, rental property, home office, or business expenses, you will have to go with a more premium TaxCut version instead. While federal income tax preparation assistance is indeed free with the TaxCut Free File Edition, adding a state income tax return will cost extra – an upsell added price of $29.95.

3) TaxAct Free File – While not as popular as TurboTax or H&R Block’s TaxCut, TaxAct has quietly competed well against the two tax preparation giants. TaxAct offers its own free federal edition for those who would prefer to do away with paid complete tax support in favor of free tax preparation and free E-filing. As always with free tax preparation programs, TaxAct’s free filing edition is best suited for those with basic, non complex tax returns. Free TaxAct supports all of the major tax forms (view list) including 1040 and 1040EZ with itemized deductions. The only major TaxAct features not supported in the free version are data importation and complex deduction calculators for those who run their own small businesses. Otherwise, the TaxAct free version functions just like the paid version, allowing you to prepare your taxes at your own pace and return to your saved work as needed until you are finished.

Cost-wise, your free federal E-file is included, but tacking on an additional state income tax return will cost $13.95 (which is still a lot cheaper than both TurboTax and TaxCut’s state tax preparation prices). If you’re filing both the federal and state tax forms together, TaxAct’s Free File offer is one of the cheapest deals around.

4) TaxSlayer Free Tax Filing For Active Military – TaxSlayer online tax preparation and tax filing is free for active duty military personnel. While the online TaxSlayer classic edition offers free federal and state tax preparation services for non-military civilians with downloading, e-Filing, and printing at $9.95 each, active military personnel get to enjoy both the tax preparation and filing for free. Active military servicemen and women also get to add multiple state returns with no additional charge. If you are not sure whether you qualify, please visit the TaxSlayer website and submit your military EIN number from your W-2 Form into the query box to see if you are eligible for free TaxSlayer services.

5) IRS Free File Program – Through a partnership between the IRS and a group of private sector tax software companies called the Free File Alliance, those whose adjusted gross income in 2008 was less than $56,000 may be eligible for free tax services. If your income was less than $56,000 in 2008, you may be qualified to select a free tax preparation and free tax filing vendor from the the IRS Free File website to process your tax paperwork for you. To participate, you’ll need to visit the IRS’ website, fill out a short tax related questionnaire, and get matched up with an appropriate free tax preparation company. Those who wish to know more can obtain a list of all the Free File Alliance companies here. Those who can meet the program’s income restrictive terms should definitely take advantage of this government sponsored offer.

6) IRS Free File Fillable Forms – The IRS Free File Fillable Form option is not a free tax preparation software, but the most basic way of electronically filing your federal tax return without charge. Simply put – the site’s just a series of blank tax forms. You simply select the tax forms desired, fill in your appropriate tax return numbers, and E-file for free. There are no income restrictions and the service is available to everyone. For those of you who know exactly what you are doing and prefer to do your taxes manually by hand (not sure why anyone would want to, in this day and age of computer assisted tasks), this is a free tax filing option to consider, especially for those whose high income limits would otherwise disqualify them from other free electronic tax filing alternatives. Do keep in mind that the IRS Free File Fillable Forms service is not the same as the IRS Free File Program. The IRS Free File Program offers free tax preparation with free electronic filing, while this one only offers free basic filing without the extra preparation assistance.

7) Volunteer Income Tax Preparation Program (VITA) – The VITA program consists of a network of IRS sponsored tax volunteer sites that provide free tax preparation and free filing services to those people with low to moderate incomes, or those with limited English language abilities. Generally, the VITA sites assist taxpayers who have net incomes below $42,000 – individuals who are usually eligible for low income tax benefits such as the earned income tax credit. The certified tax preparation volunteers provided by the free program usually receive tax training to help prepare basic tax returns in places around the country. These free walk-in VITA centers are usually located in local community facilities such as libraries, elementary schools, shopping malls, and other neighborhood centers. While there is no comprehensive list of VITA locations available on the Internet, you can find your nearest VITA site by calling: 1-800-829-1040.

When I was in law school, I worked as a tax preparation volunteer through the VITA program and witnessed a great deal of care on the part of VITA volunteers. The VITA tax preparation volunteers may not always be the best trained to handle complex tax law issues, but they are generally fairly knowledgeable and very eager to help with basic tax cases.

8) AARP Tax-Aide Clinics (For Senior Citizens) - The VITA volunteer tax program’s sister companion is the Tax Counseling For the Elderly Program (TCE). Currently, the free tax assistance initiative for low income taxpayers with special attention to those 60 and over is being spearheaded by the AARP’s Tax-Aide program. Those who are age 60 or older with low to moderately low incomes may be able to call in and schedule an appointment for some free tax preparation and free tax counseling assistance. At any one of the AARP Tax-Aide locations, you’ll find trained tax preparation volunteers who can help you file your federal and state tax returns. Oftentimes, many of the volunteers who provide the tax filing assistance are themselves senior citizens affiliated with various IRS grant funded non profits. If you wish to find an AARP Tax-Aide center, please run a search with this online Tax-Aide finder tool, or locate your nearest AARP Tax-Aide site by calling 1-888-227-7669.

9) Low Income Tax Payer Clinics (LITC) - Low income tax preparation clinics are partially funded by the IRS and their goal is to provide affordable representation to low income taxpayers before the IRS in cases involving tax audits, tax appeals, tax collections, and federal tax litigation (usually for free or for a small nominal charge). The low income taxpayer clinics are usually operated and managed by non profit groups, law schools, or business schools with each independently evaluating prospective clients for program eligibility in terms of income limits and suitability.

When I was in law school, I participated in my school’s low income taxpayer clinic program as a law student where I assisted clients of limited financial means with their tax related problems. During my time in the clinic, I helped my clients resolve a variety of tax related issues including helping a few negotiate Offer In Compromise settlement negotiations with the IRS for lower fixed payments. For those who qualify, I highly recommend the low income tax clinics as a way to resolve more complex consumer tax issues affordably with the help of trained tax professionals. While tax clinics run by places like law schools are usually staffed by law students in training, such clinical programs are usually supervised by a fairly hands-on tax law veteran. In my case, while working at my school’s low income taxpayer clinic, I was supervised by a law school professor who was also a major partner at a prominent tax law firm nearby.

Review Of TurboTax and TaxCut Online Tax Preparation Software

According to some news statistics, more than half of all Americans hire a professional tax preparer to file their taxes. In this day and age, those kinds of stats frankly surprise me. I would have thought by now that the vast majority of Americans would have finally embraced the benefits of online tax preparation and the added cost saving advantages of utilizing do-it-yourself tax software products. Chalk it up to the continuous complexity of our marginal tax bracket system with all of its intricate income tax deductions and tax credit varieties or blame it on the tendency of people in general to outsource their financial responsibilities – but many people still stubbornly prefer to depend on professional tax experts to take care of their annual income tax filing obligations instead of doing it themselves.

For many people, filing income taxes is a painful, expensive, and dreaded task – but it really doesn’t have to be. While I’m not suggesting the filing of one’s income taxes will ever become an enjoyable experience (that will never happen), there are mitigating ways to make the process much more bearable. In the past, when April 15 tax day drew near, the only way to avoid having to flip open the bulky U.S. tax code or pour over the volumes of tax regulations and detailed tax commentaries, was to go out and pay $200-300 for an overpaid accountant or professional tax preparer to fill out the appropriate tax forms for you. But now, with the availability of very affordable discount tax preparation packages from major tax software developers like Intuit and H&R Block, and the prevalence of user-friendly and comparatively lower cost online tax preparation solutions like TurboTax, TaxCut, and TaxAct – preparing and filing your own simple tax returns without the pricey services of an overrated accountant is a very realistic option. With the help of top of the line tax preparation websites and software, filing your own taxes can be an easy and affordable experience. For those that qualify, there are even ways to file taxes online for free.

File Your Own Taxes With The Help Of Online Tax Software and Save Money

The process of preparing one’s own taxes, even with the assistance of highly automated tax software and online tax preparation programs, is a highly educational and financially empowering experience. In this age of advanced computer software and electronic E-filing via the Internet, there is little need to fiddle with paper income tax forms anymore. Unless your tax return involves complex business tax issues that require a tax lawyer’s legal advice, most ordinary returns can be prepared by the taxpayer without professional supervision or assistance.

Those that insist on hiring a local third party tax preparation expert to do the brunt of their taxes for them may be surprised to learn that many of these so-called tax experts frequently rely on the same tax preparation software tools to do your taxes that are freely available to you as well. As someone who attended law school with subsequent experience working as a volunteer tax preparer for low income people, I’ve witnessed this first hand in many cases. Oftentimes, when you hire a tax professional to prepare your taxes for you, all you are doing is paying a lot of unnecessary money for some lowly entry level tax preparation agent to perform simple data entry into a completely automated tax software program.

So instead of shelling out $300-400 for what often amounts to nothing more than glorified data entry, why not strive to perform this simple task yourself? The reality is that the vast majority of income tax returns do not require the expensive services of an accountant or tax lawyer to prepare – most can be performed efficiently and accurately from the privacy of your own home.

Comparing The 2009 Online Tax Preparation Software Versions Of Intuit’s TurboTax and H&R Block’s TaxCut For Tax Year 2008

The tax preparation market is filled with hundreds of choices as competition for your business is very stiff. However, sitting at the very top are two of the most established and expertly developed online tax software products – online and desktop brands that have withstood the test of time and consumer review scrutiny – Intuit’s Turbo Tax and H&R Block’s TaxCut. Together, TurboTax and TaxCut enjoy the biggest market share among consumers looking for an affordable online and software driven tax preparation alternative to hiring an expensive tax professional. While TurboTax is the preferred choice for most people, with TaxCut being a close runner up second, they are very similar and both offer the same primary benefit – the ability to do your own taxes, conveniently, accurately, and affordably.

TurboTax and TaxCut are similar in so many ways that consumers frequently get the two confused and can’t decide which of the two popular tax preparation software packages offers the best tax preparation deal. Overall, you can’t go wrong with either one of the 2009 versions of Turbo Tax or TaxCut for tax year 2008 as both products have already gone through a tremendous amount of research and development, and subjected to numerous product testing upgrades. Both tax software products offer all of the tax filing features you’ll need to generate accurate returns and file your taxes electronically without hassle. Both TurboTax and TaxCut also feature top notch user-friendly designs that walk you through the income tax preparation process, without requiring you to deal with the the complexity of income tax law. With the ability to automatically save your carryover tax information for future year’s tax returns as needed, it’s important to pick a favorite online tax preparation brand and stick with it as you’ll likely end up going with the same online tax preparation company again year after year, due to brand familiarity.

While I highly advocate taking advantage of online TurboTax or online TaxCut for your tax preparation needs, there are still those who shun the Internet in favor of the less identity theft-prone traditional desktop software versions. The biggest difference between filing your taxes online vs. software used on your computer – is who holds your personal confidential data. Do you trust Intuit (the maker of TurboTax) and H&R Block (the maker of TaxCut) with all of the details of your life and personal finances? If you think their websites and databases are 100% safe from data theft, then stick with the more versatile and convenient online route – otherwise, buy the desktop software versions. Personally, I overwhelmingly prefer going with the online option as I have full confidence in the abilities of these reputable software makers to keep my online information safe and secure. Both products have been around for many years and both are run by legitimate companies with tremendous financial and professional backing. Besides, the ability to archive info online and import your prior year’s tax data automatically onto the following year’s tax forms as needed is an extremely convenient and invaluable bonus for me. Importing the previous year’s tax data automatically cuts down on data entry mistakes and gives a tax reference point during the interview questions for the current year’s tax return. Both TurboTax and TaxCut also offer support for importing data from other financial software packages such as Quicken 2009, QuickBooks, as well as Microsoft Money.

In terms of features, both TurboTax and TaxCut were designed with tax newbies in mind as both software tools provide a significant amount of hand holding and pre-chewing. For the benefit of tax beginners, both programs walk you through the various tax topics using a very easy to understand interview process, breaking complicated tax topics such as tax deductions, sole proprietor income, and capital gains income into more manageable bite-size steps. Having used both TurboTax and TaxCut before, the experience with filing your online taxes with either one can be likened to an actual question and answer interview with a live tax preparation expert. As the online program moves you along subject by subject, your various answers to its direct questions will cause relevant numbers to be automatically dropped into the correct fields on your tax form as required. Both Turbo Tax and Tax Cut also feature a handy federal and state income tax refund counter display that cycles up and down as you proceed along the tax interview process, updating you on where you stand refund-wise at all times. Stumped by a particular tax issue or want to get into the nitty gritty about a particular tax subject? Both TaxCut and TurboTax feature helpful tax explanation tabs throughout the entire tax preparation process for those that want to learn more about the relevant tax regulations behind the interview questions.

When you’ve completed the step by step consumer friendly tax interview, both Turbo Tax and Tax Cut offer a free error checking feature that scans your completed tax return for potential tax errors or possible accounting issues that may trigger a tax audit flag (such as clerical mistakes like indicating a stock purchase or sale on a government holiday when the stock markets were closed). Having an automated system effortlessly scan your tax return for mathematical and preparation errors beats having to double check your own tax numbers manually if you were doing things by hand. Both tax software programs also offer audit risk assessments and provide a comparison of your tax numbers to the U.S. averages, an interesting feature for those who like to know where they stand in relation to the population at large.

The bottom line is that both Tax Cut and Turbo Tax crunched out the same exact tax refunds when supplied with identical information, based on my own tests of both programs. Both tax preparation software algorithms proved to be highly accurate and very user friendly. Most of the slight differences between the two programs are primarily graphically based and center around how the respective websites lay out their tax interview content. TurboTax gets a slight edge in this department as it’s a bit easier to get started with and get going for the first time user of online tax preparation software, but the differences in comparison to TaxCut are rather minimal.

Both TaxCut and Turbo Tax come in separate online basic and premium business editions, with TurboTax differentiating its editions by taxpayer-type, and TaxCut differentiating its editions by the level of tax advisor support desired. Cost-wise, TurboTax is the more expensive tax application between the two top choices, but in my opinion, its online program is a bit more well put together and performs sleeker than its biggest competitor, TaxCut. If you are a new beginner to online tax preparation programs, I’d recommend trying out online TurboTax over HnR Block’s online TaxCut software due to TurboTax’s slightly more user friendly and more graphically intuitive website interface. However, both are equally capable of helping you prepare and file your taxes accurately without breaking the bank.

Review Of Intuit TurboTax Online 2008

Compared to H&R Block’s TaxCut, Intuit’s TurboTax program offers a slightly more graphically pleasing and informatively complete tax preparation experience. TurboTax also offers greater in depth tax explanations and extra hand-holding guidance as you work your way through its tax interview process. Where TurboTax really shines however is in the area of automated data importation. Unlike HR Block TaxCut, TurboTax allows you to import tax data and payroll information directly from employers who use ADP, PayChex, or ProBusiness, which according to software maker Intuit, covers more than half of all U.S. employers. This is not a feature that is currently supported by TaxCut. While not an absolute deal breaker for those who like TaxCut, it is a pretty significant bonus in favor of TurboTax, at least in my opinion. A search through web reviews will also review a nearly unanimous agreement that TurboTax is indeed an overall better online product than TaxCut, if only by the slimmest of margins. At least one reviewer, PC Magazine, has selected TurboTax 2008 as its editor’s choice as the number one online tax service provider for 2009.

TurboTax 2008 comes in a multitude of editions including the free edition, the deluxe edition, the premier edition, the home & business edition, and the feature-filled business edition for corporations, partnerships, and limited liability companies (LLC). I recommend taking a look at the provided TurboTax price comparison chart to find the right tax package for you.

• TurboTax 2008 Free Edition - Intuit’s free online tax preparation package is appropriate for those with simple 1040 EZ tax returns. While the federal edition is indeed free, the state portion will cost extra.
• TurboTax 2008 Deluxe - Most popular version – used by the vast majority of people. It’s targeted at those in the middle ground with some degree of tax complexity, such as those who own a home, have made donations, or have some medical expenses to deduct. Best of all for returning customers, this version permits data transfer from the prior year’s return.
• TurboTax 2008 Premier - This TurboTax version helps you with maximizing deductions and is specially suited for those who own stocks, bonds, mutual funds, and most notably, rental properties.
• Turbo Tax 2008 Home & Business – Specially geared towards the income tax and deduction complexities of sole proprietors, consultants, independent contractors, and single owner LLC businesses.
• TurboTax 2008 Business - This package is the most full service complete version, designed for those who run a corporation, a partnership, or a multi-member LLC business.

Price-wise, TurboTax is more expensive than TaxCut, but I think the higher quality cost is worth the higher comparative price – which is why I use TurboTax to handle the bulk of my online tax preparation needs. As a heavy user of Quicken 2009 and Quicken Online products, I prefer sticking by the same software maker who designed these products as I anticipate greater future cross compatibility some day.

Review Of H&R Block TaxCut Online 2008

Brought to us by the popular U.S. tax preparation chain, H&R Block’s TaxCut is a worthy online tax preparation alternative to TurboTax. TaxCut offers a highly similar user-friendly tax preparation experience as TurboTax with the same hand holding help and customer friendly explanations during the entire tax preparation process. However, TaxCut’s biggest selling point perhaps is its lower product cost and online editions geared towards providing extra live tax adviser support. Tax Cut product editions are generally a bit cheaper compared to their TurboTax edition counterparts but they offer nearly the same features, including data importation functions and the ability to automatically download data from prior tax returns into the current year’s tax forms. One of the only significant features offered by TurboTax that’s not provided in TaxCut is the ability to import 1099, 1098, or W-2 tax data automatically from a database of employers without resorting to manual data entry. This is certainly a very convenient feature offered by TurboTax not available in TaxCut, but one has to wonder if this online perk is worth TurboTax’s much higher comparative price.

While on the whole, TaxCut’s online interface, online tax descriptions, and help search features are not as aesthetically pretty or extensive as that offered by TurboTax, these rather mild and slight drawbacks do not detract from the fact that H&R Block’s TaxCut program is a very user-friendly and accurate online tax preparation tool. Those wanting more extensive live tax advisor support from a real person may want to consider H&R Block’s TaxCut program over TurboTax, as TaxCut is backed by a greater network of actual brick and mortar tax preparation branches.

TaxCut’s various editions are broken down based on the level of customer and live tax advisor support desired – ranging from 1 free included session of tax advice, to unlimited support from a live tax professional agent from one of H&R Block’s many tax preparation offices.

• TaxCut 2008 Free Edition – The Free edition is the most basic online TaxCut package – best suited for those with simple 1080EZ tax returns. While this product supports most income tax forms, you will get very little guidance or assistance in filling them out.
• TaxCut 2008 Basic – The Basic version supports the same tax forms as the Free edition but with this edition, you can transfer data from past TaxCut tax returns and even import data from rival TurboTax.
• TaxCut 2008 Premium – The Premium TaxCut version offers the same features as the Basic level edition, except it also throws in an “Ask a Tax Adviser” session with a live H&R Block tax preparation professional. This edition is recommended for most taxpayers as it offers the option to ask a live agent a more complex tax question for free should the need arise.
• TaxCut 2008 Signature – With the nearly full service TaxCut Signature edition, you will get all of the tax preparation assistance you’ll need in the form of unlimited tax advice from an actual H&R Block professional who will not only personally review and edit, but also sign and e-file your return for you.
• TaxCut 2008 Online Office – With this complete full-service tax preparation edition from H&R Block, the company will do all of the tax preparation work for you. If your income tax return or financial situation is pretty complex, this edition may be recommended.