Thank you for the code for using TurboTax, I have filed my federal and one of my state returns with the code. I appreciate it, but also want to give you some feedback on my experience with TurboTax vs. Taxcut.

I have used TaxCut (H&R Block at Home) in the past and I have to say that I like their product much better. TurboTax (online) could NOT handle a relatively simple deduction for legal expenses properly and their technical support wasn’t very helpful.

Because of that, I am going to have to do an ammended return to properly get all the credit I can for the legal expense and then refile my PA return and do the other states by hand. I filled out a TurboTax survey to give them feedback on the program and service as well.

Again, thanks for the free code, I did appreciate it, even despite the issues I had with the TurboTax program. You may want to consider the H&R Block program as an alternative, if you do the same type of offer next year.

I’m curious to hear your experience with H&R Block at Home and/or TurboTax. What did you like or dislike about the tax prep software you used? Would you use it again?

I was expecting to hear a lot of similar frustrations but you actually had a wide range of things that bugged you about doing your tax return. It does make sense, everyone’s personal finance situation is different so I can see why there’s such a range of frustrations.

Here’s the list of things that people struggle with when filing their tax returns:

• Investing & deductions
• Worry about missing tax deductions
• Kiddie Tax
• Itemizing for the first time
• Handling income from a side business
• Paying international taxes
• Missing out on tax credits
• Claiming income without a W-2
• Filing taxes for a married couple
• Staying organized
• Hiring a tax preparer

Thanks to everyone that participated, congrats to the winners Joe and Dawn! This is Dawn’s second year in a row winning the TurboTax giveaway so odds of winning are pretty good if you participate. Keep that in mind next giveaway!

If you’ve used TurboTax to file your taxes for a number of years you might remember that the desktop version of the software had two different modes you could choose between Step-by-Step or Forms mode (you can’t do this in TurboTax online).

Step by Step vs Tax Form Mode

Step-by-Step mode was the interview approach that asked you a series of questions about your finances and then filled out the actual form for you based on your answers.

If you wanted to you could switch over to Forms mode that showed you the tax forms that TurboTax was filling out on your behalf and you could manually edit those forms.

For many people, peeking under the hood at your tax forms probably did you as much good as peeking under the hood of my car does for me.  Sadly, I don’t know much about cars. I don’t know everthing that goes into designing and building a car, I don’t even know how to work on a car. All I know is that when I turn the key, I want it to start so I can drive where I need to go.

If you don’t know much about filing your tax return then TurboTax can do something similar for your state and federal tax returns.

Tax Planning & Maintenance

Just because you use tax software like TurboTax doesn’t mean you can’t do tax planning and necessary maintenance throughout the year.  Keeping with my car example, even though I don’t know how to work on the car myself, I do know that I need to take it in for an oil change every 3,000 miles.  I’ve also learned to plan my trips so I put less milage on the car and how to drive our Honda so it lasts longer.

Same with your taxes, even though you use software to prepare them, you should still learn about the available tax credits and tax deductions.  That way next year when you’re answering questions in the tax prep software, you can answer yes to the questions that will bring you more tax breaks and save you money.

You may also have to do regular maintenance like making quarterly payments based on your withholdings and how much you owed in taxes the previous year.

TurboTax Kit Giveaway

Now onto the giveaway. Intuit has given me two TurboTax coupon codes, one for the TurboTax Deluxe version and one for the Premier version. I really liked the idea of a “tax kit” from my H&R Block at Home giveaway a few weeks ago so I’m going to throw in an Amazon gift card to make this a tax kit as well.

The gift card will cover the cost of the book “Taxes Made Simple” by Mike Piper and a Smead Tax Organizer – so you can get an overview of income tax and a tool to organize your tax reciepts (order them together and shipping is free).

So, I’m giving away two tax kits that include:

• TurboTax free federal + state preparation and e-file

• Amazon Gift card for “Taxes Made Simple” and a Smead tax organizer

One kit will have a TurboTax promo code for Turbo Tax Deluxe, the other kit will have a promo code for the Premier version.

In my last tax return giveaway the most popular tax tip was to pick a single place to keep your tax reciepts and file them away as they come in throughout the year so I think this organizer could come in handy.

Enter the Giveaway

To enter this giveaway share what part of doing your taxes is the most confusing or frustrating to you.  Maybe it’s already handled “under the hood” by tax prep software or maybe it’s something you’d like to see handled in the future.

Either way, leave a comment below about what frustrates or confuses you when filing your taxes. You can get an extra entry by entering your email address below to subscribe to my newsletter:

This tax kit giveaway will end on March 12, 2012, when two winners will be randomly selected.  The winners will be notified via email and I’ll send you the information about using your TurboTax promo code and the Amazon gift card. Good luck!

If you haven’t used TurboTax before, it starts by asking questions about your situation and helping you begin filling in your forms and pinpointing hundreds of deductions and credits. TurboTax used to be software you had to install on your computer but now with TurboTax online you can do it all over the web, and file your taxes using e-File. If you have used TurboTax in the past, your information from last year can be transferred easily to the forms for the current year.

New Features for TurboTax 2011

You can read our TurboTax review for more information on how the process works and some pros/cons. The software has added some new features for 2011, providing more help to those preparing their tax returns, that we’ll talk about here.

Tax Prep Help
You’ve probably seen it on a recent TV commercial but TurboTax is offering free one-on-one help to those preparing their taxes. As you prepare your taxes online, you can connect to a tax expert by clicking on the “Get Expert Help” button. You are then connected, free of charge, to someone who can answer your questions. You can be connected via live chat or over the phone. The hours for this service are seven days a week, from 5 a.m. to 9 p.m. Pacific.

Audit Support
Another new addition for tax year 2011 is Audit Support. If you are audited by the IRS, the experts at TurboTax’s center can help you figure out why you were audited, and answer your questions about being audited. This service is available year-round. You can visit TurboTax’s Audit Support Center, and see your risk of audit with the help of the Audit Risk Meter. If you want a defense in an audit, there is a for-fee service that will help you represent yourself to the IRS.

TurboTax has also updated its various applications related to SnapTax. SnapTax allows you to prepare and file your taxes from your iPhone, iPad or Android phone. Realize, though, that more complicated tax returns are not going to be practical for SnapTax. This application is mostly for those with simple tax returns.

TurboTax Products

There are different versions of TurboTax products that you can use to prepare your taxes. The Basic version is the cheapest, and provides you with the ability to quickly complete your taxes. However, as your taxes become more complex, it is worth it to consider more advanced options. The Deluxe version adds helpful tools that can provide you with information on donation values, and alerts you to possible audit red flags.

TurboTax Premier is designed for those who invest, and who have rental property. This version is specifically designed to help you calculate gains and losses, to help you with rental property deductions. You can use the Home & Business version to help you boost your deductions, and even calculate depreciation. There is also a Business version of TurboTax designed  for those with a corporation, partnership or multiple-owner LLC.

Lastly there is a Free Edition for those with a really simple tax return, one of the ways that you can get a free eFile.

Comparing TurboTax Versions

If you’re trying to decide between two versions, like TurboTax Deluxe vs TurboTax Premier, you might want to go with the cheaper version because it’s pretty easy to upgrade into a higher version if you find you need features you don’t have access to. In the past, when you had to download and install TurboTax software on your desktop it was harder to upgrade, but now with Turbo Tax online it’s easier to upgrade.

If you’d like to try the tax software out but you’re not sure if you want to pay for it, you have some options. They don’t offer an official TurboTax free trial but that’s because you don’t actually pay anything until you go to file. So you can start your tax return online and see how you like it. If you decide it’s worth the money you can finish your return and pay when you file. There are also various ways to find TurboTax discounts that you can check out.

With the latest addition of free help for TurboTax customers filling out their tax forms, even those with more complex taxes can do it themselves. If you’re not sure if it’s a good fit, check out this post on using tax software vs filing a manual tax return. When you get stuck, it’s possible to connect with a knowledgeable expert who can help you through. Then, when your tax forms are complete, you can submit your return online.

For more information on the choosing the right version of TurboTax for you, click here.

Tax Tips

As the chart below shows, one tip was by far the most popular.  People said it in a variety of ways but basically it boiled down to keeping all your tax records in one place.

Some people filed them digitally, some used a folder, a binder, a drawer, and others didn’t say exactly what they stored their tax records in.  But overall the suggestion was to gather your receipts and records as you got them through the year and keep them in a single place. Obviously the main benefits of this are that you don’t have to spend a lot of time hunting for documentation come tax season and you’re not worried about misplacing important tax forms.

A few people suggested to start preparing them early and there were two tips that I put in the “Other” category.  One was to make copies/backups of your tax information and tax returns so that you don’t lose them.  The other tip was to ask for advice on your taxes if you think you need it.

Tax Kit Winner

Overall, some good tips! To choose a winner, I gave each person a number based on the order they left their comment (those who are subscribed to the email newsletter also got a second number).  I used random.org to pick a number, whoever’s number it matched won the tax kit.  Carrie from CarefulCents had the lucky number this time.

Thanks to everyone for participating and thanks to Office Depot for sponsoring the giveaway!

Regardless of whether you go through tax software that prompts you for all the information, do your taxes by hand, or if you give all your information to your accountant – being organized still pays off at tax time.

Organizing Tax Documents

If you file your receipts and tax forms as you get them then it’s much easier to find them when it’s time to file your tax return.

There are multiple ways you can create a system to store your financial documents.  It can be as simple as using manila folders and labeling them, or there are systems you can use that come with pre-set categories of documents.  The one I’ve used is called HomeFile and it’s basically a set of laminated dividers with a top tab that tells you the category of document. On the front of each divider it lists all the potential documents that might fit into that category.

Whether you use a system or come up with your own, the main point is to figure out how you’re going to store your documents as they come in the mail throughout the course of the year.  

Tax Kit Giveaway

The people from Office Depot understand the importance of organization. That’s obviously what they specialize in, helping you keep your paperwork and your office organized and categorized.  They contacted me about sponsoring a tax kit giveaway on Money Smart Life and I agreed, who doesn’t want to be more organized right?

Here’s what’s in the tax kit:

• H&R Block At Home Basic Edition (Federal & State)
• Office Depot Reciept File Box
• Ativa Tax Calculator
• Ativa Flash Drive

If you want to get more organized this tax season you can enter this promotion by leaving a comment below with a good tax preparation tip or a story about how being organized/disorganized made it easier/more difficult when doing your taxes. You can also get an extra entry by subscribing to my email newsletter.

The tax kit giveaway will end on February 14, 2012, where a winner will be randomly selected.  Once the winner is announced, I’ll need to have your address so Office Depot can mail you the organizers and the software, giving you plenty of time to get your taxes filed for 2011 and to start your organization system for 2012.

Thanks to Office Depot for sponsoring the giveaway, leave your comments below to enter.

Brokerage or Bank Tax Discounts
Some banks and brokerages offer access to discounted tax software. One good example is Vanguard. The brokerage offers you access to a discounted version of TurboTax. If you are a “regular” client, you get access for 25% off. Flagship Services clients at Vanguard actually get free access to TurboTax. Fidelity also offers access to discounted tax software.

Banks and credit unions like FNBO Direct and USAA also offer discounted tax software. Check with your bank or credit union, or with your broker, to see if you can access discounted software through their site, or if there is a special promo code you can use when purchasing tax software.

Business Tax Promotions
You can also check with other businesses to find out if there is free or discounted tax software available. Some office supply stores offer it at a discount when you buy other items. In some cases, you might get it free when you make a large enough purchase. A local car dealership offers free tax prep software when you go in for a test drive. Keep your eyes and ears open to possible discounts and promotions. And, of course, look online for special sales and discounts at retailers like Amazon.com.

Customer Tax Discounts
If you are already a customer, you can usually go to the source and get updates. Some tax software programs offer discounted updates that let you use what you already have, but then update for your current tax return. Or if you’re already a customer, lets say you use H&R Block, you might be able to get a discount on their software, like H&R Block at Home. Jackson Hewitt also regular offers promos and discounts. Be sure to check with the TurboTax, TaxCut, TaxACT and other web sites to see if they are offering specials and discounts for repeat customers.

Tax Coupons and Deals
Naturally, you can look for tax software discounts with the help from coupon sites. There are any number of discounts and deals on sites like Dealio to find the latest coupons and discounts. You can also search online for “tax software discounts” or “tax software coupons” to find more deals. Just be careful; not all coupons and promos you find online are reliable.

FreeFile
Another option is to check out FreeFile from the IRS. If your adjusted gross income is less than $58,000 a year, you can actually go to IRS.gov and get access to tax software. You fill it out and e-file for free. The tax software comes from The Free File Alliance, LLC members. This includes a number of  tax software providers including:

• H&R Block
• TurboTax
• TaxSimple
• TaxACT
• TaxSlayer

Even if you make more than $58,000 a year, you can get help from the IRS by using the free fillable forms available. These come with directions, and can help you with fairly simple calculations. You may have to pay to file your taxes if you use a tax provider, though. Or you can simply print the finished forms and send them in.

If you don’t pay what the IRS says you owe it’ll end up costing you a lot more than your initial tax bill. When you skip out on your taxes, there are some fairly harsh penalties.

Even if you know you can’t pay what you owe, you are better off filing a return and working with the IRS than just ignoring the problem and skipping taxes altogether.

Penalties and Interest
When you don’t pay your taxes, the penalties and interest start to add up. The IRS will levy penalties against you, and start keeping track of interest. The interest starts from the day after taxes are due.

So, if your quarterly taxes are due on June 15, the IRS will start charging you interest from June 16. The longer you wait to pay your taxes, the more the interest and other penalties add up. Coming up with the money to pay these penalties and interest is even more difficult than finding the money to pay the initial amount owed in the first place.

It is also important to remember that there is a similar process when you skip your state income taxes. Your state will also have its own penalties and interest charges. So, if you don’t pay your federal taxes or your state taxes by the tax return deadline, it could get very expensive really fast.

Failure to File a Tax Return
Many people believe that, if they can’t pay their taxes, there is no reason to file a return. This is not true at all. In fact, the penalty for failure to file is rather hefty. It’s more than some of the penalties for not paying taxes.

If you don’t file your tax return, you will be subject to an even bigger penalty. Ignoring your tax problem won’t make it go away. In fact, the longer you wait, the worse it gets.  You can access most of the best tax software for consumers online.  There are ways you might be able to find some tax software discounts and in some cases you can file your taxes online for free.

Working with the IRS
The IRS actually offers you the chance to pay your taxes using an installment payment plan. You don’t have to pay all at once if you can’t afford to. As long as you owe less than $25,000 in taxes, penalties and interest, you are usually eligible to apply for an installment plan.

You can even do this online at the IRS web site . As part of the application process, you tell the IRS how much you can pay each month, and the IRS reviews your situation and determines whether or not to accept your proposal. You should realize, though, that the installment plan is, in fact, a loan.

You will have to pay a one-time fee for origination, and you will pay interest. However, the interest that you pay is likely to be better than what you would pay if you used a credit card, or got a payday loan. And, by setting up an installment agreement, you can avoid paying some of the penalties.

If you are willing to show that you want to pay your tax obligation, and you make an effort, in many cases, you will be able to get some help in making the whole situation a little more affordable.

If you’re not aware of the possible investment tax deductions one that you should think about is investment loss – the losses that result from your investments can offset some of your income.

Offsetting Capital Gains

First of all, your investment losses should be used to offset your capital gains. You pay capital gains when you see a net profit with your investments. However, if you have investment losses in other areas, you can use them, dollar for dollar, to offset your gains.

So, if you sell an investment for a $5,000 gain, and you sell another investment and end up with a $6,000 loss, your losses completely offset your gains. You owe no capital gains tax on your increase! When figuring out whether you have a gain or a loss overall, make sure that you start off by pairing off long-term gains with long-term losses, and short-term gains with short-term losses.

This is important, since short-term gains are taxed differently than long-term gains. If you have a net loss over all, though, it makes the situation a little easier. Double check your work with the IRS or with a knowledgeable tax professional before filing your tax return.

Offsetting Other Income

In the example above, there are losses “left over” from offsetting capital gains. If you still have losses after offsetting your capital gains, you can use those, up to $3,000 a year, to offset other income. So that left over $1,000 becomes a tax deduction from your “regular” income.

But what if your net losses are much bigger? In some cases, you might find that you have $4,000 left over after offsetting your capital gains. Well, you can still only use $3,000 of your left over losses to reduce your income. However, you can carry forward losses indefinitely.

So, you can carry the remaining $1,000 to the next tax year, and use that to reduce some of your tax liability. When deciding what to sell, think into the future. While it’s a benefit that you can carry forward losses, you don’t want so many losses that you are constantly carrying them forward with no end in sight. Make sure you carefully consider your situation, and decide on a strategy that works best for you.

Selling Your Losing Investments

As you prepare to sell your losing investments and harvest the tax loss, it is important to make sure that you do it right. First of all, understand that you can’t use losses on paper. The sell transaction has to actually be complete before the end of the year if you want it offset your income.

Also, if you want to gain a tax advantage from selling your losing investment, you have to avoid violating the wash sale rule. The IRS wash sale rule is simply that you can’t buy back a “substantially identical” investment within 30 days of selling your investment.

It’s not illegal to buy back an investment within that time period, but it will prevent you from claiming your losses as a tax deduction. So, if you decide to sell, make sure you don’t re-purchase the investment within 30 days. Your losing investments can be turned to your advantage with the right strategy. Take a look at the options, and consider that you might be able to benefit by reducing your taxable income by harvesting investment losses.

What is Investment Cost Basis?

Cost basis is simply the price you pay for a share or asset, including any sales charge that is paid. It is used to determine if you will be paying a capital gains tax or if you will be able to deduct the loss when that occurs. Cost basis also includes any reinvested dividends and capital gains distributions.

For example, if you bought 100 shares today in a mutual fund and the per share price was $20 and you were charged $10 to buy the shares, your cost basis would be $2,010. (You would also factor in your brokerage charge to sell the shares at some point in the future.) You would use this cost basis to determine if you made a profit or loss on your investment whenever the investment is sold in the future.

If you bought at $20 per share and the shares rise to $30 per share when you sell, you’ve made a profit. Your capital gains tax would be factored off of: $3,000 (100 shares x $30/share) – $10 (selling brokerage charge) – $2,010 (initial cost basis including purchasing charge from broker). Your profit would be $980 and capital gains tax would apply to that amount.

What is Changing to Mutual Fund Cost Basis Rules?

Mutual fund companies have, in the past, only reported the cost basis to the investor and not the IRS. This will change in January 2012 and cost basis will be reported to the IRS for all shares acquired after January 1, 2012 (to be called “covered shares”). Fund companies will report this information on Form 1099-B to both the IRS and the investor.

Traditionally the cost basis has been calculated using an average cost (the average price of all shares purchased). However, investors will now have the option to choose one of seven ways to calculate the cost basis.

• Average Cost -  typically the default method for fund companies; the average price for all the shares you currently own is calculated and used when your shares are sold
• High Cost, First Out (HIFO) - the shares with the highest purchase price are sold first
• Low Cost, First Out (LOFO) - the shares with the lowest purchase price are sold first
• Specific Identification (SpecID) - the investor chooses which shares are to be sold, this determines the gains or losses for that particular share.
• First In, First Out (FIFO) -  the oldest shares are sold first
• Last In, First Out (LIFO) - the newest shares are sold first
• Loss Gain Utilization – shares are sold by those with losses first and then gains last

Each company will provide you with a way to choose a method for calculating the cost basis method. Typically, if you do not make a choice, the average cost method will be chosen for you. You are given additional options so you can tweak your tax strategy moving forward. It might be beneficial for you to hold onto the shares you first purchased many years ago at a lower price while selling your most recent shares that were acquired at a higher price because your capital gains would be lower.

For example if you have been investing in a mutual fund whose price was initially $10 per share and has now risen to $60 per share, you would want to sell your $55 shares first rather than your $10 shares. The difference in capital gains could be huge. However, managing your specific shares you are selling to maximize your tax benefit requires you to be very hands on with your investments.

Covered vs. Non-covered shares

The IRS is only changing the rules for a certain set of investments. For mutual funds, the covered shares (or the shares the changes will begin impacting) are those that are acquired on or after January 1, 2012. If you invested in a mutual fund earlier than that, your cost basis rules will not change on those shares.

Does the Change Only Impact Mutual Funds?

The new regulations are impacting cost basis reporting for all securities: individual equity positions (stocks), mutual fund shares, ETFs, fixed income products, and options. However, not all of the changes are impacting all of the investments at the same time. Stocks acquired anytime on or after January 1, 2011 will be considered covered securities. Mutual funds and ETFs are considered covered as of January 1, 2012, and options and fixed income securities are covered beginning January 1, 2013.