Saturday, March 10, 2012

Tax Time!

Turbotax rocks, but you do have to pay for it.

It's tax time, and I just finished doing my taxes, once again using TurboTax online.

I started using Turbotax after my accountant died.  I like it for the following reasons:

1.  You can log on anytime you want and work on your taxes, without having to do it all at once.   You can enter your 1099-DIV information, for example, and then log off and everything is saved until you want to look at it again.  And you can start early in the year, to get ahead of the game.

2.  It will import data from most brokerage houses - Ameritrade, for example, and enter it automatically.

3.  The cost is pretty reasonable - for a Federal Return with Schedule C and State Return it costs about $111.  It would be less costly if your taxes are simpler.

4.  You can file electronically, painlessly.

5.  It is all on the "cloud" so there are no discs to install or data to lose on your hard drive.

6.  You can "play with the numbers" to see how different deductions affect your outcome, such as IRA contributions.

Last year, we had huge refunds, as our income dropped.   This year, with no mortgage interest deduction (taking the standard deduction again, for the first time in 30 years!) my taxes are a little higher.  That's OK, as I avoided about $25,000 in mortgage payments and $20,000 in interest.

Two observations:

1.  It is better to overpay than pay the exact amount.   A lot of people still do their taxes "by hand" and then write a check for the exact amount due.  If you miscalculate the amount due, you may owe something extra - and interest and late fees.  And in the last 3 out of 5 years, the IRS has adjusted my taxes by a hundred or so dollars either way (and if you asked me why, I would have no idea).

2.  Check how much you get "back" in terms of deduction from your IRA.   With Turbotax, I can plug in a number and see.   If I add $100 to my IRA, my taxes go down by $31 (State AND Federal, including the Retirement investment deduction).  That's like getting a 31% return on your investment, right away.  You have until April 15th to make that contribution.  Better to pay yourself $69 ($100-$31) than to pay the IRS $31.

And, needless to say, it pays to look into this well in advance of April 15th!