Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
Support MFO
Donate through PayPal
H&R Block & United Way Offers 100 M Americans Tax Free Filing
While I commend the intent of the post, the service cited is deceptive.
The IRS requires free filing services to be offered to taxpayers with AGI below $69K in 2019. I'll guess that this limit was $66K in 2018, because that's what MyFreeTaxes.com says, and I found a reference to 2018 on that site. (So it doesn't appear to have been fully updated for the current tax year).
Here's the IRS page that will take you to free tax prep sites (FWIW, MyFreeTaxes.com is not among them): https://apps.irs.gov/app/freeFile/
MyFreeTaxes.com claims to provide free filing independent of income (bold in original):
All income levels are eligible to file both your federal and state returns for free using MyFreeTaxes.com.
MyFreeTaxes is a free, safe, and easy way for individuals and households earning less than $66,000 to file their federal and up to three state taxes for free.
You can still use MyFreeTaxes.com, you'll just have to pay for it:
MyFreeTaxes is a free, safe, and easy way for individuals and households earning less than $66,000 to file your federal and up to three state taxes for free. If your Adjusted Gross Income (AGI) is over $66,000 you will be charged the variable market rate for H&R Block’s commercial product.
I buy a copy of Turbo Tax Deluxe that costs $50. Another $15 more for the Premiere version if your investment is more complicated.
Even if the filing is FREE, I really don't think it is prudent to put all personal information (social security # and birthdays) on H&R Block servers, and having them hacked later for identity theft. A piece of mind is priceless.
I will give it a try - site says - All income levels are eligible except if you need to fill schedule C, D & E - not needed for my returns - just plain W2, interest income and 1099R distribution.
The site says many things, that's certainly one of them, displayed prominently on the third slide of the home page. It also says in the "fine print" (its FAQs) that it's free "for individuals and households earning less than $66,000" and that "If your Adjusted Gross Income (AGI) is over $66,000 you will be charged."
I sent email to ProPublica that reported myFreeTaxes as free and am awaiting a response. I also sent email to TheFinanceBuff that had relied on ProPublica's reporting.
Harry suggested that perhaps the policy has changed since last year and that MyFreeTaxes just hasn't updated its site. (See its Getting Started page for explicit 2018 Q&A.)
If that's the case, I hope it has at least updated its software. After you try it, let us know how well it worked.
Turbo screwed mine up so much last year (and delayed my state refund by about 6 months) that it’s back to H&R Block this year. Today, their “Deluxe with State” can be had (shipped to home free with Prime on CD) for $19.95. Federal alone is $14.95. Let’s hope this isn’t a case of “getting what you pay for.” My Mac is a bit dated - still has a CD Rom drive, so would prefer to start out with that - knowing full well the first thing it will do is download the more up to date version.
My guess is that for some of those financially disadvantaged people who qualify for the give-away , the process of completing their taxes (“free” online) will seem so daunting it will drive them into the arms of those H&R prep sites that pop up at the area Walmart around this time of year. Hence - a “loss leader” for the firm.
IN TAX SEASON 2020, H&R Block HAS removed the INCOME CAP for myfreetaxes. it's free to anyone of any income with a simple return. But SCHEDULE C, D OR E Forms aren't among the free forms available now.
WE'RE UPDATING the 2020 promotional materials AND CREATIVE ASSETS NOW.
I tried playing around a little with the site to confirm that it will handle itemized deductions. Though heaven help you if you need to file form 1116 (foreign tax credit above $300/$600 single/MFJ). It doesn't seem to inform you about using "RIC" for mutual funds. Nor does it provide much explanation about the information it is asking for.
Guidance is pretty sparse. I suppose that's good news/bad news. For really basic returns, that guidance would be overkill and might confuse. But if that guidance is needed, it just doesn't seem to be there.
I agree with hank that this could drive some people into the outstretched arms of tax preparers. OTOH, the idea of making software free for filers is so that they at least have the opportunity to try DIY without cost or risk.
IN TAX SEASON 2020, H&R Block HAS removed the INCOME CAP for myfreetaxes. it's free to anyone of any income with a simple return. But SCHEDULE C, D OR E Forms aren't among the free forms available now.
WE'RE UPDATING the 2020 promotional materials AND CREATIVE ASSETS NOW.
CreditKarma is offering free federal and state tax filings, no income limits, with no upselling.
When you file with Credit Karma Tax®, you’ll never face unexpected charges or be asked to upgrade to a paid version. It’s always free to file your state and federal taxes from start to finish. https://www.creditkarma.com/tax
@hank, Sorry to hear you have so much trouble with Turbo Tax. I have been using Turbo Tax for a number of year on Mac and PC with any delay (refund). Most of the time I owe a bit of tax and that is okay. No free loan to Uncle Sam.
Question, do you file your returns online or by mail? Just wonder what causes the delay...
@Sven, The trouble with Turbo last year was I let them have direct access to my TRP accounts for the first time. I did have some substantial cap gains in a non-retirement account that needed Turbo’s attention. What I didn’t count on, however, is that I also use TRBUX (an ultra short bond fund) in a non-retirement account there wherein I make systematic twice-monthly contributions (part of the household budget process) and also write checks against or perform electronic transfers out of fairly often. So, Turbo pulled up 50-100 “buys” and “sells” in and out of TRBUX, even though the fund’s NAV remained quite stable for the year, staying in the $5.00 - $5.02 range. “Teeny-weeny” fractional gains or losses resulting from each transaction were factored into the tax computation and churned out in several pages of print. I doubt the total “cap gain” or “loss” for the entire year in that fund amounted to $15. But Turbo printed every trade and told me to mail all that garbage in with both Fed and State returns.
Since I owed the Feds money and mailed a check with the return they were satisfied. But the state owed me a refund and held up the return “for review.” (not an audit). I’m sure their staff or automated system simply didn’t know what to make of several pages worth of “buys” and “sells” included in the mailed in return. So they flagged it for closer attention later on. The full refund came through about 6 months late. Technically, I guess those tiny fluctuations in NAV need to be accounted for - but yikes. I’d always just included the income from TRBUX on my income page, as it’s essentially a stable value income producing asset. That’s how I’ll do it this year. Common sense shall prevail.
Having worked with H&R Block this tax season I’ll say it wasn’t an easy road either. Hit a roadblock and lost 1-2 hours work that had to be reentered. Frustrating. But for $20 I got about what I paid for. Taxes are finished. Just need to check them over once, write a check to the Feds, and get them in the mail.
Is there a third reputable company I might buy software from next year?
@Sven, Per your question ... I’ve always printed the forms from the tax program and mailed them off in paper. Feel more secure that way. With the Fed, I generally owe a chunk (on purpose) so makes sense to mail it in April.
hank I have to give you credit-I wouldn't have the patience to use TRBUX as a quasi checking account and deal with the accompanying capital gain/loss paperwork. Plus my accountant would go crazy dealing with that paperwork. I'm content to use funds like TRBUX and BBBMX as funds that hopefully will provide better returns than money market funds ,with limited risk.
Got P’d-off when the SEC “reforms” following the ‘07-‘09 crisis made traditional mm funds basically worthless for generating income. They’re severely constrained. So I went with TRBUX as my non-retirement cash management account. We’re not talking big dollars here (in terms of interest). I guess it’s more a matter of principal with me that I refuse to use the watered-down mm funds. Don’t have an accountant. If I did, suspect the viewpoint expressed would be the same as yours.
Also - my purpose in sharing was to alert others to the potential downside of using ultra-shorts for that purpose.
@hank, Sorry that you have to go through that with Turbo Tax. Supposedly downloading the previous transactions from TRP would save you time in reporting each transactions and their cost basis. I have fewer ones than you do so I enter them manually, which ensures accuracy on the proceeds and cost basis. Still waiting 1099 document from Vanguard. Perhaps this year you can consider taking out bigger block of sale so to reduce the total number of transaction. My experience is that state refunds tend to be much slower than Federal refunds. One year Oregon took 2 months before the refund arrived. So California is no better. Since then I keep track of the tax and make sure I owe a small amount.
Years ago I worked with H&R Block and the agent was not experience with stock sales from employee purchase plans. I would have pay twice until a friend set the record straight for me. Tax-Cut software from H&R Block is a few dollars cheaper than Turbo Tax, but I have no experience with them. With rebates Turbo Tax deluxe is $40 at Costco.
Even without writing checks, simply having a bond fund where you automatically reinvest monthly can create pages of transactions when you sell enough of the fund.
I liquidated a fund in 2018 and the software generated 3½ pages of entries on Form 8949 (capital gains/losses). Since I keep a spreadsheet of transactions for taxable accounts, I was able to relatively quickly check each line. Still, this computer-generated nonsense is not designed for human use.
I believe the problem (if one wants to call a hyper-detailed report a problem) arises on the financial institution side, here TRP. It's the financial institution that generates all the buy and sell lines. The tax software just imports the data.
It would be nice if one side or the other would roll up the transactions into a single line, just as a human being would enter: date acquired = "various", date sold, proceeds = total sale, cost = sum of costs
Checkwriting makes things worse, because now you've got micro wash sales.
Except for last year, you would have come out about the same by having automatically deposited the fund's dividends into an internet bank like DiscoverBank or Marcus. On a periodic basis, say monthly, you could move what you needed from there to a checking account. That way, there would never much in the checking account losing interest and you wouldn't have many transactions in the bond fund - neither reinvested dividends nor withdrawals by check.
Interesting insights @msf. T. Rowe is nothing - if not thorough. Their front office folks can run circles around most I’ve dealt with in terms of basic understanding and having access to relevant records or information. I’m sure a lot stems from the infrastructure they’ve put in place over the years (and can afford to pay for).
No doubt there was a simpler way to state that aprox $15 year’s cap gain / loss on TRBUX without having to churn out and submit several pages of sell lines. I did run it through Turbo a second time, hoping that their instructions to mail in all that paperwork were in error. But on the second run, as on the initial, it was clear they wanted me to send in the entire packet of documents. SO I did!
A tax question slightly related to this discussion: if I get a state tax refund but I don't use state tax as an itemized deduction on Federal taxes, do I have to report the refund as income next Spring? I wonder if H&R Block and TurboTax know how to handle this. David
if I get a state tax refund but I don't use state tax as an itemized deduction on Federal taxes, do I have to report the refund as income next Spring? I wonder if H&R Block and TurboTax know how to handle this.
From linked source: “State income tax refunds can sometimes be taxable income, according to the IRS—"sometimes" being the operative word. You must report them on line 10 of Schedule 1 of the new 2018 Form 1040, but only if you claimed a deduction for state and local taxes the year before. A lot of taxpayers will dodge having to claim their refunds as income thanks to this rule.”
Both programs (I’ve been alternating between them) have gotten it right in recent years. They asked how much the previous year’s state refund was early on, but did not include it in the gross taxable amount. (I don’t itemize). How did they understand that? I haven’t a clue. But suspect it was covered somewhere in the questions they posed along the way..
There's a more interesting question because state and local tax (SALT) deductions were limited to $10K starting in tax year 2018. What happens if you do claim a deduction (of the full $10K) for SALT and then get a refund?
According to The Balance as quoted, you'd have to report the refund.
Suppose you pay $11K in taxes and get no refund. You'd have taken a deduction of $10K if you itemized. Suppose instead you pay $12K in taxes and get a $1K refund. Again, you'd have taken a $10K deduction. No difference, so the refund shouldn't be taxable.
I will go with Credit Karma - totally free...Federal & State (can't handle multiple states but it doesn't apply to me). Anyone has any opinion or experience?
@msf So the SALT rule causes even more complications than anybody expected! What are the chances that the members of Congress foresaw such issues? Remember -- the Tax Law was rushed through the majority's approval process. And this from the party that has complained for years about the complexity of the tax system. Hypocrisy knows no limits.
Is this a download program that may be completed "at home" and mailed (paper form); or is all of one's data loaded to their server, remains there; and then the completed document is e-filed by the tax payer?
There were competing proposals from the House and the Senate on eliminating/capping the ability to deduct state and local taxes. This was one of the most heavily discussed and debated provisions of the Tax Cuts and Jobs Act (TCJA) of 2017. Most recently, the Senate rejected a bill to enable states to circumvent the cap.
IMHO it ain't gonna go away (or get modified) anytime soon. But it will vanish in 2026, along with most of the other individual income tax changes (personal exemptions, tax brackets, standard deduction amounts, AMT thresholds, etc.), since the TCJA scheduled them to expire then. Unless the federal government proactively extends them.
Is this a download program that may be completed "at home" and mailed (paper form); or is all of one's data loaded to their server, remains there; and then the completed document is e-filed by the tax payer?
It's an online service. If you go to Credit Karma's page for the service, you'll see that the browser page (tab) has the title: Free Tax Filing Online - $0 State/Federal | Credit Karma Tax® https://www.creditkarma.com/tax/
CreditKarma is offering free federal and state tax filings, no income limits, with no upselling.
When you file with Credit Karma Tax®, you’ll never face unexpected charges or be asked to upgrade to a paid version. It’s always free to file your state and federal taxes from start to finish. https://www.creditkarma.com/tax
It looks like both the "no upselling" and "free" features may be at risk:
Comments
The IRS requires free filing services to be offered to taxpayers with AGI below $69K in 2019. I'll guess that this limit was $66K in 2018, because that's what MyFreeTaxes.com says, and I found a reference to 2018 on that site. (So it doesn't appear to have been fully updated for the current tax year).
Here's the IRS page that will take you to free tax prep sites (FWIW, MyFreeTaxes.com is not among them):
https://apps.irs.gov/app/freeFile/
MyFreeTaxes.com claims to provide free filing independent of income (bold in original): But one of the FAQs says that: You can still use MyFreeTaxes.com, you'll just have to pay for it: Bait and switch?
I also came across this possible bait and switch scenario with turbo tax:
https://propublica.org/article/irs-reforms-free-file-program-drops-agreement-not-to-compete-with-turbotax
Even if the filing is FREE, I really don't think it is prudent to put all personal information (social security # and birthdays) on H&R Block servers, and having them hacked later for identity theft. A piece of mind is priceless.
@Sven- A piece of my mind is all that's left, and it certainly seems to be priceless- for sure, no one has offered me anything at all for it.
I sent email to ProPublica that reported myFreeTaxes as free and am awaiting a response. I also sent email to TheFinanceBuff that had relied on ProPublica's reporting.
Harry suggested that perhaps the policy has changed since last year and that MyFreeTaxes just hasn't updated its site. (See its Getting Started page for explicit 2018 Q&A.)
If that's the case, I hope it has at least updated its software. After you try it, let us know how well it worked.
My guess is that for some of those financially disadvantaged people who qualify for the give-away , the process of completing their taxes (“free” online) will seem so daunting it will drive them into the arms of those H&R prep sites that pop up at the area Walmart around this time of year. Hence - a “loss leader” for the firm.
https://www.unitedway.org/myfreetaxes/partners I tried playing around a little with the site to confirm that it will handle itemized deductions. Though heaven help you if you need to file form 1116 (foreign tax credit above $300/$600 single/MFJ). It doesn't seem to inform you about using "RIC" for mutual funds. Nor does it provide much explanation about the information it is asking for.
Guidance is pretty sparse. I suppose that's good news/bad news. For really basic returns, that guidance would be overkill and might confuse. But if that guidance is needed, it just doesn't seem to be there.
I agree with hank that this could drive some people into the outstretched arms of tax preparers. OTOH, the idea of making software free for filers is so that they at least have the opportunity to try DIY without cost or risk.
When you file with Credit Karma Tax®, you’ll never face unexpected charges or be asked to upgrade to a paid version. It’s always free to file your state and federal taxes from start to finish.
https://www.creditkarma.com/tax
It includes Schedules C, D, and E, along with others:
https://support.creditkarma.com/s/article/Forms-and-situations-Credit-Karma-Tax-supports-US
It does not handle Montana or Wisconsin:
https://support.creditkarma.com/s/article/States-available-for-filing-with-Credit-Karma-Tax-US?parentCategory=US_Tax&selectedCateg=State_returns
The gotcha: You will need to sign up for Credit Karma to use and file your taxes with Credit Karma Tax. But that's free, too.
https://support.creditkarma.com/s/article/Things-to-know-before-you-start-with-Credit-Karma-Tax-US?parentCategory=US_Tax&selectedCateg=About_Credit_Karma_Tax
Question, do you file your returns online or by mail? Just wonder what causes the delay...
Since I owed the Feds money and mailed a check with the return they were satisfied. But the state owed me a refund and held up the return “for review.” (not an audit). I’m sure their staff or automated system simply didn’t know what to make of several pages worth of “buys” and “sells” included in the mailed in return. So they flagged it for closer attention later on. The full refund came through about 6 months late. Technically, I guess those tiny fluctuations in NAV need to be accounted for - but yikes. I’d always just included the income from TRBUX on my income page, as it’s essentially a stable value income producing asset. That’s how I’ll do it this year. Common sense shall prevail.
Having worked with H&R Block this tax season I’ll say it wasn’t an easy road either. Hit a roadblock and lost 1-2 hours work that had to be reentered. Frustrating. But for $20 I got about what I paid for. Taxes are finished. Just need to check them over once, write a check to the Feds, and get them in the mail.
Is there a third reputable company I might buy software from next year?
@Sven, Per your question ... I’ve always printed the forms from the tax program and mailed them off in paper. Feel more secure that way. With the Fed, I generally owe a chunk (on purpose) so makes sense to mail it in April.
Got P’d-off when the SEC “reforms” following the ‘07-‘09 crisis made traditional mm funds basically worthless for generating income. They’re severely constrained. So I went with TRBUX as my non-retirement cash management account. We’re not talking big dollars here (in terms of interest). I guess it’s more a matter of principal with me that I refuse to use the watered-down mm funds. Don’t have an accountant. If I did, suspect the viewpoint expressed would be the same as yours.
Also - my purpose in sharing was to alert others to the potential downside of using ultra-shorts for that purpose.
Years ago I worked with H&R Block and the agent was not experience with stock sales from employee purchase plans. I would have pay twice until a friend set the record straight for me. Tax-Cut software from H&R Block is a few dollars cheaper than Turbo Tax, but I have no experience with them. With rebates Turbo Tax deluxe is $40 at Costco.
I liquidated a fund in 2018 and the software generated 3½ pages of entries on Form 8949 (capital gains/losses). Since I keep a spreadsheet of transactions for taxable accounts, I was able to relatively quickly check each line. Still, this computer-generated nonsense is not designed for human use.
I believe the problem (if one wants to call a hyper-detailed report a problem) arises on the financial institution side, here TRP. It's the financial institution that generates all the buy and sell lines. The tax software just imports the data.
It would be nice if one side or the other would roll up the transactions into a single line, just as a human being would enter:
date acquired = "various", date sold, proceeds = total sale, cost = sum of costs
Checkwriting makes things worse, because now you've got micro wash sales.
Except for last year, you would have come out about the same by having automatically deposited the fund's dividends into an internet bank like DiscoverBank or Marcus. On a periodic basis, say monthly, you could move what you needed from there to a checking account. That way, there would never much in the checking account losing interest and you wouldn't have many transactions in the bond fund - neither reinvested dividends nor withdrawals by check.
No doubt there was a simpler way to state that aprox $15 year’s cap gain / loss on TRBUX without having to churn out and submit several pages of sell lines. I did run it through Turbo a second time, hoping that their instructions to mail in all that paperwork were in error. But on the second run, as on the initial, it was clear they wanted me to send in the entire packet of documents. SO I did!
I wonder if H&R Block and TurboTax know how to handle this.
David
Source: https://www.thebalance.com/taxable-refunds-3193090
Both programs (I’ve been alternating between them) have gotten it right in recent years. They asked how much the previous year’s state refund was early on, but did not include it in the gross taxable amount. (I don’t itemize). How did they understand that? I haven’t a clue. But suspect it was covered somewhere in the questions they posed along the way..
David
According to The Balance as quoted, you'd have to report the refund.
Suppose you pay $11K in taxes and get no refund. You'd have taken a deduction of $10K if you itemized. Suppose instead you pay $12K in taxes and get a $1K refund. Again, you'd have taken a $10K deduction. No difference, so the refund shouldn't be taxable.
It took the IRS months to figure it out, but it finally agreed and published a revenue ruling at the end of last March. I expect tax software to handle this correctly, though I haven't checked.
https://www.irs.gov/newsroom/with-new-salt-limit-irs-explains-tax-treatment-of-state-and-local-tax-refunds
A broader rule is that you don't have to report state refunds to the extent that they're not taxable.
From the instructions for 1040 Schedule 1, line 1: "Report any taxable refund you received even if you didn't receive Form 1099-G."
What are the chances that the members of Congress foresaw such issues? Remember -- the Tax Law was rushed through the majority's approval process. And this from the party that has complained for years about the complexity of the tax system. Hypocrisy knows no limits.
Is this a download program that may be completed "at home" and mailed (paper form); or is all of one's data loaded to their server, remains there; and then the completed document is e-filed by the tax payer?
https://www.vox.com/policy-and-politics/2017/10/30/16557554/the-state-and-local-tax-deduction-explained
https://thehill.com/policy/finance/467158-senate-rejects-dem-measure-to-overturn-irs-rules-on-salt-deduction-cap
IMHO it ain't gonna go away (or get modified) anytime soon. But it will vanish in 2026, along with most of the other individual income tax changes (personal exemptions, tax brackets, standard deduction amounts, AMT thresholds, etc.), since the TCJA scheduled them to expire then. Unless the federal government proactively extends them.
https://taxfoundation.org/look-ahead-expiring-tax-provisions/
https://www.creditkarma.com/tax/
TurboTax maker Intuit nears agreement to buy Credit Karma for $7 billion - WSJ
https://www.reuters.com/article/credit-karma-ma-intuit-idUSL3N2AN053
https://www.wsj.com/articles/intuit-near-deal-to-buy-credit-karma-for-7-billion-11582433880