The tax professionals at Visor offer a personalized strategy to help you boost your income and savings.

Visor also aims to lower your tax burden by identifying all of the possible deductions and credits that could help you when filing your federal income taxes, which can be done electronically.

They have already earned a reputation among customers for simplifying tax filings, providing excellent value and offering personalized financial advice through their app.

But is it right for you? In this Visor review, you’ll find out the nitty gritty to make an informed decision from pricing to service.

Visor Spotlight

How Does Visor Work?

The Visor tax-filing and financial-advice system allows you to send and receive all of your information and communications online.

It’s accessible via website, on your desktop or laptop computer. You may use the app on your tablet or smartphone. The app is available for both iOS and Android devices.

Getting Started

To get started with Visor, you will need to answer some basic questions about yourself and your finances, including:

• Name & Address
• Date of Birth
• Social Security Number
• Marital / Head of household Status
• Number of dependents
• Annual Income
• Homeownership or Property Ownership Status
• Place of Employment

Once you answer those questions, Visor will provide you with a price quote for its tax-filing and financial-advising services.

Get Matched With An Expert

The next step in the process of working with Visor is to get matched with a financial expert.

In order to do this, you must create an account, which will have all of your answers from the previously asked questions.

It will also include information such as whether you have any retirement savings accounts, where those accounts are, and their balance amounts.

You will be asked a few more questions in order to set you up with an advisor who will be a good fit.

Some of those questions include:

• When you expect to retire
• Which types of retirement income you will receive
• Whether you own a business or rental property

You will also be asked some questions about your current debts, such as a foreclosure on a home.

Being forthright about the amounts and types of debts that you have will facilitate the filing of your taxes and help the service provide better advice for your financial planning.

The process of matching you with a financial advisor also includes a few more in-depth questions about your tax-filing status. For example, you will need to state if you have any earnings as an independent contractor or from self-employment.

You will also need to explain whether or not you receive child support, alimony, or other types of income that are not from a job. If you have filed bankruptcy in the past seven years, you will need to share this information.

Get Personalized Advice

Once you are matched with a financial advisor, you can start getting personalized advice. For example, if you had to pay a lot of federal income taxes last year at the time you filed, you might want to know if you should adjust your withholding.

If you are considering the purchase of a home, you may want to work with the advisor in order to determine what percent of your take-home pay you can afford for the mortgage, property taxes, insurance, home maintenance and repairs.

You can also start with the tax-filing process after you are paired with an advisor. In order to file your taxes through Visor, you need to choose the tax year.

The next step is to provide the details. For example, the number of dependents you have and whether or not you will be itemizing are some important details to share.

You will also need to explain your household or filing status. The options are single, married filing jointly, married filing separately, or head of household.

Depending on your income and situation, the advisors may ask for some additional details so that they can correctly file your federal taxes.

The Final Step: Upload Documents

The last step in using Visor to file your taxes and get financial advice is to upload certain documents. You can do this directly through the Visor app.

You may also take photos or scan your documents. If you use the desktop version of Visor, you can upload PDF and other file types through their website.

Some of the documents that you may be asked to upload include:

• W-2 for salary and job income
• W-2G if you earned income from gambling
• Form 1099-B if you sold any stocks or other investments
• Form 1099-G if you received a state income tax refund

Some additional documents that you might need to submit to Visor include a 1099-K if you have rental income, a 1099-MISC for self-employment income, and a 1099-S if you sold real estate.

If you received Social Security income, you will need to submit the form SSA-1099. If you are a business owner or partner, you must upload your Schedule K-1.

In addition to all of these documents related to income you earned for the federal tax year, you will also need to upload paperwork related to your expenses.

Those may include Form 1098, which has several versions for student loans, mortgage payments, and charitable donations of vehicles.

Charity receipts, moving expenses, receipts from child care expenses, and your business expenses also need to be uploaded to Visor for your tax purposes. You may need to upload additional documents that apply to your specific situation.

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Why Use Visor?

If you have done your own taxes in the past, you may always have the worry that you missed a deduction.

Visor checks for every possible deduction or credit that applies to your situation. It also offers a convenient solution for getting your taxes filed without having to go somewhere in person.

When you want financial advice, all you have to do is connect to your advisor through the Visor app.

You do not have to wait until business hours or play phone tag with anyone. The design of Visor’s software includes all of the most recent changes to federal tax laws, ensuring that your taxes are filed accurately.

You may also want to use Visor if you do not want to deal with the small details of taxes and other aspects of your finances. If you are more of a “forest” than a “trees” person, Visor makes it easy for you to see the big picture.

Pros and Cons of Visor

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Visor Review: Is It Right for You?

Visor is designed to simplify your taxes. It is an online service that facilitates filing your federal taxes.

Instead of feeling stressed about doing your taxes, you can have it all done electronically through software that incorporates machine learning in order to maximize your deductions.

It is a good choice if you prefer to hand off the work of doing taxes to someone else and want to ensure that every possible deduction has been applied to your taxes.

If you like to do things digitally and prefer online interactions rather than in-person meetings, Visor may be right for you.

On the other hand, if uploading your information makes you feel squeamish, you may not feel comfortable with Visor’s requirement to upload your tax documents.

Overall, Visor may not be a good value to you if you have a complicated tax picture or you need financial advice that is geared toward investments, getting out of debt, or creating an annual or a monthly budget for your household.

Get Started with Visor >>

The article Visor Review – Taxes Made Simple was originally posted on Investormint

Tax preparers may have a wide variety of certifications, charge vastly different fee schedules and have very different levels of expertise. So how do you find the best tax preparer nearby who understands the nuances of your tax circumstances and can fully assist you?

Here are a few things to consider when looking for a tax preparer so that you can find the best one for your needs.

Check Prepared Tax Identification Number (PTIN) of Tax Preparer

Request a PTIN for any tax preparer you provide with private, personal documents

The first step is to determine whether the tax preparer will be compensated. If a good friend, spouse, partner or finance whiz you know well is helping you prepare your taxes at no cost, they won’t need a Prepared Tax Identification Number (PTIN).

However, any tax preparer who is compensated is required by the IRS to have a PTIN. The IRS also requires your tax preparer to jot down their PTIN on your tax return. Double check before signing off on your tax filing that the tax preparer’s PTIN is listed.

Verify Tax Preparer Credentials

To find the best tax preparer nearby, verify the tax preparer has a CPA, enrolled agent certification or has a law license in addition to their PTIN.

A tax preparer with a PTIN is not necessarily a stamp of expertise. Although necessary, you should go a step further and verify the credentials of your tax preparer, which means they should fall into one of the following three categories:

• Enrolled agent
• Certified Public Accountant (CPA)
• Law license holder

The IRS tax code is extraordinarily long and complex. You will want your tax preparer to be credentialed by a program that requires ongoing learning. Each year the tax code changes, and new rules are constantly added, which necessitates your tax preparer stay knowledgeable on current rules and tax code changes.

The IRS has an Annual Filing Season program which tax preparers can complete via the Accredited Business Accountant and Accredited Tax Preparer programs.

To find a credentialed tax preparer nearby, the IRS provides a directory here of tax preparers who have PTINs.

Get Fee Quotes from Tax Preparers

Tax preparers’ fee schedules vary widely by expertise level, credentials, experience and geography. Compare fee quotes of at least 3 tax preparers before hiring.

Fee schedules vary widely among tax preparers. Finding a qualified, experienced tax preparer should not cost you an arm and a leg.

The average tax return preparation fee is approximately $300 according to the National Society of Accountants; this is for Form 1040 with Schedule A and a state tax filing return.

The average cost to prepare a tax return drops by almost 50% when filing without deductions. These amounts will vary by geography with tax preparers in big cities charging more.

According to the National Society of Accountants, tax preparers charge approximately $160 per hour for assisting tax filers with IRS auditing inspections.

Tax Preparer Red Flags

Tax preparers have a standard method of charging fees. Beware of unusual fee schedules or methods of charging.

Tax preparers typically charge one of the following ways:

• Hourly charge
• Fee per form
• Flat rate for filing tax forms and any tax questions throughout the year

Red flags should go up in your mind if a tax preparer quotes you a fee schedule by any of the following methods:

• Size of refund
• More deductions than other tax preparers

Another warning sign is if your tax preparer does not offer a tax e-file service.

The IRS mandates that tax preparers filing more than ten returns file electronically so failing to offer this service may be a sign that the tax preparer has a very small client base, which isn’t necessarily negative but does warrant further research.

A tax preparer with integrity will be transparent in all respects. If your tax preparer is not willing to sign their name to the tax return, investigate why as a matter of priority because the law requires tax preparers to execute tax return contracts with their own signatory.

Tax Preparer Memberships of Professional Organizations

Ethics among tax preparers is very important because tax preparers have access to your personal information such as social security number, date of birth, credit card details and so forth.

Professional organizations, such as the ones listed below, institute professional codes of conduct that will instill greater confidence in you that your private, personal information will be handled and maintained securely:

• American Institute of Certified Public Accountants
• American Academy of Attorney CPAs
• National Association of Tax Professionals
• National Association of Enrolled Agents

Prevent Unethical Tax Preparers Stealing Your Refund

Never, ever sign a blank return and send back to the tax preparer for further editing without your final approval.

An unethical tax preparer could potentially steal your refund if you were to sign a return with no data that is blank. The way your refund can be stolen is by the tax preparer putting their own bank account on your return.

Prepare For A Tax Audit

Preparing for an audit should be done before the IRS summons you for an audit.

A tax preparer with a PTIN is not permitted to represent you in front of the IRS in the event of an audit. By contrast, the following credentialed tax preparers could assist you:

• Enrolled agent
• CPA
• Attorney

To further avoid risk of being left alone to represent yourself in an IRS tax audit, verify that your tax preparer does not work seasonally alone; you will want your tax preparer to be available to represent you year round.

Does Your Tax Preparer Disclose Additional Charges?

One important thing to consider is whether your tax preparer discloses any additional charges upfront. The last thing you want is unhappy surprises at tax time!

Many CPAs charge extra if they have to file your taxes in more than one state. For example, if you do business in multiple states, you likely will have to file a separate tax return for each state.

Some CPAs charge for each tax form they fill out, which is fine. But if the tax preparer doesn’t tell you that they will be charging extra unless you make a point of asking, that’s a red flag that this is not the best tax preparer for you.

After all, if your tax preparer isn’t willing to be honest about how much the service costs, can you really trust them to follow the rules when working on your taxes?

What Type of Document Security Does Your Tax Preparer Use?

Document security is of key importance when working with a tax preparer. Many preparers expect you to provide electronic tax documents to them, and these documents often contain sensitive information such as your social security number and full legal name.

For this reason, you want to work with a tax preparer who is aware of cyber security concerns. You’ll want to take extra steps to ensure that hackers and identity thieves don’t get their hands on your information!

Tax preparers who are aware of the security concerns usually have a secure portal for you to upload your documents. This is a password-protected website where you log in and then upload. Only people with the password (you, your tax preparer, and any staff that is assisting the tax preparer) have access.

This is far more secure than email, which could be more easily hacked. Beware of any tax preparer who asks you to email documents as attachments rather than allowing you to upload them to a password-protected site.

What Is Your Tax Preparer’s Response Time?

Your tax preparer works for you, so don’t hesitate to ask them questions. Ideally, the tax preparer will answer you quickly.

24 to 48 hours is reasonable, though if it’s getting close to a tax deadline you may need to give them more time because of the amount of work they have to do to get all their clients’ tax returns ready.

You don’t want a tax preparer to ever leave you hanging. If your tax preparer takes weeks to answer your questions, sends quick non-specific answers, or seems to be in a rush to get rid of you when you contact them, that’s a giant red flag telling you to look elsewhere for tax help.

Discover>> Best Tax Software

The article How To Find The Best Tax Preparer was originally posted on Investormint

Miss your tax deadline, however, and you might have to pay a penalty. Here are four tips for taking the stress out of tax day.

1. Plan Ahead

It seems the United States is a nation of procrastinators. Around 14 million people wait until the last minute to file their taxes, according to research.

Don’t be one of them.

Sorting through bank account statements and invoices as the clock counts down to tax day can be seriously stressful, and you could miss your deadline altogether.

Plan ahead, instead. If you use tax filing software, you can complete your taxes in stages and save your return as you go – a much better option than leaving everything until April 14.

“[In 2017], the deadline fell on April 18. That year, 17 million returns — 11% of the total — were filed that very week. Another 10% came in the week just before,” says CBS News.

2. Use a Financial Management App

Still using manual methods to file your taxes? You can save time and hassle with the latest technology.

Instead of a pen, paper, and a calculator, download a financial management app to track income, expenses, and other financial information from the 2018 tax year.

TurboTax and QuickBooks are just two of the accounting apps you can download onto your smartphone or tablet to optimize tax prep. These apps monitor business payments, bills, and even payroll.

“Thanks to technology, there are mobile apps on the market that will make the process of doing your taxes less overwhelming,” says Careful Cents. “You can keep track of your income, expenses, and receipts year-round, to make the most dreaded time of year a little less painful.”

>> 4 Best Financial Management Apps

3. Find Out About Tax Refunds

Few people like filing federal taxes. The process is long and laborious, and there are probably hundreds of other things you would rather be doing. Still, think of the positive: Once you file your taxes, the IRS might hand you a refund for overpaid tax.

The average individual income tax refund in 2016 was around $3,050, according to the IRS. Some people, however, received tens of thousands of dollars. How much will you receive?

Not all tax refunds are automatic, though. In fact, the IRS might owe you cash that you don’t know about. This is why it’s important to do your research and call in a professional. Hiring an accountant might be a good idea if you think the IRS owes you a large sum but are not sure how to pursue a claim.

An accountant can also help you chase up a tax refund if you haven’t heard back from the IRS.

4. Find Out About Tax Credits

The IRS offers tax credits that could lower the amount of tax you pay this year. These financial incentives include Earned Income Tax Credit and Saver’s Credit.

You might also be eligible for tax credits if you have invested your education or retirement.

Just like tax refunds, not all tax credits are automatically applied to your account, so you will need to find out whether you qualify. Again, a tax consultant can help you with this.

“A tax credit is a dollar-for-dollar reduction in your actual tax bill,” says NerdWallet. “A few credits are even refundable, which means that if you owe $250 in taxes but qualify for a $1,000 credit, you’ll get a check for $750.”

These are just four tax day tips that will make it easier to manage your financials in the next couple of months. Planning ahead, downloading a financial management app, and finding out about tax returns and tax credits will ensure tax season is a smooth one.

Need to budget smarter? Check out Personal Capital’s free mobile app >>

The article 4 Tips for a Stress-Free Tax Day was originally posted on Investormint

Betterment is head and shoulders above most of its rivals in the robo-advisor industry with over $13.5 billion in assets under management and hundreds of thousands of clients.

One reason for its success is that for Betterment taxes are a key focus. Betterment claims investors can enjoy as much as a 2.66% boost in annual returns using its platform.

Unlike many traditional advisors who primarily focus on investing returns, Betterment concentrates just as much on making sure you get to keep the bulk of those returns through tax-efficient investing.

What Is Tax-Efficient Investing?

Betterment Tax Implications

Remember when you received your first paycheck and saw all the tax deductions? That sinking feeling of knowing you take home a lower amount than you earn is mirrored when investing in the stock market.

The tax impact of selling often can lower the size of your portfolio significantly over the long-term compared to buy-and-hold and tax-advantaged investing approaches.

According to Betterment, tax-loss harvesting and tax-coordinated portfolio strategies combined can boost investor returns by as much as 2.66% annually.

Over 20 years, Betterment claims that can add up to an additional $147,809 in your pocket versus the government’s.

Betterment Tax Impact Preview

To highlight just how much taxes can affect your long-term wealth, imagine you and your neighbor both invest $100 over a very long time period of 60 years. We will use the long timespan to emphasize the effect of taxes.

Now assume both portfolios grow at 15% each year, but you decide to lock in your gains each year while your neighbor holds her portfolio until the end of the period.

If each year you pay short-term capital gains tax of say 30% (to keep the math easy!) and your neighbor pays 20% in long-term capital gains tax at the end of the period, how much wealth do each of you accumulate?

By not locking in gains through selling at the end of each year, your neighbor ends up with a retirement portfolio 6x larger than your nest-egg.

Just think what a difference it would make to your retirement lifestyle to have six times more in savings. That’s the difference between having $6,000,000 versus say $1,000,000!

Taxes are one of the largest costs and drags in building your wealth over the long-term, so how does Betterment fare when it comes to tax-efficient investing?

Open a Betterment Account

Betterment Tax Efficiency

Betterment boosts after-tax returns by using:

• tax-advantaged account and portfolio selection methods
• automatically rebalancing portfolios using dividends and deposits
• offsetting capital gains and income tax liabilities from funds that lose value

Betterment Tax Impact

Betterment makes the bold claim that its goal is to save you more on taxes than any other service.

Betterment tax-loss harvesting and tax-coordinated portfolios are two primary methods of lowering tax liabilities.

What Is Betterment Tax Loss Harvesting?

Tax-loss harvesting is a method of offsetting capital gains and income by selling losers against winners.

When the losing position is sold, the loss counts against gains from winning positions, and the losing position is replaced by a similar one in order to maintain an optimally diversified portfolio that aligns with your risk profile.

Does Betterment Tax-loss Harvesting Work?

Betterment research shows that a $50,000 starting portfolio with a 70% allocation to equities with bi-monthly deposits of $750 has enjoyed additional after-tax returns of 0.77% annually.

While less than 1% in additional gains yearly may not seem like a lot, the increase due to tax-loss harvesting amounted to $44,692 over a 13-year period from 2000 to 2013 according to Betterment.

How Much Does Tax-Loss Harvesting Cost?

Tax-loss harvesting algorithms run every day throughout the day to lower your tax burden, a frequency rate higher than many other automated tax-loss harvesting tools.

And tax-loss harvesting is available to Betterment Digital and Betterment Premium customers 100% free of charge.

Trivia: Losses on investments can not only offsets gains but also lower ordinary taxable income by as much as $3,000 per year.

What Are Betterment Tax Coordinated Portfolios?

Betterment was the first and, for a long time, only investment company to automate asset allocation using advanced computer algorithms.

Research from Betterment shows that tax-coordinated portfolios can save as much as 0.48% annually, and increase portfolio value by an estimated 15% over 30 years.

How Tax Coordinated Portfolios Work

The account selection you make, whether traditional IRA, Roth IRA, or regular taxable account, will affect how much you pay in taxes because each is taxed differently.

At Betterment, the goal is to figure out which combination might be best for you by placing tax-inefficient assets in tax-efficient accounts and tax-efficient assets in tax-inefficient accounts.

Open a Betterment Account

How Betterment Lowers Taxes

Betterment uses a wide range of methods to lower your tax burden, including:

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How Betterment Cost Basis Accounting Lowers Taxes

Brokers generally use the industry standard FIFO method when shares are sold in your account.

Betterment has developed an equivalent proprietary yet superior approach, called TaxMin, to lower taxes.

In a nutshell, the way it works is that when reporting security sales to the IRS, you can reduce your tax liability by selecting specific tax lots.

Betterment automatically calculates the cost basis and duration of lots and selects the optimal one to sell based on which lowers your tax liability.

BETTERMENT SPOTLIGHT
InvestorMint Rating 1 2 3 4 5 5 out of 5 stars	Promo: Up to 1 Year Free Management Management Fee: 0.25% - 0.40% Account Minimum (Betterment Digital): $0 Account Minimum (Betterment Premium): $100,000 Get Started via Betterment secure site

For example, if you wish to withdraw a dollar amount from your account, it will translate into a fixed number of shares. But the choice of which shares to sell can drastically impact what you pay to Uncle Sam at the end of the year.

Each broker has a default method of choosing which shares to sell and the approach used by Betterment is superior to the industry standard.

A customer who wishes to withdraw $100,000 can save as much as $3,883 using Betterment’s TaxMin selling method versus the industry standard FIFO selling approach.

How Does Betterment TaxMin Method Work?

Unlike most brokers, who use the FIFO method that looks only at the time a lot was purchased, Betterment factors in cost basis too so that the tax burden is even lower than the industry standard.

Betterment has developed a series of rules called TaxMin which automatically kick in when customers decide to sell investment holdings. Compared to the industry standard FIFO method, TaxMin is far more granular and more tax-efficient.

In the FIFO, or first-in-first-out method, brokers only consider the time of purchase. However, Betterment looks not only at the time of purchase but also at the cost basis as part of its automated algorithmic tax-advantaged TaxMin feature.

The order in which lots are sold is as follows:

1. Short-term losses
2. Long-term losses
3. Long-term gains
4. Short-term gains

The TaxMin algorithm exploits all taxable opportunities in one category before moving to the next.

In each category, the higher cost basis lots are sold first to lower your tax bill when gains are considered. When losses are evaluated, higher cost basis positions lead to greater losses, so these positions trigger first.

Betterment Taxes Summary

Betterment increases after-tax returns by a combination of tax-advantaged strategies. Tax-loss harvesting has been shown to boost after-tax returns by as much as 0.77% annually while tax-smart asset allocation can increase returns by as much as 15% over a 30 year period.

A combination of tax-coordinated portfolios, automated tax-loss harvesting, TaxMin lot selling and automatic rebalancing means Betterment customers are likely to enjoy higher after-tax returns over the long-term than most casual investors who invest in mutual funds via traditional human advisors.

Open a Betterment Account

>> What Is A Betterment SRI Portfolio?

>> Want Stock Tips? Pick A Robo-Advisor

>> What Is A Betterment Tax-Coordinated Portfolio?

The article What Is Betterment Tax Loss Harvesting? was originally posted on Investormint

In the United States, there are seven states with no income tax but do you save more by living in these states or do state governments find other ways to nickel and dime you that end up costing more when you factor in all your tax payments?

Here is a list of states with no income tax and other taxes you should keep in mind before upping and leaving to a new state.

List Of States With No Income Tax

The 7 states with no income tax are:

Two other states tax dividend and interest income, but do not tax wage income:

You might naturally wonder how these states can afford to charge no income tax to residents. If other states in the union need income tax revenue to finance projects, and pay for infrastructure, schools and government salaries, why not these states with no income tax?

>> More: Get The Best Tax Software

How States With No Income Tax Make Money

States with no income tax find other ways to balance their budgets, such as higher sales taxes and property taxes.

Each of the states without income tax have found their own ways to earn revenue without charging residents income tax.

FLORIDA

The Sunshine State is well known as a tourist haven with attractions like Walt Disney World theme park in Orlando. With so many non-resident visitors each year, it makes more sense for Florida to impose high sales taxes than charge an income tax. After all, income tax only applies to residents but sales taxes apply to residents and tourists alike.

In Florida, the sales tax (state and local) and property taxes are close to average levels nationally.

NEVADA

Like Florida, Nevada benefits from tourist dollars. And while both states have sandy surroundings, Nevada’s tourists spend most of their time indoors at casinos. The fees and sales taxes from gambling proceeds are a source of state income that enables Nevada to keep its state income tax at zero.

Combined state sales and average local tax rates in Nevada are among the highest in the country. Together, they total 7.98%.

TEXAS

Texas falls just outside of the top 10 U.S. states with highest combined sales and local tax rates, but not by much. It’s almost neck and neck with Nevada; Texas charges a combined rate of 8.19%.

Plus, property taxes are comparatively high in Texas relative to other states in the Union.

So, while you may not pay a dime in income taxes, you end up paying a pretty penny in sales and property taxes.

WASHINGTON

Washington does not charge any income tax but it more than makes up for lost income tax revenue in the form of sales tax, one of the highest in the nation. In fact, Washington sales taxes are so high that it ranks in the top 5 states nationally.

Property taxes in Washington are just north of 1% annually, which is more in line with Nevada and Florida than Texas.

WYOMING

Wyoming is fortunate to be rich in coal and other natural resources, which supplement state revenue. Combined state and local sales taxes of 5.40% also bring in tax dollars but they rank among the lowest in the nation at #44 on the list of 50 states.

Average property taxes are also comparatively low in Wyoming – just 0.646% on average based on rates in Laramie County according to smartasset.

ALASKA

Alaska is also resource rich with plentiful oil supplies. In fact, Alaska is so rich with oil that Alaskan residents received dividends of $1,022 each from the 2016 Permanent Fund.

While sales taxes are so low at just 1.76% that they nearly win the prize for lowest in the nation, property taxes are fairly high compared to many other states at 1.355%.

SOUTH DAKOTA

Combined state and local sales taxes in South Dakota push the combined sales tax to 6.39% which still features in the lower half nationally.

Although income taxes are nil and sales taxes are not especially high, property taxes are a fairly hefty 1.281%.

TENNESSEE & NEW HAMPSHIRE

Wage earners in Tennessee and New Hampshire get a break on income tax but dividends and income on savings and investments are taxed, so baby boomers and retirees must fork over earnings on their nest-eggs.

When you factor in state plus local sales tax rates on average, Tennessee only barely misses out on the top spot of most expensive state in the nation – Louisiana takes the prize.

Tennessee property taxes are fairly low however at just 0.774% though the same cannot be said of New Hampshire property taxes which are a whopping 2.205%.

What Are State And Local Sales Taxes?

A list of state and local sales taxes ranked from top to bottom according to the most costly is shown below:

Did you move to a different state for tax reasons? Are you thinking about moving to lower your cost of living? Share your experiences in the comments below, we would love to hear from you.

>> What Property Tax Deduction Can You Claim?

>> Find Out How To Lower Your Tax Bill

>> What Is Non-Taxable Income?

The article Do You Save More In States With No Income Tax? was originally posted on Investormint

Property tax deductions offer homeowners the opportunity to lower tax bills significantly by reducing taxable income.

But the IRS is picky about which tax deductions you may claim so you have a choice to either:

1. Take the standard IRS property tax deduction; or
2. Itemize deductions.

You are not permitted to do both but you are allowed to pick the option that gives you the lowest tax bill.

If you choose the standard deduction, your taxable income will be reduced plus it saves you the hassle of itemizing your deductions, such as charitable contributions and medical expenses.

Standard Deduction Chart
For Most People

The standard deductions most people are eligible for are categorized as follows:

The standard deduction increases for taxpayers aged 65 or older, or who are blind.

When you itemize your deductions, the sum total should exceed the standard tax deduction amount you qualify for otherwise you’ll end up worse off – with a higher tax bill!

So what tax deductions can you claim as a homeowner?

Mortgage Interest Tax Deductions

As a homeowner, the largest tax deduction you will receive each year generally comes from mortgage interest.

In the early years of homeownership, the majority of your payments will be interest.

HOW MORTGAGE INTEREST WORKS

Imagine you took out a 30 year fixed loan for $100,000 and paid interest of 6.5%. Your total payment, including principal and interest, would be $632. In your first payment, approximately $90 goes to principal and the rest to interest!

By month 2, you still owe $90,910 – despite paying $632 in month one. As time goes by, you pay the same monthly amount but more goes towards principal so, by your final payment, you pay approximately $3 in interest and $629 in principal.

The silver lining of paying so much in interest in the early years is that you get to deduct all your interest payments.

LOWER YOUR TAXABLE INCOME

The way to lower your tax bill using mortgage interest deductions is to fill out IRS Form 1098.

Your lender will send you statements that break out how much you pay each month in mortgage interest.

Sum those interest payments and compare the benefits of itemizing versus taking a standard deduction.

You are eligible to take interest payment deductions of up to $1,000,000. The limit is $500,000 for married couples filing separately.

Mortgage Insurance Pros And Cons

The nice thing about mortgage insurance is that the IRS looks at it the same way it does mortgage interest, meaning it’s tax deductible.

However, it’s only tax deductible up to a point!  If your adjusted gross income exceeds $109,000 or $54,500 if married and filing separately, the IRS prohibits you from deducting mortgage interest premiums.

Insurance premiums must be allocated over the shorter of the following two periods:

1. Your mortgage term; or
2. 84 months

While a mortgage insurance tax deduction helps lower your tax bill if you are eligible, the reality is the size of the deduction is a lot smaller than the mortgage interest tax deduction you can claim.

The mortgage interest deduction simply lowers the amount of income subject to tax. It is not a tax credit that provides a tax break of a dollar for each dollar spent.

>> Related: What Is The Best Tax Software?

Deduct Property Taxes

Because paying a cash lump-sum for a home is out of reach for most buyers, it is important to take advantage of every tax deduction available.

Property taxes offer another way to lower your tax bill. Property taxes are deductible in the year in which you pay them.

Generally, at the start of each year, you will receive notice of your tax liability that can be included in your tax calculation.

Don’t forget to include property taxes you may have reimbursed sellers. If you are not sure how to get started, check in with a good tax preparer.

Deduct Points

Mortgage points are another deduction you can take advantage of to lower your tax bill as a homeowner.

WHAT ARE MORTGAGE POINTS?

Mortgage points come in two forms:

• Discount points are fees you pay to a lender at closing in exchange for a reduced interest rate; and
• Loan origination fee.

One point costs 1% of your mortgage amount.

The way discount points works is that you pay some interest upfront in exchange for a lower interest rate over the duration of your loan.

It is important to calculate your breakeven time when choosing points. This is the length of time it takes recoup the cost of buying points.

Simply divide the cost of points by the amount you save on your monthly payment.

For example, if you have a $400,000 mortgage and buy 1 point for $4,000, then you would divide $4,000 by your monthly savings amount, say $60, to arrive at a monthly number of 67 months (rounded up).

Buying points can save you a bunch of money over the duration of your loan but it doesn’t necessarily mean they are worth it if you don’t have the cash upfront to buy them.

HOW MUCH CAN YOU DEDUCT?

The full amount you pay in points can be itemized and deducted on your tax bill. So, in the example above, $4,000 is eligible for deduction.

The way to claim your tax deduction is to fill out IRS Form 1098.

Homeowners regularly neglect to take advantage of this deduction, so make sure to include it when it comes time to file taxes to lower your tax obligation.

When Should You Itemize Tax Deductions?

If you are not sure whether you should itemize your tax deductions, the following general guidelines should help you along the way.

According to the IRS, If you are single and your adjusted gross income is more than $259,400 or $311,300 if married and filing jointly, then you may be limited in the deductions you can take.

Generally, it is in your interests to itemize deductions in the following scenarios:

• You incurred large uninsured medical and dental expenses
• You paid interest and taxes on your home
• You suffered large uninsured casualty or theft losses
• You made large contributions to qualified charities
• You had large unreimbursed employee business expenses
• You don’t qualify for the standard deduction or your claim is limited
• You have total itemized deductions which exceed the standard deduction to which you are otherwise entitled

When Items Are Not Tax Deductible?

If you choose to itemize your deductions, keep in mind that fewer costs are eligible when owning a home than say owning a business.

In a business, operating costs such as phone and utilities may be eligible, but when you own a home, you are prohibited from counting any of the following expenses:

• HOA Fees
• Wages you pay for domestic help
• Gas, electric and water costs
• Home improvements
• Depreciation
• Fire, comprehensive and title insurance
• Forfeited deposits, down payments, or earnest money

Property Tax Deduction Summary

While tax deductions from mortgage interest and mortgage insurance are cited as reasons to buy a home, the reality is the deductions, while beneficial, do not offset the higher costs of interest and insurance payments.

So, all else being equal, if you could pay for your home in cash, you will pay a lot less over time than if you take out a mortgage and maximize your tax deductions.

However, if a cash purchase is not financially possible, include mortgage interest, mortgage insurance if possible, points – which are often overlooked – as well as property taxes as part of an itemized tax deduction on IRS Form 1098 (provided the total exceeds the standard deduction for which you are eligible).

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>> What Is Non-Taxable Income?

>> How Much Should Be In My 401(k)?

>> How Do I Calculate Adjusted Gross Income?

The article What Property Tax Deduction Can You Claim for 2020? was originally posted on Investormint

Deduct Medical Expenses

When medical and dental expenses exceed more than 10% of your adjusted gross income, they may generally be deducted. This 10% threshold applies to all individuals, including seniors over the age of 65.

The way it works is anything over the threshold may be deducted. If you earn say $60,000 then any medical expenses over $6,000 (10% of $60,000) may be deducted. So if you had $8,000 in medical costs, $2,000 could be deducted.

Deduct Investment Losses

If your portfolio holds winning investments that you sold for a profit during the year, other losing investments may be sold to offset capital gains tax. Selling investments for tax reasons alone is generally not a wise strategy and the IRS can effectively void your tax break if you buy the position again within 30 days; this  is called a wash-sale.

The limit imposed by the IRS on offsetting capital gains taxes is $1,500 for married couples filing separately or $3,000 otherwise.

Pay Mortgage Interest Early

Mortgage interest counts as a deduction on your taxes. Most people follow a regular monthly schedule of paying off their mortgages so their annual mortgage interest deductions are the sum of interest payments made over 12 months. Generally, you are permitted to accelerate your mortgage payments without penalty. So if you are looking to minimize taxable income for the year, you could consider paying your mortgage interest for January of the following year in December of the prior year to get an extra month’s interest deduction.

Other qualifying expenses that may be predictable and which you can afford to pay off before year end will count as deductions too and lower your tax bill.

Maximize IRA Contributions

As an individual, you may contribute as much as $5,500 annually to a traditional IRA or $6,500 if over the age of 50. Contributions can be made all the way up to the April tax deadline and still count for the prior year.

The amount of the IRA contribution that may be deducted depends on:

• Income earned
• Work retirement plan coverage

If you are covered by a work retirement plan you may be prohibited from deducting IRA contributions.

Maximize 401(k) Contributions

Although 401(k)s are typically sponsored by employers, self-employed individuals may also contribute to a 401(k) plan up to $18,000 annually for those under 50 and up to $24,000 annually for those aged 50 and above.

Employer contribution matching to your 401(k) plan is quite common and accelerates your retirement goals.

Donate to Charity

Good tax software is available these days to sum the deductions you take for donating cash or goods, such as food and clothes, to charity.

If you help out at the local soup kitchen, your travel expenses and mileage are deductible.

Raise Your W-4 Withholding

When you start a job, you will typically select how much tax you want your employer to withhold from your salary. The W-4 selections can be changed at any time and optimized as follows:

• If your tax bill was larger than you wanted, increase your withholding in order to pay less in the future.
• If you received a refund, reduce your withholding so the government doesn’t get a free lunch on your dime.

Make 529 Plan Contributions

States and educational institutions operate 529 savings plans to allow parents save up to $14,000 annually for each child’s college tuition and enjoy a tax break in the process. Contributions greater than $14,000 can trigger a gift tax so consult a tax preparer if you are uncertain whether you are at risk of exceeding the threshold.

If you contribute to a 529 Plan operated by your state, you can typically deduct 529 Plan contributions on your state taxes as well as your federal taxes.

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The article How To Lower Your Tax Bill was originally posted on Investormint

The Alternative Minimum Tax (AMT) has been a thorn in the side of very wealthy higher income earners for decades but is increasingly affecting middle class families. Anyone with income in the $200,000 to $1,000,000 range is susceptible to the Alternative Minimum Tax, which is applied if it is higher than the tax liability calculated under standard tax calculations.

5 Steps To Calculating Alternative Minimum Tax

The taxes payable to the IRS are the higher of the tax liability you calculate under regular tax rules and the Alternative Minimum Tax liability. Good tax software can perform the AMT calculation for you by comparing your Form 1040 standard tax liability with your Form 6251 AMT tax liability.

1. To calculate your Alternative Minimum Tax Liability, start by assessing how much tax you are obligated to pay under standard tax rules.
2. Your Alternative Minimum Taxable income is the sum of your standard tax liability and any deductions or tax breaks taken in calculating your regular tax liability.
3. Based on your filing status, you are permitted certain exemptions, which should be subtracted from your AMT income.
4. Your new tax liability is calculated by applying AMT tax rates to your AMT income.
5. The taxes you owe are the higher of the AMT tax liability you calculated and the standard tax liability you calculated.

AMT Tax Brackets

Fewer Alternative Minimum Tax brackets exist compared to Federal Income tax brackets.

Federal Income tax rates can be as low as 10% and as high as 39.6%. Seven Federal Income tax brackets fall within that range based on the progressive tax system. Fewer AMT tax brackets exist, either 26% of 28%.

How To Lower Your Alternative Minimum Tax Liability

Maximizing contributions to retirement accounts, deferring sale of investments that trigger long-term capital gains and reducing itemized deductions can lower Alternative Minimum Tax liability.

The Alternative Minimum Tax has been controversial for a long time and speculation surfaces from time to time that it will be abolished. Until then, a good tax preparer and good tax software are your allies in lowering your AMT tax liability.

Your tax preparer can help you identify ways to lower future tax liabilities but if you have been saddled with an Alternative Minimum Tax liability this year, it may be tough to find a way to lower the amount owed.

Some of the more common ways to lower AMT tax liabilities in the future include:

• Increasing charitable contributions
• Decreasing itemized deductions
• Maximizing 401(k) and IRA contributions
• Deferring sale of investments that trigger long-term capital gains, which are included in Alternative Minimum Tax income.

What Are The AMT Exemption Amounts?

AMT exemption levels are adjusted annually for inflation.

Above threshold levels, exemptions phase out gradually and then completely. In 2016, for single filers, the exemption fully phases out for income levels of $335,300 and for married couples filing jointly, the AMT exemption phases out above $494,400.

Above certain income levels, the 26% rate kicks in while higher earners will see the 28% AMT rate kick in for the 2016 tax year as follows:

What Deductions & Credits Are Lost Under AMT?

Most deductions and credits permissible when calculating taxes normally are not allowed under AMT rules.

Although charitable contributions may be deducted under AMT, most other deductions and credits which offer tax breaks under regular tax rules are prohibited. The following tax breaks are not allowed:

• Medical expenses
• Deductions for dependents
• State and local taxes deductions
• Travel expenses

Interest generally is not permitted as a deduction either but mortgage interest is unless it’s part of a home-equity loan in which case a tax preparer may be needed.

Does AMT Affect You?

Money received from life insurance policy is tax-free when a person is deceased but life insurance policy proceeds received when someone is alive are taxable.

Over and above the various income levels described above which can trigger AMT, married couples, high-income earners, taxpayers with many dependents and those living in high income tax states are at higher risk of AMT.

If you are uncertain whether you are at risk of AMT, ask your tax preparer or use one of the best tax software packages to calculate your AMT tax liability.

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The article What Is The Alternative Minimum Tax (AMT)? was originally posted on Investormint

While the general rule is that all income is taxable and anything that increases your wealth is taxable, it’s not always the case. To lower your tax bill, it is important to know what you can claim as non-taxable income.

Income From Municipal Bonds

Municipal bonds generate interest earnings for investors who can claim the income tax-free in most cases.

Purchasing municipal bonds issued by the state in which you live results in tax-free earnings on interest. Income earned from interest on local government municipal bonds is generally not taxable either.

Municipal bonds are featured in portfolios created by many robo-advisory firms, such as Vanguard Personal Advisory Services.

Qualified Scholarship Funds

Scholarship funds related to tuition are not taxable but applying those funds to other uses, such as rent does incur a tax liability on that portion.

Scholarship funds used to pay for tuition is tax-free but if you dip into those funds to pay for room and board expenses, you are subject to taxes on that portion.

Selling Investments At A Loss

Selling investments at a loss creates non-taxable income that results in a deduction of up to $3,000 from gross annual salary.

When an investment is sold for a loss, it may be treated as non-taxable income with deductions up to $3,000 permitted from gross annual salary.

Selling investments that are below water against investments that are making money is part of a strategy called tax-loss harvesting, which many robo-advisors, such as Wealthfront, employ to create tax-optimized portfolios.

Inheritance Money

Six states impose inheritance taxes but many beneficiaries may be exempt, such as spouses.

When a spouse receives money or property from a deceased person, federal inheritance tax is generally not payable unless the the asset received is income-producing, such as rental property or dividend-producing stocks – in which case the income earned is taxed.

A state inheritance tax may be payable although only six states (Pennsylvania, Kentucky, Maryland, New Jersey, Nebraska, Iowa) have an inheritance tax and even then beneficiaries may be exempt if they fall into certain categories. For example, most states exempt a spouse from an inheritance tax liability. Children and other dependents may also qualify for an exemption.

Gifts

Gifts, such as tuition and medical expenses as well as charitable contributions, that children receive from parents are free from tax liability.

Although gifts are generally taxable, exceptions to the rule exist. When children receive gifts, such as tuition and medical expenses, they are free from tax liabilities too. When taxes are payable to the IRS, they are paid by the giver and not the receiver.

Gifts received by employers up to an amount of $25 are non-taxable but taxes are applied on larger amounts.

Money From Life Insurance Policy

Money received from life insurance policy is tax-free when a person is deceased but life insurance policy proceeds received when someone is alive are taxable.

When someone dies, money received from an insurance policy is not taxable. Note that if a life insurance policy is cashed in but someone has not died, the cash received is taxable.

Disability Insurance Premiums

Worker’s compensation or disability insurance premiums are generally not taxed by the IRS unless paid for by an employer.

When accidents occur that result in illness or injury, disability insurance premiums received are non-taxable unless they were paid for by an employer. However, if disability insurance was purchased through a business using after-tax income, it is considered non-taxable.

Medical Care benefits provided by a Health Savings Accounts (HSAs) or Health Reimbursement Arrangements (HRAs) are not taxable. Any benefits received from public welfare funds are also tax free.

Adoption Assistance

Income from employers to support couples and individuals who are adopting a child is not-taxable up to certain threshold levels.

Fringe benefits offered by employers sometimes include adoption assistance. Employer-financed adoption assistance is excluded from some federal withholding taxes provided that assistance is provided through a qualified adoption-assistance program approved by the IRS. Qualified adoption expenses according to the IRS include legal fees (attorneys, court costs) and travel expenses.

Individuals or couples looking to adopt may receive employer assistance of up to $13,460 in 2016 and $13,570 in 2017 per child tax-free.

Educational Assistance

The IRS states that if your employer pays more than $5,250 in educational benefits for you during the year that you are obligated to pay tax on the amount over that threshold.

The Internal Revenue Service allows the first $5,250 of educational assistance from employers to be counted as non-taxable income. Above that amount, a tax liability ensues.

The way it works generally is that your employer includes in your wages (Form W-2, box 1) the amount you must include in income.

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The article What Is Non-taxable Income? was originally posted on Investormint

When you sell stock market investments, such as stocks, mutual funds and bonds, or property, for a profit, capital gains tax must be paid. The tax paid falls into one of two categories:

• Long-term capital gains tax; and
• Short-term capital gains tax

The amount of income you earn annually and the timeline you hold the asset affects the taxable amount payable to the IRS.

Long-Term Capital Gains Tax

Long-term capital gains tax is charged on assets that are sold for a profit and have been held for at least 366 days, starting from the day the asset was acquired.

Assets held for a year and a day before being sold for a profit trigger a long-term capital gains tax liability. The long-term capital gains tax rate is usually lower than the standard income tax rate.

The timeline for holding an asset in order to benefit from the lower long-term capital gains tax rate relative to the higher short-term capital gains tax rate begins when the asset is purchased. For example, an investor purchasing an asset on January 1st of one year and selling it on January 1st of the next year will be subject to a short-term capital gains tax rate. To qualify for the lower long-term capital gains tax rate, the asset would need to be held one extra day, until January 2nd of the following year.

Short-Term Capital Gains Tax

Short-term capital gains are taxed at the same rate as ordinary income.

When an asset, such as a mutual fund, is held for a period of 365 days or less, and sold for a profit, a short-term capital gains tax rate is incurred. Short-term capital gains are taxed at the same rate as ordinary income, and so short-term capital gains tax liability tends to be sharply higher than long-term capital gains tax liability.

How Funding a Robo-Advisory Account Affects Taxes

Many robo-advisors require accounts to be funded with cash because transfers in-kind of existing assets are restricted. Liquidating existing portfolio assets to fund a new robo-advisory account could have significant tax consequences.

Investors considering robo-advisors, such as Fidelity Go, Future Advisor, or Vanguard Personal Advisor Services among others, should be especially thoughtful before liquidating brokerage accounts to fund a new robo-advisory account. Many of these robo-advisory firms do not permit transfers in-kind, meaning you cannot simply transfer your holdings, you are required to liquidate them to cash first. Selling existing holdings may trigger capital gains taxes that could have a sizeable impact on your portfolio.

A good tax preparer can help guide you to ensure you are minimizing your tax liability. If you are unsure what the tax consequence of selling an asset for a profit is, ask your tax preparer before you make the sale; once the sale is made, it’s typically too late to subsequently undo the transaction to benefit from lower longer-term capital gains tax rates.

How Income Impacts Capital Gains Taxes

High income earners who fall into the highest Federal income tax bracket  pay higher long-term capitals gains tax rates than earners in lower tax brackets.

The IRS applies a sliding scale to income tax rates and capital gains tax rates. Earners falling into the lowest income tax brackets (taxed at rates of 10% and 15%) may qualify to pay no capital gains tax whatsoever. Higher income earners will typically pay higher capital gains tax rates.

Earners who pay income tax rates at the levels of 25%, 28%, 33% or 35% will qualify for a 15% long-term capital gains rate while earners who fall into the highest federal income tax bracket, 39.6%, are subjected to a capital gains tax rate of 20%.

What Is Net Investment Income Tax?

Net Investment Income Tax (NIIT) is an additional tax that applies to high earners above certain threshold levels.

The Net Investment Income Tax is charged to trusts, estates and individuals with net investment income above certain key levels. For the most part, Net Investment Income Tax applies when the following adjusted gross income threshold levels are exceeded:

• $125,000 for spouses filing separately
• $250,000 for spouses filing jointly
• $200,000 for all other filings

Net Investment Income Tax can be a little tricky but can be easily calculated by a good tax software program.

How Real Estate Sales Affects Capital Gains Tax

Higher capital gains tax rates are incurred when profitable real estate sales are made in which a depreciation allowance has previously been claimed.

Although the long-term capital gains tax rate is capped at 20% for the most part, profitable real estate sales incur a capital gains tax rate of 25%. This is true when a depreciation allowance has been claimed. If you’re not sure whether that is the case, consult with your tax preparer.

How Selling Art And Collectibles Affects Capital Gains Tax

Collectors of art, coins and collectibles are taxed at higher rates than long-term capital gains tax.

Profitable sales of art, coins and collectibles are taxed at 28%, higher than long-term capital gains tax.

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The article Capital Gains Tax: Short-Term And Long-Term was originally posted on Investormint

The amount of tax you are charged at the Federal and State level depends on your Adjusted Gross Income (AGI)? But what is Adjusted Gross Income? And how do you calculate your Adjusted Gross Income?

What Is Adjusted Gross Income (AGI) & Taxable Income(TI)?

What is the difference between Adjusted Gross Income and Taxable Income?

Your Adjusted Gross Income is simply a modified version of your gross income that determines how much of your income is taxable. So how do you calculate your Adjusted Gross Income?

1. Sum your income for the year from each source: wage income, property sales, pension income, unemployment income, social security payments, and so forth
2. Subtract applicable deductions to arrive at the Adjusted Gross Income figure

Standard deductions include:

• Medical expenses
• Retirement plan contributions, such as to a traditional IRA
• Losses from property sale or exchange
• Alimony payments

Once the Adjusted Gross Income is determined, standard federal tax deductions can be applied to arrive at the Taxable Income amount.

The Adjusted Gross Income amount is simply a step in the process of determining how much gross income is taxable.

State tax bills use the Federal Adjusted Gross Income as the starting point. Your State Taxable Income will be determined by deducting specific state credits.

Your Adjusted Gross Income will be calculated for you by tax software packages which can expedite the process.

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What Adjustments on 1040, 1040A & 1040EZ Forms Are Allowed?

What adjustments are available on each form: 1040, 1040A, and 1040EZ

• Form 1040 permits all deductions and credits and is available to anyone regardless of filing status but it is the longest of all the forms

• Form 1040A permits you to claim tax credits, such as educational expenses and paid student loan interest, but not necessarily deductions. The 1040A is intended for you if you don’t plan to itemize your deductions for items like mortgage interest

• Form 1040EZ is the shortest of the 1040 forms, allows for easy filing with tax software packages, but prohibits you from claiming any credits or deductions, unless it is for the Earned Income Tax Credit

*The Earned Income Tax Credit is intended to lower or eliminate the tax paid by low and moderate-income earners.

*Itemizing your tax deductions means subtracting items, such as property taxes, medical expenses, charitable contributions, mortgage interest and event loss from theft to arrive at a lower taxable income amount.

What Is Modified Adjusted Gross Income (MAGI)?

What is the difference between Adjusted Gross Income and Modified Adjusted Gross Income?

It is necessary to calculate your Modified Adjusted Gross Income (MAGI) if you choose to:

1. Itemize deductions, such as social security benefits; and
2. File form 1040

Think of the Modified Adjusted Gross Income as the starting point for determining where credits are phased out.

Modified Adjusted Gross Income is used to determine whether an individual qualifies for tax deductions. It is used to determine how much, for example, of an IRA contribution is tax deductible and whether an individual is available for tax credits.

Modified Adjusted Gross Income is calculated after finalizing the Adjusted Gross Income number. To calculate MAGI, add back certain deductions to AGI. The deductions that may be added back include IRA contributions, rental contributions, student loan interest and tuition.

For Form 1040A, the Modified Adjusted Gross Income and Adjusted Gross Income are identical.

How Does AGI Affect Itemized Deductions?

What is the effect of AGI on itemized deductions?

The lower your Adjusted Gross Income, the lower the threshold for deductible costs. Only amounts greater than 7.5% of Adjusted Gross Income may be deducted for medical and dental expenses. You will find that your AGI amount limits the itemized deductions that can be claimed on Forms 1040 and 1040A.

The amount of tuition you can deduct depends on your Modified Adjusted Gross Income (MAGI). And MAGI can lower or eliminate adjustments to AGI!

The article How Do I Calculate Adjusted Gross Income (AGI)? was originally posted on Investormint

The federal tax code is approximately 200 times larger now than it was in 1913, which has resulted in a complex and confusing tax code. And while compliance with the tax code is not optional, tax software solutions cater to very different tax filers when it comes to easy-of-use, support, income-level, navigability and a host of other factors.

What Is The Best Tax Software?

Below is a list of criteria to consider when selecting a tax software vendor.

Did you know that, depending on your income, it’s possible to avoid all tax software and file free directly with the IRS via their Free File: Do Your Federal Taxes for Free program?

If you ever read Rich Dad, Poor Dad by Robert Kiyosaki, you’ll know income earners fall into 4 categories:

1. Employees
2. Investors
3. Business owners
4. Self-employed

As an employee, the category most tax filers fall into, the good news is your tax filing may be relatively straightforward: simply report your W-2 wage income and perhaps interest on savings accounts.

As a self-employed tax filer or perhaps someone who works in the service economy or indeed someone who supplements their employee income with additional income as a contractor, a more robust software solution may be needed. This is especially true for couples with kids, homeowners, charity donors, philanthropists and rental property owners, who can take advantage of tax deductions and tax credits. Commensurately, the additional software capability to account for these circumstances will reflect in the cost of the tax software.

User experience and easy navigability of tax software is what tax filers want above all so that special tax situations are as easily handled by the tax software as are the simple cases. No matter how powerful the tax software, certain tax filers may still prefer and need the expertise of a professional tax preparer. For example, an options trader owning a particular options spread may discover that theoretically the same combination spread can be categorized as two different options strategies which are treated differently for tax purposes by the IRS. In such situations, consulting an expert is preferable.

What Is The Easiest Tax Software To Use?

We analyzed well-known tax software solutions to identify the easiest tax software to use that was also affordable.


Head and shoulders above its competitors stands TurboTax when it comes to user experience and an intuitive step-by-step interface for the DIY tax filer.

Data entry is clear and simple. Importing data is equally straightforward via TurboTax. The questions you receive are not quite as powerful as an artificial intelligence robot guiding you through the answer sections, but it may feel like it at times. And if you do get stuck, there’s always the option to pay a premium to access SmartLook, the video system that connects you to a live, expert tax preparer.

TurboTax is well-known, trusted brand and as such it commands a pricing premium often in excess of $100. Beware that in the event of an audit, TurboTax does not allow you to purchase support products after the fact. Much like insurance, it must be purchased beforehand. And unlike H&R Block, TurboTax doesn’t have a physical location where you can speak to a tax preparer live.

What Is The Cheapest Tax Software?

These tax software vendors offer a low-cost way to file taxes.

The IRS permits wage earners with less than $64,000 of adjusted gross income to file for free via their Free File system. Income-earners above that level may prefer any one of the following low-cost tax software solutions.

FREETAXUSA has been in business since 2001 and claims to have filed tens of millions of returns. FREETAXUSA has a free Federal filing version but filing State returns costs $12.95.

Their free version doesn’t have lots of bells and whistles and isn’t as robust as some of the higher cost competitors but it gets the job done nevertheless, supporting the following forms:

• 1040, 1040EZ, 1040A, 1040Z
• Schedule A, B, C, D, E, EIC, F, and more
• Form 1099-A, 1099-B, 1099-C, 1099-DIV, and more
• Form W-2
• Unemployment
• Self-employment income

FREETAXUSA offers a paid version of their software, called Deluxe, for just $6.99 which provides priority support, live chat, audit assistance, and unlimited amended returns. If you filed previously with competitors, such as TurboTax and H&R Block, you can easily upload prior years’ tax returns.

The largest drawback of FREETAXUSA is their lack of audit support and limited customer support for their free version but for an additional $6.99 those features are readily available.

TaxSlayer is known for its great software interface. Unlike some software that restricts user progress when a piece of data is missing, TaxSlayer allows a user progress and revisit missing data entries at a later stage. They also have a 100% guarantee, promising to reimburse customers for any penalties or interest charges by State or Federal government for mistakes stemming from the tax software.

On its premium edition (costing an additional $28.99), TaxSlayer also provides users a gauge of how likely they are to be audited but they won’t offer support to customers in the event of an audit. Plus the TaxSlayer mobile app facilitates customers photographing a W-2 as opposed to entering the data themselves.

Individuals and businesses with straightforward tax situations should find TaxSlayer sufficient but freelancers needing Schedule C assistance or tax filers seeking help with deductions may find TaxSlayer falls short of the mark in supporting them.

TaxAct allows users file 1040EZ/A Federal and State tax forms free of charge. Beyond its attractive low-cost feature, TaxAct makes it easy to import returns from competitors such as TurboTax and H&R Block.

For stock investors, TaxAct has an easy-to-use spreadsheet that allows for manual input of purchase and sale dates, sales proceeds, gains/losses and other relevant information.

Free email and phone support is also available and an option exists to purchase audit support services from a partner company.

TaxAct has straightforward capability for filers with simple tax situations but if you’ve got complex deductions or an overall complex tax situation, other more powerful tax software solutions may be preferred.

Which Tax Software Has Most Support?

The tax software solutions below have an edge in customer support.

H&R Block provides the following tax forms free of charge:

• 1040EZ
• 1040A
• 1040 with Schedule A

It’s not common to find software providers who file these forms at no cost, but H&R Block knows well that it’s rare for tax filers not to need the support of a tax preparer. They have an extensive network of approximately 12,000 physical locations nationally, allowing customers to easily get in contact with qualified tax preparers. It is this higher degree of customer support that commands a commensurately higher fee for the paid version of H&R Block’s tax service.

A nice feature of H&R Block’s service is that you are not left with the choice of either filing alone cheaply or hiring a tax preparer at a substantially higher cost. H&R Block offers an in-between offering that allows you to submit taxes for review by a qualified tax preparer before filing.

>> Discover How To Find Best Tax Preparer

>> What Is Non-taxable Income?

>> What You Need To Know About The Alternative Minimum Tax

>> Discover Stocks To Buy Now

The article Best Tax Software 2020 was originally posted on Investormint