Doing my own taxes for the first time, with TaxAct

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Doing my own taxes for the first time, with TaxAct

Posted by Caitlin on March 30th, 2009

Last month, I blogged about choosing a tax preparation service. I ended up deciding to use TaxAct to help me file my own taxes for the first time in my life. And, for the most part, it turned out to be surprisingly easy!

First, I gather all the W-2s and other tax documents that I have received in the mail over the past few months. I click on the link in the NextAdvisor.com review, which takes me to the TaxAct website. I register with TaxAct, creating a username and password. I don't have to get out my credit card yet, because I won't need to pay until I'm done and ready to file, which is nice.

Once I'm registered and logged in, TaxAct asks me if I'd like to take a tour, which will provide information on entering my tax information, reviewing my tax return, filing my return, getting help with questions and technical support. Since I am very uncertain about what I'm doing, I would of course love to have some sort of video introduction. Unfortunately, I don't find this tour helpful at all. All it does it indicate where various buttons can be found on the screen, and where they lead, which is fairly intuitive and self explanatory for people who are accustomed to navigating around basic software and websites.

Next, it asks me if I'd like to upgrade to TaxAct Deluxe. I decline.

Now I click through several screens, where I fill in basic personal information. I enter my name, birth date and Social Security number, and answer questions about whether or not I am married, a full-time student, blind or disabled. I fill in my occupation, telephone number and state of residence. TaxAct informs me that I can find additional information at TaxAct.com if I am uncertain about any of these questions. It asks if I can be claimed as a dependent or if I have any dependents. Next I fill in my filing status, which for me, is single. I decline to contribute $3 to the presidential election campaign fund. I check to make sure that my name and Social Security number are correct. TaxAct summarizes some recent tax changes regarding the recovery rebate credit and tax relief for disaster area. Then it asks me if I have already made any federal or state estimated tax payments for 2008, which I have not.

Now TaxAct takes me through a life changes segment, where it asks me what life changes I have made in the past year, such as moving, getting married, buying a house or changing jobs. I can click on any of the suggested “life changing events” and get more information about how it could impact my tax filing. I click on “changed jobs,” and TaxAct asks me for some information about the jobs I've had in the past year, and then informs me that I am not entitled to a tax credit. It offers to show me more information relating to the fact that I've changed jobs in the past year, but none of it is particularly relevant to me. Because I am using the cheapest and most basic version of TaxAct, I can only get additional help and information about one life change. If I want to access information about other life changes, I will have to upgrade to TaxAct Deluxe.

I am done entering my personal information, so it's time to get started on my federal tax return. TaxAct asks if I received any wages or salary in 2008, and then tells me to enter each of my W-2 forms separately. If I want to automatically import information from an electronic W-2, I will have to upgrade to TaxAct Deluxe. I only have paper W-2s, I decline the upgrade once again.

I enter the employer information, wages and amounts withheld from my first W-2. This part is more straightforward than I imagined. I don't have to fill out complicated forms, I just fill in the answers to simple questions. Then it asks me for any appropriate codes listed on my W-2. Hmm. This is a little confusing. I don't see any codes. After examining all of my W-2s, I find the box where the codes should be, but they are blank, so I skip this page and continue on. I fill in the state information from my W-2. I enter the state, my employer's state ID number, and my state income tax withheld. Then it asks me for my local tax information, but my W-2 has these slots blank, so I skip this page and move on. Next, it asks for information from Box 14 on my W-2. I don't really understand what this part is about, but I type in the random letters and numbers from in Box 14. According to the additional explanation provided by TaxAct, this part may just be for informational purposes, and doesn't really matter for my tax return. But I enter the codes anyway, just to be safe.

I have completed the information for my first W-2, but I have two more to enter, so I click “new” and start the next one. Ah, the confusing Box 14 codes are more clear on this second W-2. They indicate that some money has been withheld from my wages for mandatory state disability insurance contributions. Finally, I fill in the information from my third and final W-2, which is from NextAdvisor.com. and now I'm all done with my W-2s! That was so much easier than I expected. Sweet.

Once again, I am asked if I'd like to upgrade to Deluxe. I say no, again.

Now it asks if I have interest, dividend or other investment income to report for 2008. I do. It asks if I had interest income in 2008. I say yes. It asks if I sold my home or other property, and I say no. Then TaxAct informs me that if I have interest income from 2008, my bank should have sent me Form1099-INT. I have that form, so I click continue. It asks me for the interest payer's name and ID number. I see the number on this form that the bank sent me, but I'm not sure about the interest payer's name. I guess it's Bank of America? Next, I enter the total interest income. There's a field to enter the income tax withheld, but I don't see anything about that on this form. I log into my online banking account to see if any federal income tax was withheld from my interest, but apparently Bank of America hasn't been withholding for income taxes. Next, it asks me to enter more information about investment expenses and foreign taxes. I don't see anything about this on the forms that Bank of America sent me, so I leave this blank. TaxAct then asks me some confusing questions about interest received as a nominee, accrued interest when bought between payment dates and amortizable bond premium. I don't know what any of this means, and there's nothing about it on the form that I have, so I assume it doesn't apply to me and I leave it blank. Then it asks if any of my Bank of America interest was generated by a state or municipal entity that would be exempt from federal tax. I don't think so, and I know that none of my interest is from city or state bonds, so I click no. Now it gives me the option to enter another 1099-INT form. I don't have another one, so I click continue.

It asks if I have received dividend income during 2008. I have, so I click yes. Then TaxAct asks for the payer's name and identification number. Fortunately, my 1099-DIV form is a little clearer than the last form, and I see the payer's name easily and identification number easily. Next I enter my ordinary dividends and qualified dividends, which, according to my 1099-DIV form, are the same number. Then it asks me about capital gains and non-dividend distributions. I copy the data from my 1099-DIV form. Apparently, my total capital gain distributions total $0.53. I wonder, what is the tax on that? There are more questions about my dividend income, and I answer 0 for all of them. It asks me if my dividend income is from a mutual fund that invests, at least partially, in US government, state, or municipal securities, which would be exempt from federal and/or state tax. I have no idea! I'm pretty sure it's from a mutual fund, but my parents set it up for me and I don't really know anything about it. But TaxAct says the fund should provide me with a statement detailing the amount of my dividends that qualify for this status. So I examine this form carefully. I'm feeling very uncertain, but I don't see anything about this, so I assume that the answer is no. TaxAct shows me the summary of my dividend income.

I click through several screens that don't apply to me. I didn't sell any investments or a home during 2008. Have I had any capital losses in prior years that I was not able to deduct in full? I have no idea, so I assume not. I don't have income and expenses from a business I own, I don't own rental real estate property or receive royalty income, I haven't received money from a retirement plan or moved funds from one plan to another.

I did receive a tax refund last year. It tells me that there is no tax on that, so that's nice.

Do I receive Social Security benefits? No. Do I have income from other sources? No. TaxAct shows me a summary of my income. It looks right to me, so I continue. Do I want to contribute to an IRA, or have I done so already for 2008? Do I pay college tuition, student loan interest or receive education scholarships? Did I pay moving expenses for a qualified job change, eligible educator expenses as a teacher, alimony, or other adjustments? Do I want to enter itemized deductions? Have I paid any real estate taxes? No, no, no. It shows me a deduction summary. I continue. Have I paid any expenses relating to the adoption of a child, or do I receive any employer provided adoption benefits. No.

It asks if I want to review the qualifications for the earned income credit. Sure, why not? I click yes. It asks if the IRS has disallowed my earned income credit in the past, or if I am prohibited from claiming the EIC on my 2008 income tax return? TaxAct gives me the option to select “Yes,” “No,” or “N/A.” I don't know whether I should select “No,” or “N/A.” I select “No” and move on.

TaxAct asks if I can be claimed as a qualifying child for the earned income credit on another person's 2008 tax return. No. Do I possess a Social Security card that says, “Not valid for employment,” or do I have a Social Security number that was issues solely so the taxpayer could apply for or receive a federally funded benefit. Was my home outside the US for more than half of 2008? No, no. Did my children live with me outside the US for more than half of 2008. Since I don't have kids and I did not live outside the US last year, I click “N/A” for this one. Was I a nonresident alien during any part of the year? Would I like to make entries for a qualifying dependent or dependents? No.

Do I want to enter residential energy efficient property credit information? Since I don't own a residence, I guess no. Would I like to enter alternative motor vehicle credit information? I don't own a car, so no. How much was my economic stimulus payment last year. $300. Do I want to go to the interview for the first time homebuyer credit? Since I haven't bought any homes, no.

I have completed the credit and payment topics of the federal Q&A. I get another summary. Would I like to review the requirements for making estimated tax payments for 2009? No, thank you, I don't want to deal with that now. Would I like to enter some additional information from my 2007 return, to avoid the possibility of an underpayment penalty? No, because my parents have my 2007 return. Now I'm really done with my federal A&A, and I get another summary.

Yes, I would like to do my state Q&A now. TaxAct asks about my California residency status for 2008. I'm torn about how to answer this, since I moved to California on December 31st, 2007, but earlier, in my federal Q&A, I answered that I lived in New Jersey on December 31st, 2007. And I do have a W-2 for a very minimal amount of income in New Jersey, but it's such a small amount that I am not required to complete a New Jersey state return. But “Part-year/nonresident” isn't really right, so I say that I was a full-year resident.

Next, I fill in some information about my living situation, to help TaxAct determine which forms I need. It asks if my state filing information is all the same as last year. Since I didn't live in California last year, I leave this box unchecked. It asks if I filed my 2007 return under a different last name. I don't think so, so I leave this blank. It asks for my telephone number. No, I would not like to include military information.

TaxAct offers me the option to review California Schedule CA, since California tax law differs from federal tax law in certain areas. I say yes, and click through a series of screens asking about very specific circumstances that would require a California adjustment. None of them apply to me, so I leave everything blank and continue.

Next, it asks me to review my California adjustments to federal itemized deductions. Again, none of the adjustments apply to me, so I leave them blank and move on. Do I have “use tax” or tax on accumulation distribution of trusts? I don't know what these things mean, so I assume that they don't apply to me and leave the field blank. TaxAct tells me that California offers a variety of tax credits that may reduce my tax if I qualify, and asks if I would like to review these credits. I say yes. If I was a resident of California and paid rent on property in California, which was my principle residence, so I may be eligible to claim the renter's credit. To be eligible, my California adjusted gross income must be $34,936 or less. I complete the nonrefundable renter's credit qualification worksheet, answering a few questions about my apartment, to determine if I am eligible. Apparently I qualify for a $60 credit. Nice!

TaxAct asks if I had income that was taxed by California and also by another state. No. Was I subject to the alternative minimum tax? I don't know what this means, so I assume the answer is no. It asks if I'd like to complete the Special Credits worksheet, to see if I qualify for other credits involving child adoption, a dependent parent, joint custody head of household or senior head of household. It doesn't sound like any of those will apply to me, so I decline. Now it wants to know if I owe interest on deferred tax from installment obligations. I don't think so, so I leave it blank. It asks for the amount, if any, of other taxes and credit recaptures. I assume this doesn't apply to me and I leave it blank. Now it wants to know the amount of any payment I made with form FTB 3519, automatic extension for individuals and/or amount of any Claim of Right credit. I don't know what this means, so I leave it blank.

Would I like to complete the worksheet to estimate my 2009 California state tax, or apply my 2008 refund to my 2009 estimated tax? No, thank you, I don't feel like dealing with that now. Next it asks if I'd like to make a contribution to any of several various California funds, which will be either deducted from my refund or added to the amount that I owe. It asks whether I would like my refund deposited into one or two different accounts, or none. This is a weird question. It didn't ask me this for my federal return. I decide to select none, and take my refund in the form of a check, since in the past I have had problems with routing number errors when trying to set up direct deposit.

TaxAct shows me a summary of my 2008 California return. It asks if I want to add another state to this return. I say no. It suggests that I take a few minutes to review my return. Do I want to upgrade to Deluxe? Again, no.

Now TaxAct tells me that I can choose to review red, yellow or green alerts, or all alerts. Red alerts identity information that is incomplete or inconsistent. A yellow alert identifies potential problems. A green alert identifies opportunities for potential tax savings. I choose to see all alerts. I click through several screens, reviewing all the alerts. Nothing needs to be changed.

I am done filling in information, and TaxAct asks if I am interested in seeing all my payment and refund options. I say yes. Apparently I have to fill out a long, complicated consent to use form before TaxAct can determine whether I can pay my preparation fee out of my refund proceeds.

It asks again if I want to upgrade to Deluxe. No. It asks if I want to compare this year's tax return with last year's, to check for errors, but since I don't have last year's, I say no. Do I want to pay $7.95 for TaxAct to store my tax return information for reference, easy access, and for next year's tax return? No.

Next it asks if I want to file my federal return electronically. I say yes. It asks which returns I would like to e-file. I select both federal and California returns. I confirm that I am e-filing these returns. Now it wants me to click the “check state” button to confirm that my state accepts e-filing. I do so. California does accept e-filing. Now it asks for my email address and phone number, to confirm the status of my return.

Now I have to choose between direct deposit and a check. If I choose check, I will have to pay my preparation fee now. I also have the option of getting my refund on a prepaid Mastercard, but I definitely don't want to do that. The last two times I set up direct deposit for my paychecks, something went wrong. I don't want to risk losing or delaying my refund, so I play it safe and opt to receive it in the form of a check.

I have to click a button that says “I agree,” confirming that everything that I wrote is correct and complete, to the best of my knowledge. I click “I agree” again, in order to allow TaxAct to send my return to the IRS. I write today's date and create a 5 digit pin number. Oh, apparently I need either my original 2007 adjusted gross income or my 2007 pin number in order to confirm my identity. I don't know either of these since I have never done my own taxes before. I call my parents to get last year's pin number.

Now I have to answer a few electronic filing questions specific to my state. I confirm my telephone number. I confirm that I want a check, rather than direct deposit. No, I did not file a California tax return last year. Yes, I agree that TaxAct can send my information to California.

I have to check to make sure all the information in my federal return is complete and correct. It passes all alerts and is ready for submission. I check for state alerts, to make sure all that information is complete and correct. It is.

Now I just have to pay for the service, submit my return and print. My tax preparation fee is $13.95, and I have to pay with a credit card since I've opted to get my refunds via check rather than direct deposit. I enter my credit card information and my billing address.

Next TaxAct insists that I print my invoice, a copy of my federal return, a copy of my state return, and some form called Form FTB 8453-OL, all for my own records. It tells me to review my printed copies. Now I have to view and print my federal electronic filing instructions and the California filing instructions. I thought e-file was supposed to save paper?

I type a verification code to prove that I'm a human being. And my return has been successfully submitted! I should get an email and a text message within 24 hours confirming that my return has been received and is in process, and I should receive another email or text message within 72 hours that will acknowledge the receipt of my return by the IRS, or the state of California.

I thought I was done, but TaxAct asks if I'd like to fill out Form W-4 to update my withholding. I decline. It asks if I'd like to submit comments or suggestions for next year's TaxAct, or tell a friend about TaxAct, or sign up for TaxAct's data archive service. No.

Hooray! I'm finally done! I sign out.

Just a few hours later, I simultaneously receive 2 emails and 2 text messages, notifying me that my returns have been received.

That wasn't so hard! I'm glad that I chose TaxAct to help me prepare and e-file my tax returns for the first time ever. It made it faster and easier than I expected, and it only cost me $13.95.

To learn more about TaxAct or to find the online tax preparation service that's right for your needs, see NextAdvisor.com's reviews and comparison chart.

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