Unemployed Tax Filing Guidelines

Posted by tasha on March 8th, 2010

Being unemployed is more common than not in the current economic climate.  And it comes with it's own set of questions about how this might affect your 2009 tax filing requirements.   If you spent some (or all) of 2009 unemployed and want to know if you need to file, we break down the basics below.

Federal Filing

1.  Do I need to file taxes for 2009? The federal government requires that single persons who made over $9,350 in 2009  file.  If you're married, file a joint return, and both of you are under 65 you must file if your gross income was over $18,700.  IRS pub 501 clearly lays out whether you need to file federal taxes or not, so check there to see if you need to file.

2.  What about unemployment benefits? For 2009, you must include all unemployment compensation you received over $2,400. That means you can deduct $2,400 from the total benefit amount you received, and you only need to pay federal taxes on the remainder.  IRS pub 17 (hint: look at page 94) discusses the subject in more detail.

3.  Can I deduct job search expenses? The good news is that you can deduct job search expenses, but like everything else in taxland, this comes with a number of caveats.   To qualify, you need to be looking for a job that is in your present occupation.  You can't deduct first time job hunt expenses (sorry recent college grads!).  And you can't deduct if there was a "substantial break" between the end of your most recent job and the time you start looking for another job.   You also need to have spent more than 2% of your adjusted gross income.  If you meet all these criteria, you're in luck.  IRS pub 529 has a complete list of job search expenses you can deduct.

State Filing

1.  Do I need to file taxes for 2009? This is a slightly more complicated question, as each state has it's own guidelines.   In general, you must file a state tax return if your gross income or adjusted gross income was more than the amount defined by your state's law.   Check with the revenue/tax department for your state to see if you need to file.

If you're not an accountant, tax time can be very confusing and there are lots of complicated regulations.   Whether you're employed or not, if you're looking to maximize your deductions you'll usually benefit by using an efiling service like TurboTax to file your taxes.  TurboTax will guide you through the ins and outs of filing your federal and state taxes, and make sure you're getting all the deductions for which you qualify.

How to file a student loan deduction on your taxes.

Posted by tasha on February 19th, 2010

The following post in our Reader Question series is an actual user submitted question:

Q:  I am a single student. What forms do I file to get my student loan deduction?

A: A student loan deduction is a federal tax deduction for qualified student loans.   The specifics of what does and doesn't meet the definition of a "qualified student loan" are spelled out in the Student Loan Interest portion of the Form 1040.  We suggest you look there to see if your situation qualifies you for the deduction.

If you are qualified, The IRS further states that  you can claim the deduction if the following items apply.

1. You paid interest on a qualified student loan in tax year 2009
2. Your filing status is not married filing separately
3. Your modified adjusted gross income is less than $70,000 ($145,000 if filing jointly)
4. You and your spouse, if filing jointly, cannot be claimed as dependents on someone else's return

If you've cleared the hurdle and met all these conditions, can proceed with claiming the deduction on your Form 1040.  You can also refer to Publication 970 for the complete IRS run down on the educational deductions and credits.

It may be that you qualify for additional credits or that other credits will be more financially beneficial to you.   Because everyone's situation is different and it's hard to say what the best strategy is unless you're a tax professional, we recommend using an online tax preparation service to complete and file your tax returns.  TurboTax has the most robust automated deduction tools of any of the providers we reviewed and will walk you through which deductions you may qualify for.   They also guarantee you'll receive the maximum tax refund you can.

Tax season begins Friday, January 15th

Posted by Caitlin on January 13th, 2010

This Friday, January 15, is the first day to electronically file your 2009 tax return. Of course, the deadline isn't until April 15, but it's a good idea to get started early, for several reasons. Having plenty of time to complete your return means you'll be less likely to make costly mistakes, and the sooner you file your return, the sooner you'll receive your refund. It's particularly beneficial to e-file early if you'll be using a tax preparation service, since these services tend to raise their prices as the April 15 deadline approaches.

E-filing is secure, easy, and much cheaper than using an accountant. And when you file your return electronically, you'll get your refund weeks earlier than you would if you mailed a paper return. To learn more about e-filing, check out our reviews and comparison of the top online tax preparation services.

Who can I count as a dependent?

Posted by Caitlin on April 7th, 2009

The following post in our Reader Question series is an actual user submitted question. To maintain the integrity of the original question, we do not edit or change reader questions in any way.

Q: The answer [in the FAQ] confuses me as it seems to say that the dependent cannot be over 24 years of age and then it says you can also count someone if they if they have not filed an income tax return and have earned less than $3,400 the entire year–with no mention of age.

Here is my question: I have a grandson, and his partner who are 25 years old, who have a two year old child. They have all lived with us the entire year, at no cost whatsoever. Both parents have together made less than $3,400. They will not be filing any tax return. Who can I count as dependents?

A: Sorry that the FAQ was unclear. In most cases, dependents are qualifying children under the age of 24. However, it is also possible for others who are over the age of 24 to count as dependents.

In order for a person (who is not a child under the age of 24) to qualify, he or she must be either a relative or a full-time member of your household, and a citizen or resident of the U.S. or a resident of Canada or Mexico. You must have provided over half of his or her financial support for the past year, and he or she must not have filed a joint tax return with anyone else. The person must have had less than $3,500 in income for the entire year.

In your particular situation, according to these criteria, your grandson, his partner and their child should all qualify as dependents.

To learn about online tax preparation services, see our reviews and comparison chart.

Identity theft phishing tops IRS “Dirty Dozen”

Posted by Caitlin on April 7th, 2009

In 2008, the Internal Revenue Service designated "phishing" as one of its annual "Dirty Dozen" tax scams. Phishing is a form of identity theft that consists of sending fraudulent e-mails claiming to represent legitimate businesses and government entities, including the IRS, in order to steal information such as Social Security numbers, online user names and passwords, and bank account and credit card information. Phishers then use this information to make charges to your credit account, apply for credit in your name, and commit other acts which can damage your credit rating, cause you to lose access to your accounts, and cost you thousands of dollars and countless hours spent attempting to recover your losses and restore your good name.

In the past it was relatively easy to spot phishing e-mails, because they were generally filled with misspellings and other obvious errors and inconsistencies, signaling that that they did not originate from an official source. Today, however, phishing e-mails are much more sophisticated, and they can even redirect you to spoof websites which are almost identical to the real ones. The IRS is a popular phishing shield, especially at this time of year, because people fear the tax agency's broad powers and are eager to comply with its requests, in order to prevent having their tax refund payment delayed, or to avoid penalties and possible wage garnishment.

Victims of tax fraud-related phishing scams face extremely serious identity theft consequences. Scammers may use their Social Security numbers to apply for jobs, earning wages which are then reported to the IRS, making it appear that victims are underreporting their income, or that they have filed more than one tax return. Scammers who are using a stolen Social Security number in order to receive a tax refund will file as early as possible, to get their tax return in first, leaving the victim responsible for proving that fraud has occurred.

The first thing consumers should be aware of is that the IRS will never contact them via e-mail regarding tax issues, or request private information such as passwords and PIN numbers for personal financial accounts. If you receive an unsolicited e-mail claiming to be from the IRS, do not reply to it or open any attachments. Immediately forward the e-mail, including header information, to phishing@irs.gov. If you receive a letter from the IRS indicating that someone else may be using your Social Security number, you should respond at once using the contact information included in the letter. The IRS website contains additional information regarding identity theft and your tax records.

To learn about identity theft protection services, which help protect you from phishing and other scams, see our reviews and comparison chart.

Is TaxAct simple to use?

Posted by Caitlin on April 6th, 2009

The following post in our Reader Question series is an actual user submitted question. To maintain the integrity of the original question, we do not edit or change reader questions in any way.

Q: I have never prepared my taxes online before. Is [TaxAct] pretty simple to use? I have a basic return, the only thing I am concerned about is my mortgage interest.

A: I had never prepared my own taxes at all before this year, online or otherwise. I used TaxAct and found it to be surprisingly simple, straightforward and intuitive. If you're interested in reading about my experience with TaxAct, I blogged about it here. TaxAct should help calculate the impact of your mortgage interest on your tax return.

To learn more about TaxAct or other online tax preparation services, see our reviews and comparison chart.

Can you stop, save, and return later with TaxAct?

Posted by Caitlin on April 6th, 2009

The following post in our Reader Question series is an actual user submitted question. To maintain the integrity of the original question, we do not edit or change reader questions in any way.

Q: Can you save information on the tax returns you are submitting [with TaxAct] and go back and finish later if necessary, such as needing to find more information to complete the 1040 form. Also, if self-employment income is submitted, does the system compute the information as to what is owed?

A: Yes, TaxAct automatically saves your tax return as you work. You can log out at any time, and when you sign back in, TaxAct will return you to the part of your return where you left off.

TaxAct will also help you calculate how much is owed on income from self-employment.

To learn more about TaxAct or other online tax preparation services, see our reviews and comparison chart.

I don't know if my tax return was complete.

Posted by Caitlin on April 1st, 2009

The following post in our Reader Question series is an actual user submitted question. To maintain the integrity of the original question, we do not edit or change reader questions in any way.

Q: I don't know if my tax return was complete. [E-File Tax Returns] never asked me for payment. I gave it my account information for direct deposit… Will it be taken out of my account?

A: If you are entitled to a refund, most online tax preparation services will give you the option of paying for their service with a portion of that refund. In this case, you would not need to enter credit card information. However, it is impossible for NextAdvisor.com to confirm whether your tax return was completed successfully with E-File Tax Returns. If you have a service issue with any of the various services reviewed on NextAdvisor.com, you should contact the company directly for assistance. You can follow this link to contact E-File Tax Returns.

To learn more about online tax preparation services, see our reviews and comparison chart.

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.

Read more »

Is there a charge for each W-2?

Posted by Caitlin on March 11th, 2009

The following post in our Reader Question series is an actual user submitted question. To maintain the integrity of the original question, we do not edit or change reader questions in any way.

Q: I have several W-2's. Is there a charge for each one or not [with TaxAct]?

A: TaxAct and other online tax preparation services do not charge per W-2. The pricing plans differ slightly, but in general you can expect to pay based on the number of federal and state returns you need to file.

To compare prices on tax preparation services, see our comparison chart.