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.

How much will it cost me to file with TurboTax?

Posted by Caitlin on April 9th, 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: So, I will have to pay a federal fee of $49.95 and a state fee of up to $39.95 to file? I will be using the [TurboTax] Home & Business program for the first time.

A: The prices listed on the comparison chart refer to our suggested TurboTax package, the Deluxe package, which does cost $49.95 for the federal return, plus $39.95 for a state return. The Home & Business package is more expensive, because it offers a wider range of features and tools in order to handle more complex financial situations. For the Home & Business package, the federal return fee is $99.95, plus an additional $39.95 for a state return. Like many other tax preparation services, TurboTax has raised their prices as April 15, the tax filing deadline, approaches.

To learn more about TurboTax and to compare it with other online tax preparation services, see our reviews and comparison chart.

Is a free, online tax preparation service a good choice?

Posted by Caitlin on February 19th, 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: Is a free tax service online (TaxAct) just as good as buying a program like TurboTax?

A: TurboTax, H&R Block and TaxAct all offer various online packages, including a free, very basic option for filing a federal return, as well as physical software. (The reviews on NextAdvisor.com are for the online services only.) If you only need to file a 1040EZ, you can use any of the free options. If a 1040EZ is not adequate for your tax needs, but you would still like to file your federal return for free, TaxAct's online service is your best option. All of these services will charge you a fee if you also need to file a state return. If you would prefer physical software to an online service, you can download a tax program or order software on a CD-ROM from TurboTax, H&R Block or TurboTax. This software will be more or less the same as the equivalent online tax preparation package.

So, yes, an online service is just as good as a physical program. But no, a free service is not just as good as one that you pay for, because it will only include a very basic federal return, and not a state return. The tax preparation package that you choose should correspond to the complexity of your financial situation. If you own a home business, for example, there are tax preparation packages specifically tailored to your needs, but they will be more expensive.

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

Choosing the right tax preparation service

Posted by Caitlin on February 18th, 2009

I have never done my own taxes. And unfortunately, it's not because I have so much money and so many investments that I require the assistance of a professional. No, it's because up until now, my parents have always filed for me.

This year, though, is going to be different. This year I am doing my own taxes, for the first time ever. Since I'm feeling rather daunted by this intimidating task, I definitely want a tax preparation service to help me out. So naturally, I'm turning to the NextAdvisor.com reviews and comparison chart to help me decide which tax preparation service is right for me.

I need to file a federal return as well as a California state return. Since I need to file a state return, filing for free is not an option. But I would still rather pay a relatively low fee, especially since my financial situation is fairly simple. On the other hand, since I've never filed my own tax return before, I would prefer a service that will provide thorough and reassuring guidance throughout the process.

After reviewing the tax preparation and filing services comparison chart, I initially considered TaxBrain, because of my uncertainty about my financial needs. Rather than choosing a tax package right away, you fill out a short questionnaire and then TaxBrain generates the appropriate forms for your specific financial situation. I found this unique feature appealing. But after reading the tax preparation and filing services FAQ page, I determined that I should be able to fill out a 1040EZ, since my income is less than $100,000 per year, my taxable interest is not over $1,500, I have no dependents and I do not need to itemize my deductions. Since TaxBrain charges $14.95 to file a 1040EZ, while most of the other tax preparation services allow you to file one for free, I decided that TaxBrain would not be a cost effective choice for me.

Next, I considered TurboTax, because it is the top ranked tax preparation service on NextAdvisor.com, and according to the bottom line, it is the easiest service to use and offers the best online deduction finder tools. TurboTax also includes audit protection. However, I found TurboTax's state only fees to be a bit high, at $34.95. Also, since I am planning to file a 1040EZ, I won't be itemizing my deductions, so I would not benefit from that feature of TurboTax.

I then considered TaxAct, which is the cheapest of the services reviewed on NextAdvisor.com and, according to the bottom line, offers the best overall value for online tax preparation and filing. TaxAct does not offer audit protection, which would be nice to have, but given my financial situation, I am reluctant to spend the extra money for this assurance. TaxAct does offer unlimited email support, which I appreciate, since the process of filing tax returns is new to me.

After considering my options, I have decided to use TaxAct to file my federal and state returns. Although I would prefer a service with audit protection, I am willing to go without it in order to save money. With TaxAct, I can file my federal return for free and pay only $13.95 for my state return, which is definitely a good value. I am confident that TaxAct is the right tax preparation service for my needs.

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

What is the best tax service for a home business?

Posted by Caitlin on February 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: What is the best tax program for a home based business to use? Always used my CPA? Thank you.

A: TurboTax offers a Home & Business tax preparation package, which is specifically designed to make it easy to handle your personal and business taxes.  TurboTax Home & Business provides step by step guidance and identifies deductions that are specific to your business. TaxBrain also offers a package aimed at small business owners. And if you would feel more comfortable with assistance from a tax professional,  you may wish to consider H&R Block's Signature or Online Office packages.

To learn more about TurboTax, H&R Block, TaxBrain or other online tax preparation services, see our reviews and comparison chart.

USA Today selects TurboTax as top online tax preparation service

Posted by Joe on March 1st, 2008

National newspaper USA Today published a head to head review of two of our top rated online tax preparation services in their Friday edition this week.  Their testing gave TurboTax a slight edge over H&R Block's TaxCut, while they also gave honorable mention to TaxAct.

All three of the services mentioned in the USA Today article achieved five star rankings in our online tax preparation guide which launched in January 2008.

One important TurboTax feature discussed in the USA Today article which hadn't been available when we completed our original reviews of online tax preparation services was a detailed introduction and FAQ to the economic stimulus package recently passed into law by President Bush.  While most tax payers won't have to do anything to earn their stimulus rebate it is helpful that TurboTax has added this feature since many consumers have questions about the program.

We are glad to see a national publication like USA Today focus on the many great options available to consumers who want to take advantage of the simplicity of preparing and filing their taxes online.

For more info check out our guide to online tax preparation services and our top ten reasons to preparing and efile your taxes in 2008.