Credit Card Deals (U.S.)

IRS Tax Credit For Having Kids: Why?

I was watching a recent episode of Real Time With Bill Maher on HBO the other day and he raised an interesting question: why does the IRS "promote" certain social behaviors and "discriminate" against certain individuals?

In other words, there's a tax credit for having kids... also tax benefits for having a mortgage as opposed to renting your apartment (as I do)... married couples are treated differently than "single filers."

Obvious Reminder Dept: Today Is Tax Day

Just in case you have let it fall by the wayside, today is federal tax filing deadline in the US.

April 15th, baby. Tonight lots of accountants in the city will be getting bottle service at their favorite night clubs and drinking themselves into oblivion. 

Can You Pay Taxes Using A Credit Card? Should You?

According to a post today at Bargaineering, "paying with a credit card is probably the worst way to pay your taxes."

For last-minute filers enticed by the convenience of paying their taxes online, immediately, using a credit card... consider the following drawbacks that Bargaineering points out:

* Processing fees (1.95% and up)

* Why pay interest on your tax bill with a credit card when better options for borrowing money to pay the tax man exist: consider using a social peer-to-peer lending service such as Lending Club or Prosper.com.

In summary, it may feel convenient to pay with plastic, but that does not mean it is ACTUALLY convenient. Never pay an extra fee for the "privilege" of paying someone, especially if that fee is 1.95% to 2.35% fee... assuming your tax tab is $20,000 this year, you could pay up to $470 extra as a processing fee, in addition to all of the interest charges that may accrue over time on your credit card. Just not a smart idea.

Only use the credit card option if you have absolutely no other sources of capital available to you.

What To Do If You Can't Pay The IRS! (Last Minute Tax Help)

MSN Money has a useful post about what to do if you can't pay the IRS this year, on account of not having enough money in your bank account at the moment.

As the article explains, "Relax. You're not alone, and your plight is not unusual. Moreover, you're not going to jail. There are criminal penalties if the Internal Revenue Service can prove (the burden of proof is on the agency) that you intentionally didn't pay your taxes, but we'll assume that's not the case here. You just ran low on cash, and nobody goes to jail just because they owe money -- even to the IRS.

Your return is done -- that's how you know the magnitude of your debt. Send it in. Don't hold it just because you owe money that you can't pay. You can't go to jail because you don't have the money to pay your tax bill, but you can go to jail for not filing. It's a criminal act, and you're not a criminal, so get that return in the mail."

Good to know you won't immediately wind up in a Victorian-era debtors' prison!

Read the rest of the MSN Money article here.

Story Of Someone Audited By The IRS!

Very fascinating stuff. One of the writers at Dough Roller was recently audited by the IRS, and he provides some rather interesting first-hand information about the process... This is much more interesting than the usual personal finance articles about IRS audits, written by people who have never experienced it. 

According to the article, an IRS audit comes in the form of a "large, thick" envelope from the Internal Revenue Service. It includes an information sheet on the audit process, why you have been audited, and in his case it also explained the amount supposedly still owed -- with the option to pay it immediately without any further penalty or inquiry. 

The writer was actually a bit impressed by the organized manner of the audit packet, but still, it's never an awesome thing to get selected for an audit. It'd be cool if he took a picture of the envelope, though. 

What's funny is that normally we are taught that large envelopes bring good news... an unexpected gift, a college acceptance letter, etc. In this case, however, big is bad. :)

TurboTax Review (2010)

Reader Kathy wanted to share with us that she had a positive experience with TurboTax filing her 2010 taxes. And, for the most part, recent TurboTax reviews online appear to be positive as well.

I have used the service before. Frankly, I like H&R Block's interface a bit better, but that's just me!

Also, if you use Bank of America or Chase, check out their web sites right now... both appear to be offering up to 35% off promotions on TurboTax service if you are a banking customer. More details on their sites. 

Regardless of whether you use TurboTax or another popular online tax filing service, I strongly feel that using an online tax filer is better than paying a "tax consultant" or regular account to file your taxes the old-fashioned way. It's far less expensive, it's faster and there's less room for mistakes. If you have a fairly ordinary financial profile and make most of your income from a salary, you really can't go wrong with the easy-to-use interface at H&R Block or TurboTax or even TaxACT. Just double check before you submit to ensure accuracy.

With an accountant, he could be rushed and mess up... and who knows how competent and up-to-date on the tax code he really is. 

I'm very much an advocate of do-it-yourself finances instead of hiring "experts" to do things for you. E*Trade instead of paying a broker to make your choices, TurboTax instead of an accountant, and so on. Just my preference.

Using Your Tax Refund To Buy Treasury I-Bonds Automatically (Savings Bonds)

Should you use your 2009/2010 tax refund to buy Treasury savings bonds?

J.D. at Get Rich Slowly has a great post on the new IRS option to use your tax refund to buy savings bonds.

More specifically, the program allows you to automatically apply up to $5,000 of your federal income tax refund to purchase I-series savings bonds (which are adjusted/indexed for inflation, making them a good conservative investment should inflation take off in the U.S.)... you buy them direct from the government, and you receive a pretty paper bond in the mail and everything!

Overall, this is a great move on the part of the IRS, and it make saving super easy for those who aren't natural savers. Maybe this year, instead of blowing your $2,000 or $3,000 tax refund on a new flat-screen television or vacation you don't really need, you will apply some (or all) of it toward purchasing I-series savings bonds.

Personally, I have a few investment ideas that I believe will provide a higher yield than bonds -- for my situation, at least. But if you're looking for something "no hassle" with a great deal of protection and some added perks (interest income is exempt from state and local income taxes, but not from federal income taxes)... why not throw some of your refund into an I-bond?

Helpful hint: You can also purchase bonds and a variety of other savings products direct from the U.S. government, at any time, using their Treasury Direct web site. And, please, keep in mind that bonds are not as liquid as online savings accounts or checking accounts.

Get Maximum Refund (Tax Tip)

Looking to get the maximum refund possible from your 2010 federal taxes?

I got the maximum refund using one of the online filing services, it was completely free, and the government has already deposited my refund into my checking account. (It posted on Friday.)

Pretty painless and awesome, plus H&R Block found me a tax credit I did not even know I was eligible for.

Personally, if you're looking to get the maximum refund in 2010, I do NOT recommend using an accountant who specializes in tax filings... The competency level of those folks seems to vary greatly, and I have heard many horror stories.

Unless you are an extremely high net worth individual with very complex finances, one of the online filing services will probably suit you better.

I used TurboTax last year, and was annoyed. They send out WAY too many emails, I found their system a bit confusing and time consuming as well.

H&R Block's system, on the other hand, felt very streamlined and only took me 20 minutes or so to file. I got the maximum refund possible and the direct deposit option (first year I've used it!) was totally seamless and worked as it should.

H&R Block also doesn't brow beat you with relentless emails. I received notifications when the IRS accepted, and then approved, my online return. That was it. No B.S. or marketing emails.

I definitely recommend them to anyone with fairly simple finances. They will find you every possible tax credit, and for me the additional state file was only $9.95.

To summarize: I got the maximum refund possible this year, it was deposited on time into my checking account on February 5th, found a tax credit I didn't know I had qualified for, and filed my federal taxes for free. I only paid $9.95 total, if you count their fee for state file, but that was well worth it: I am expecting a $400 or so refund from the state in the next week.

As always, I believe in being completely transparent with my readers. I have NOT received any compensation from H&R Block or any other tax filing service to write this article. I recommend companies I like and financial products I enjoy using, not companies that pay me.

I know, novel idea, right? But I don't write this blog primarily to make money. I write it to share my personal finance journey and get feedback (and advice!) from readers like you -- and when I can, I share my own advice.

Good luck with your tax filing, and don't let any credits escape you. Getting the maximum refund possible from your state and federal tax returns is a great way to build up your savings account or emergency fund. You can even request that the IRS direct deposit your refund into your high yield online savings account, such as an ING Direct or HSBC Direct account.

And this year, you can request the deposit be split into as many as THREE different accounts. So, you can have some put in your savings account, some in your everyday checking account, and some in an emergency fund. Pretty cool feature... and I'm glad the IRS is encouraging us to save. Well, giving us greater flexibility, at least.

Outlaw

File Taxes For Free In 2010

Don't waste your money with expensive tax preparation: in many cases, you can e-file or regular file taxes for free in 2010.

If the amount you earned in 2009 was less than $57,000, you are typically eligible for Free File. Go on the IRS web site and click their "Free File" logo on the right side to view a list of tax preparation companies and web sites that are participating in the free tax filing program this year.

This is the first year I've filed taxes for free. In previous years, I was a moron and went with overpriced software or face-to-face filing at a local tax prep center. 

I ended up going with H&R Block for my free file -- they were on the IRS list of recommended free file services along with some lesser known brands. H&R Block, at least, has a good looking web site. If I had to review H&R Block, I would give them a 10 out of 10.

The federal file was truly free, with no BS or pressure to "upgrade" to a paid plan. Additionally, they took care of my state file for just $9.95.

Plus, their service helped me find a tax credit I didn't know I qualified for. The amount that this credit boosted my refund definitely outweighs the $9.95 I paid! And filling out the complex IRS forms by hand would have taken much longer, and been more difficult. I probably would have missed this particular tax credit altogether had I filed by hand. It also made it easy to enter my bank account information -- I selected the direct deposit option for both my federal and state refunds. (It should supposedly arrive in 8-15 days, as opposed to 3-4 weeks or longer with a regular mailed check.)

So I recommend H&R Block fully and suggest you guys check them out. And no, I have not been paid in any way by them for this endorsement.

Have another free tax service you recommend to fellow Credit Card Outlaw readers? Post about it in the comments, below.

Disclaimer: I am not a tax expert. Consult one before filing your taxes.