I dropped my taxes off with my accountant this past week. We had a nice long discussion about my tax situation, which has changed a lot in the past year. In addition to my small business income/expenses, I had a few more fun things to consider. I admitted to being naughty – I did a bit of day trading bit last year at my online brokerage accounts. I took small losses on two trades, but made up for it with a slightly larger gain on another trade. I admit I shouldn’t have done it though. Not only does it muddy up my tax return, but short term trading is risky. Overall, I ended up with a small gain of a couple hundred bucks. Worth the risk? Well, the end result was good, but it just as easily could have been ugly, so probably not.

So now I just have to wait it out and see what the damage is – both for paying to have the taxes done and my state ad federal tax bill. I’m glad my accountant charges reasonable rates!

CompleteTax Giveaway Winners

This past week we held a giveaway for 5 free copies of CompleteTax, one of the top online tax software programs (see CompleteTax Review for more information about CompleteTax). The winners were randomly selected by using a random list generator from the site Random.org. Congrats to the winners, who should receive an e-mail notification shortly!

recommended financial and career articles:

• Three Things That The Earthquake In Haiti Reminds Me About Personal Finance.
• Small Business Tax Advice – The New CFO in Town.
• How to Rock Band 2.
• How Much Our Debt Costs – February 2010.
• Why Extended Warranties for New Tires Are A Waste of Money.
• International Personal Finance Carnival #1 @ PT Money.
• Carnival of Personal Finance 246: March is the month for … what?!? @ CreditCards.com.
• Best of Money Carnival #40: Snurricane Edition @ Budget Pulse.
• Xamuel.com Blog Carnival, Edition 1.
• Baby Boomers Blog Carnival Twenty-ninth Edition @ Baby Boomers U. S. (The Blog).
• The Best of the Best in Money and Personal Finance #12.

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Related Articles:

1. CompleteTax Review and Giveaway
2. Announcing the YNAB 3 Winner
3. Annoucing the Flip Video Camera Winners!

Last week I wrote a review of H&R Block At Home to take a look at some of the changes to H&R Block’s do it yourself tax software. In addition to the name change (it used to be known as TaxCut), there are a few other changes, including an enhanced interface, more user friendly terminology and instructions, free audit support, and more. One of the best features is the ability to try it out for free; you will only have to pay for it if you print it or decide to e-file. There are different versions to handle almost any tax situation, and you can give it a free test spin here (only paying if you purchase it): http://www.hrblock.com/.

H&R Block at Home Giveaway

H&R Block sent me a copy of their software for review, and also agreed to sponsor a giveaway here at Cash Money Life. They gave me two copies to give away to readers.

How to win: Entry is free and easy. All you need to do is leave a comment with the personal finance or career topic(s) you are most interested in learning more about. I recently gave away a copy of You Need a Budget 3 using these rules and the feedback was excellent. I will the topics you all leave to help guide the content here in the coming weeks.

You can leave as many topic suggestions as you wish, but I will only accept one entry per person. The two winners will be randomly selected using a random list generator and will be announced in the weekly announcement post next Sunday. Deadline to enter is Midnight EST this Saturday. Void where prohibited. Good luck!

Recommended personal finance and career articles:

• Earn less than $58,000 in 2009? File taxes free. If you earned less than $58,000 in 2009, you may be eligible to file your taxes for free. In collaboration with H&R Block, the Beehive offers free federal and state tax preparation online for users who made under $58,000 in 2009. Visit the Beehive (www.thebeehive.org/freetaxes).
• How to Choose The Best Financial Advisor/Planner for You.
• The Dough Roller is giving away an iPod Touch.
• Do “C” Students Deserve “A” Lifestyles?.
• How Does the IRS Pick Tax Returns to Audit?.
• Got the Christmas Debt Blues?.
• Tax Tips for 2009 Tax Year (and Tax Software Giveaways).
• How to Avoid and Prepare for a Tax Audit by the IRS.
• What is the Difference Between Credit Card Fraud and Identity Theft.
• The Ultimate Frugal Home Office.
• The Secret to Success. Hustle..
• Now That You’ve Set Up Your Budget.

This week’s carnivals:

• Carnival of Money Stories: Tell Me A Fairy Tale @ Modern Tightwad.
• Rich Life Carnival #44 @ Rich Life Carnival.
• Tax Carnival #64: Groundhog Day.
• Money Hacks Carnival #102: Build a New Blog Edition @ Passive Income Now.
• Tax Refund? How You Should Use It and Why You Should Lose It.

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Related Articles:

1. H&R Block At Home Giveaway Winners
2. H&R Block At Home (formerly TaxCut) 2009 Tax Season
3. YNAB 3 Giveaway

Welcome to the 242nd edition of the Carnival of Personal Finance. There were well over 80 entries this week, and I’ve pared it down to the best articles in each category. For those of you who haven’t yet been exposed to blog carnivals, they are a collection of recent blog articles on a similar topic, in this case, personal finance. The entries are limited to one per blog, and they must meet certain guidelines to be eligible, including being a recent article, topic, etc.

Because it’s tax season, I also added some fun tax facts after each category. I thought some of the fun tax facts were amazing, and others a testament to our bloated system. But like it or not, taxes are here to stay! I hope you enjoy these fast tax facts!

Editor’s Choice Selections

These were my personal favorites from this week’s entries. They are well written and get a point across that either reached me on a personal level, or was so well executed that it deserved a special mention. I hope you enjoy these, and the rest of this week’s entries.

Joe Plemon from Personal Finance By The Book shared his article, Unemployed? Are You Rocking or Are You Rolling?. Joe’s article is an encouragement to those who are currently unemployed, and offers tips to spur you to action. I left a long comment on this post because it spoke to me. I’ve been unemployed and it’s tough. But through hard work and dedication, I am much better off than I was before I was unemployed. I hope you will end up in the same situation if you ever face unemployment.

Mike from Personal Finance Ninja shard an awesome in-depth article titled, Everything You Ever Wanted to Know About Your Credit Score. The article includes graphics and information about your credit score, why it matters, how it id determined, and how to increase it.

EM from The Everyday Minimalist presents Confusing frugality with minimalism. I like this article a lot as it delves into the personal side of money and life… getting by with what you need, avoiding excess, and using what you have to maximum effect. Great article.

Pop from Pop Economics presents Paralysis and other effects of distrust. This article covers the psychological side of investing, dealing with up and down markets, chasing returns, and letting the media and other factors influence your decisions, and more importantly, your actions.

Fun tax fact: As of 2000, the Internal Revenue Code, not including the regulations, ran to 1.4 million words (according to the Joint Committee on Taxation), making it six times longer than War and Peace and nearly twice as long as the King James Bible or the complete works of Shakespeare.

Money Management

• Ron from The Wisdom Journal presents Royalties: How the average person can work once and get paid over and over and over. Ron shares a few tips on how you can set up investments and other assets to receive recurring income streams.
• Kevin from No Debt Plan presents I Coached My Wife On Budgeting Before We Were Engaged. Kevin shares a few examples of how he and his wife first started budgeting, and how they do it today.
• Mike from Gather Little By Little presents Teaching Your Children About Money Lesson #1: Money is not Free. Mike shares some of his son’s first impressions of money and how it works.
• Lakita from Personal Finance Journey lists 7 Ways to Prevent Bank Overdraft Fees.
• Nicole from Rainy-Day Saver presents Protecting Privacy in the Information Age.
• Len Penzo shares his 2009 State of the Household Financial Report.

Fun tax fact: The related income tax regulations ran to another 8 million words spanning over 20,000 pages in six volumes. Together the Internal Revenue Code and the regulations are at least ten times longer than the King James Bible.

Investing

• Austin from Foreigner’s Finances presents The 5 Minute Guide to Roth IRAs (Video). this is a short video guide explaining how Roth IRAs work. It’s a great primer for anyone who wants to learn how to open a Roth IRA.
• Mike Piper from The Oblivious Investor presents Financial Advice: Hourly Fees, Asset-Based Fees, or Annual Fee?. Essential reading before hiring a financial advisor.
• Darwin from Darwin’s Finance presents Short Leveraged ETF Pairs Strategy – Simply Incredible. Darwin outlines an Inverse Leveraged Short ETF Strategy designed to short opposing leveraged ETFs and ultimately make profits. Click through for more information about his process.
• D4L from Dividends Value presents 10 Stocks With 100+ Years of Dividend Payments. Great resource if you are looking for companies with a positive dividend culture.
• 2 Cents from Balance Junkie presents RRSPs: What Should You Put in Them?. This article covers investment options for RRSPs, which are similar to a Canadian version of 401k plans. Although RRSPs are a Canadian investment option, readers in the US and other locations may find value here because many of the investing, retirement, and tax planning options outlined in this article are general in nature and can apply to other situations.
• Tom @ Canadian Finance Blog from Canadian Finance Blog presents How Much Do You Need To Retire? The 10% Rule.  The 10% rule simply states that you should save 10% of your gross income. Is this a good rule of thumb for retirement planning?
• Helen from Science and Money presents The ABC’s of IRA inheritance for LGBT’s, and says, “LGBT couples are treated differently than heterosexual marriages when it comes to inheriting IRA’s. Here’s how to avoid having disapproving Aunt Sally end up with your dough. “
• Silicon Valley Blogger from The Digerati Life presents How To Buy Stocks At The Prices You Want.
• Mr. GoTo from Go To Retirement presents Forecasting Retirement Income Success, and says, “Investing towards a long term goal is important. When that goal is retirement, forecasting your retirement income is the proper test.”
• Simon Zhen from Realm of Prosperity presents 5 Signs You Are Addicted to Investing.
• ElizabethG (Modern Gal) from Modern Gal presents The Challenge of Investment Income.
• Sun from The Sun’s Financial Diary presents Why Direct Stock Purchase Plan Still Makes Sense.
• Dividend Growth Investor writes about how Dividend growth stocks are attractive buyout targets, and says, “The problem with many dividend stocks is that they could be attractive buyout targets by larger rivals or by companies which are looking to diversify into a new line of business. Shareholders usually receive a big premium which ensures that almost everyone makes a profit in the process. This doesn’t take into consideration the fact that a growing company might deliver much higher total returns if it stayed independent.”

Fun tax fact: In 1940, the instructions to the Form 1040 were 2 pages long. For the 2004 tax year, the instruction booklet alone was 79 pages long. The instruction to the supposedly simple Form 1040EZ for 2004 was 36 pages long.

Saving

• Lynnae from Being Frugal.net presents Move Your Money to a Local Bank: A New Trend. Lynnae grew frustrated with her large, national bank and transferred her assets to a local bank. Visit her site to read why she did, and how this is becoming a grassroots movement to get other to do the same thing.
• J. Money from Budgets Are Sexy presents 4 Old School Money Hacks – A Trip Down Memory Lane. J. had the Hustle working even as a youngster – check out how he scored money in his youth, and what he is doing now to keep the game alive.
• jim from Bargaineering presents Five Psychological Money Tricks.
• Fabulously Broke from Fabulously Broke in the City presents Haggling: Who does it?. Fabulously Broke shares her haggling experiences with Big Retail stores, and with independents.
• Single Guy Money stresses that Yes, the Small Amounts Matter.

Fun tax fact: As of 2000, the Internal Revenue Code, not including the regulations, ran to 1.4 million words (according to the Joint Committee on Taxation), making it six times longer than War and Peace and nearly twice as long as the King James Bible or the complete works of Shakespeare.

Frugality

• Mr. ToughMoneyLove from Tough Money Love presents When the Name Brand Purchase is a Bad Deal. Sometimes buying a name brand financial sense. But there are extreme examples of when it does not.
• Paul from FiscalGeek presents Why a Storage Unit is a Gateway Drug to Financial Ruin. Self storage units are great for one purpose only – short term storage in between moves, for home renovations, or similar purposes. They are rarely a good idea just to store “stuff” for an indeterminate amount of time.
• Chief Family Officer writes about The Importance of a Price Book. Do you keep a price book, while shopping?
• mbhunter from Mighty Bargain Hunter blogs about how he bought a used washer and dryer with a clear conscience. He writes, “This may not be for everyone but used is just fine for me … and I’m not losing sleep at night, either!”

Fun tax fact: Over 60% of Americans use a paid preparer to compute their taxes (compared to 47% in 1986).

Debt

• LeanLifeCoach from Eliminate The Muda! presents Good Debt, Bad Debt… All Debt Sucks!. Some people claim there is a difference between good debt and bad debt; LeanLifeCoach disagrees.
• Kyle C. from Suburban Dollar presents When You Fall Behind on Your Mortgage – Mindset of the Collector. Kyle takes a look at life from through the eyes of a debt collector when you fail to make mortgage payments on time.
• Jason from Live Real, Now presents 10 Ways to Secure Your Kids Against Debt.

Fun tax fact: Compliance costs associated with the income tax are conservatively estimated to be approximately $140 billion per year. This cost is roughly the same as giving $1,000 to every family in America, or the amount of money needed to fund the Department of Homeland Security, the State Department, NASA, HUD, the EPA, the Department of Transportation, the United States Congress, our Federal courts, and all foreign aid..

Credit

• David from Credit Card Offers IQ presents How to Cancel a Credit Card, and says, “There may be a variety of reasons you have for wanting to cancel you credit card. You simply want to stop going into more credit card debt, and canceling your card would help you accomplish that goal. Perhaps you have a card you simply no longer use, or one that charges an annual fee you no longer want to pay.”
• kyle from Amateur Asset Allocator presents 5 New Rules Of Credit Cards, and says, “The post-recession rules for using credit cards responsibly.”

Fun tax fact: There are 15 common tax benefits available to families – including provisions that relate to children, education and retirement savings – that provide 14 different phase-out provisions to reduce benefits above specified income levels that, in turn, contain 9 different definitions of income.

Real Estate

• vh from Funny about Money presents Should You Pay Off Your Mortgage?. Paying your mortgage off early has no clear answer. vh covers this topic based on our current economic environment. With mortgage rates low and stock market returns recovering, she changes her mind on this endlessly debated topic.
• Craig Ford from Money Help For Christians presents 10 Tips For Knowing When To Refinance A Mortgage. A refinance can be a good move as long as a person has the right guidelines in place.
• J.D. Roth from Get Rich Slowly presents Does Renting Make Sense?, and says, “We’re not about to move, but you know what? If I had it to do again, I’d never buy this house. If we had stayed where we were, we’d now have just four years left on our mortgage. But knowing what I know now, I might even be inclined to rent. For most folks, renting isn’t a bad option.”

Fun tax fact: In 2003, the IRS received 89 million calls and had almost 9 million walk-in visits from individuals looking for assistance in completing their returns and understanding the tax code.

Taxes

• FFB from Free From Broke presents The Government Thanks You For Your Taxes. The government loves that you overpay your taxes and give them a free loan, but is it right for you?
• Jason from One Money Design presents Flexible Spending Account (FSA) Planning: The Grace Period and Run-Out Date. Jason covers great information about FSAs, and mentions that it’s important to plan properly when using a Flexible Spending Account (FSA) as well as understand if your employer provides an annual grace period with a run-out date.
• Wealth Pilgrim from Wealth Pilgrim presents Roth IRA Conversions Can Wreck Your Tax Credit for Homebuyers. Roth IRA conversions are a hot topic right now. The Pilgrim points out a fact that many people may not have considered: Roth IRA conversions (done incorrectly) can ruin your chance of getting your homebuyer’s tax credit. Here are some tactics to make sure you don’t blow it.

Fun tax fact: More than one in three households (approximately 40%) does not pay federal income tax, compared to 1 in 5 in 1986.

Career

• Jeff Rose from Good Financial Cents presents Will You Work Past Your Normal Retirement Age?. Working past normal retirement age is not unusual. According to the Social Security Administration, 28% of individuals between the ages of 70 and 74 reported income from earnings in 2006, the latest year data are available.
• PT from PT Money presents Make Extra Money with Freelance Writing. PT has a very interesting interview with a successful freelance writer. Essential reading if you are interested in freelance writing for income (as is the next article).
• DR from DoughRoller writes about How to Make Full-time Money as a Part-time Writer.  More in-depth detail about how to make money as a writer.
• Squawkfox shares Free Cover Letter Examples with Cover Letter Tips. Excellent resource for those who are currently shopping their resumes.
• The Financial blogger shares his recent job interview story. He is currently shopping for new employment, but it also sounds like he has a decent gig right now, which puts him in the driver’s seat when it comes to what he is looking for.
• Miss M from M is for Moneyasks Do Women Undervalue Themselves?.
• Bob from Christian Finances presents The Difference Between a Multi-Level-Marketing Company and a Pyramid Scheme. These are a few simple ways to tell if an opportunity is a scam or not…

The IRS estimated that there were 1.2 million paid tax preparers in the United States in 1999. That amounts to more than twice the number of police officers in the United States and more than four times the number of firefighters. (The United States had 282,000 firefighters and 625,000 police officers as of 2002).

Other

• Sean from Growing Money presents Legitimate Charitable Organizations for Donations to Haiti Earthquake Relief. Make sure your donations go to the right charities for the right people.
• FMF from Free Money Finance presents Kiplinger Doesn’t Get It, and says, “Kiplinger rates the “best” colleges without considering the #1 factor that makes colleges better than others.”
• Mike from Four Pillars wrote an External Hard Drive Review. Backing up your data is essential and a hard drive is an important part of the process.
• pkamp3 from Don’t Quit Your Day Job… presents The United States: A Charitable Country. One thing the recession hasn’t decreased in this country is the rate of volunteering. In a recently released BLS report we find that volunteering has approached levels not seen for 4 years… in the midst of the current recession.
• Jason Unger from Automatic Finances presents When Will You Have Enough?.
• Wojciech Kulicki from Fiscal Fizzle presents How Personal is Personal Finance?, and says, “Thanks!”
• Revanche from A Gai Shan Life presents Pets and money: where do you draw the line?
• Connie Prater from Taking Charge presents Redeeming Citi rewards points even more rewarding for Haiti.

Source: Fun tax facts from President’s Advisory Panel on Federal Tax Reform, a now defunct federal advisory board charged with generating recommendations for reforming the tax system.

Note about rejected entries. There were several reasons for articles being rejected, including not meeting submission guidelines, inability to access website, relevance or quality of content, and other reasons. Next week’s host is Get Rich Slowly. Get your entries in before Sunday’s 5pm deadline!

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Related Articles:

1. 110th Edition of the Carnival of Personal Finance
2. 2009 Personal Finance Goals and Resolutions
3. Money Hacks Carnival – 83rd Edition

H&R Block is the one of the oldest retail tax preparation firms in the US, with offices dating back over 50 years. In addition to their brick and mortar offices, H&R Block has one of the most popular tax software programs on the market, which is available as a download or for purchase on a CD-ROM.

I recently received a review copy of the new tax software from H&R Block, and I wrote this review based on the advance copy I received. Later in the tax season I will be giving away some free tax preparation software, so be sure to stay tuned!

TaxCut is now H&R Block at Home

The biggest news regarding the new version of H&R Block’s tax software is the name. The change from TaxCut to H&R Block at Home was done to leverage H&R Block’s long history of tax preparation and knowledge as the number one tax preparation retailer in the US. In addition to the name change, there are some other new features worth noting.

2009 tax season enhancements

Along with rebranding, H&R Block at Home focused on simplifying tax terminology to make their software program as easy to use and understand as possible. They also improved the user interface and other features. H&R Block at home features:

• Simplified terminology and explanations
• Step by step instructions and built in user-help functions
• Access to live tax pro help if needed
• Free tech support
• Free e-file
• Up to 5 federal e-files included (software only)
• State tax filing support
• Guaranteed accuracy
• Audit support from a tax professional at no additional cost

H&R Block at Home 2009 edition standard features

H&R Block walks you through the tax preparation process almost like it is an interview, which gives you personalized tax guidance based on your situation. The interview and tax preparation support makes it easy to:

• Report various income sources. Personal income, small business income, freelance income, hobby income, etc.
• Maximize deductions. Charitable contributions, mortgage interest, etc.
• Record Investments. Including dividends, rental property, and the sale of stocks, bonds, and mutual funds.
• Import data. H&R Block at Home supports importing data, including your W-2 and 1099 information, plus your prior year tax information from TaxCut or TurboTax.

H&R Block at Home provides feedback as you complete each stage of the process and displays your anticipated refund or how much you will owe. You can also track your refund or payment once you e-file. Below is a screenshot of the tax summary.

H&R Block at Home versions

There are 5 versions of H&R Block at Home, which should be enough to handle the tax situation for almost any DIY tax preparer. Each of the “higher” versions comes with the features of the level preceding it, plus additional features. There is also “H&R Block Best of Both,” which is described below this section.

1. Free (online only). The most basic tax situation, and comes with the option to upgrade if necessary (does not support schedules C, D, E, F, or K1 without upgrade). (FREE).
2. Basic (software only). Everything needed to file federal taxes. Ideal for people with very simple tax situations; great for first time tax filers or those without many deductions or other complex situations. ($19.95)
3. Deluxe. Everything you need to file federal and state taxes. Includes personalized tax guidance and tools to maximize home mortgage interest deductions, and income from stocks and other investments. Also includes live audit support and H&R Block DeductionPro. Ideal for tax payers who own homes and/or have multiple investments. ($29.95 – $44.95)
4. Premium. Everything needed to file federal and state taxes. Includes everything found in the Deluxe edition, plus support for schedule C, help with rental income deductions, advanced tax calculators, and one free session with an H&R Block tax professional. Ideal for those who are self-employed or own rental property. ($49.95 – $59.95)
5. Premium & Business. Everything found in the premium edition, plus support for corporations, partnerships and LLCs, estates and trusts, and non-profit returns. Product will support personal and business taxes, plus 5 federal e-files, and unlimited state tax returns. Ideal for people who need to file personal and business taxes. ($79.95)

The prices for the different versions vary depending on whether you purchase the online edition or a physical copy from a retailer. The online version is generally a few dollars cheaper. You can get a current price list from H&R Block: http://www.hrblock.com/.

Try it out for free. You can start your taxes with H&R Block at Home online for free. You will not be required to pay until you decide to either print or e-file your taxes. This is a great way to try a new software program without feeling like you have to use it because you paid for it.

H&R Block Best of Both

H&R Block at Home also offers the “Best of Both” program which gives you the freedom to complete your taxes at home and contact a professional tax preparer when you have questions (no limit on number of questions). The tax professional will also review your return, submit it to you for your electronic signature, and e-file it for you. The program works by matching you with a tax professional with the experience to meet your needs, or you can choose a tax preparer with whom you have previously worked. The price for H&R Block at Home Best of Both is $99.95 + state filing if applicable.

Overall impression of H&R Block at Home

Overall, I am impressed with the product H&R Block puts out, and you can’t beat their reputation or the audit guarantee they offer. With over 50 years experience and an easy to use product, I wouldn’t hesitate to recommend H&R Block at Home to any of my family or friends.

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Related Articles:

1. How to File Your 2009 Federal Taxes For Free
2. H&R Block at Home Giveaway
3. TaxCut Giveaway

Tax season is here and one of the topics I hear frequently discussed at work is the current income tax bracket people are in. One common misconception is that receiving a raise can put you into a higher tax bracket, and the net effect of your raise has a negative impact on your bottom line.

For example, a raise from the 15% tax bracket to the 25% tax bracket doesn’t expose all of your income to the 25% tax bracket – only the income earned within that range is taxed at 25%.

Understanding marginal taxes

This “gradual” tax schedule is called a marginal tax rate system. In effect, the amount of taxes you pay rises as your income rises. The IRS places the marginal tax rates into brackets, making the marginal tax formula easier to understand and compute by hand. Let’s look at the 2010 Federal Tax Brackets to see this in action.

2010 Federal Income Tax Brackets

Applying Federal Tax Brackets to your situation

As you can see from the above federal tax bracket table, there are tax brackets for income ranges. For example, a married individual will pay the following taxes:

• 10% federal income tax on the first $16,750 of income;
• 15% federal income tax on income from $16,750 – $68,000;
• 25% federal income tax on income from $68,000 – $137,300;
• and so on.

This is a gradual tax system, and does not mean that you will pay the corresponding income tax rate if you break the threshold by $1. For example, receiving a raise from $67,500 to $68,001 will not subject all of your income to the 25% tax bracket – it will only apply to income earned within that range. These gradual tax rates add up to your effective tax rate.

How to calculate effective tax rate

Let’s use an example of a married couple filing jointly with $100,000 of taxable income (after deductions, exemptions, etc.). They are in the 25% tax bracket, but don’t actually pay $25,000 in federal taxes. They would pay:

• 10% on first $16,750 of income ($1,675)
• 15% on income from $16,750 – $68,000 ($7,687)
• 25% on income from $68,000 – $137,300 ($8,000)
• for a total of  $17,362

In this example, the weighted, or effective tax bracket, is 17.36% (note this is effective federal tax only, and does not include state or local taxes. You should be able to find a state tax calculator to assist your calculations). This is easy to figure out when you file your taxes, ans most tax software programs, including TurboTax and H&R Block @ Home, can give you these calculations when you use their program.

Using Marginal Tax Rates for tax planning

Using your knowledge of the marginal tax rate system, you can use them to help reduce your taxes if you are near one of the tax bracket limits. All you need to do is bring your final number below the tax bracket. For example, if you are married filing jointly and earn $70,000, you can contribute $2,000 to your 401k and avoid paying the higher tax rate on $2,000. The tax savings can easily add up to a couple hundred dollars to several thousand, depending on how much you can shave from your marginal tax rate.

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Related Articles:

1. Federal Minimum Wage Rising This Week
2. How the Economic Stimulus Check Affects your 2008 Tax Return
3. Weekly Roundup – My Favorite Personal Finance Posts

We are nearing the end of January, which means tax season is officially upon us. By now, you have probably already begun receiving your W-2s, 1099’s or other tax documents in the mail. That means there is no better time to get started with your organization to make filing your taxes a little easier this year. I’m going to walk you through the process my wife and I use to organize our tax documents for tax season. This is actually a year round process that involves very little upkeep – just a couple manila envelopes stored in a safe location.

How to organize your tax paperwork

Taxes are one of my least favorite things to do. I don’t mind paying taxes and supporting public works – I just don’t like filling out the paperwork. One of the most important things you can do to make preparing your taxes easier is to keep your papers organized.

Whether you do your taxes yourself, or hire an accountant, keeping your documents organized will reduce errors and the time needed to complete your taxes (essential if you hire someone!). I recommend trying to keep everything in one place, such as a binder, folder, large manila envelope, file folder, or tray on your desk, depending on your needs. Because I have a business, I keep my individual and business tax paperwork separate, even though it eventually all goes on the  same tax return.

Organize your tax documents year round

Our individual taxes are fairly simple, and we receive few tax documents throughout the year. The most common tax documents we receive are receipts from charitable donations, which we keep in a manila envelope labeled “Tax Deductions.” We use an inexpensive pocket folder to organize the rest of our tax documents once our W-2’s, 1099’s, and other tax documents start rolling in near the end of January. I place all income on one side of the folder, and all deductions and expenses on the other side of the folder.

My business taxes are a little more complicated as there are more expenses, deductions, receipts, and other papers to track. I receive business documents year round and file them as I receive them. Each time I receive a new document I file it into a simple manila envelope, where it will remain until tax time. I find it easy to keep my business tax documents and papers in three folders – income, expenses, and business/tax documents. Keeping everything in separate envelopes makes it quick and easy for me to verify income if I don’t receive a 1099, itemize expenses, or find a receipt or other document if it is needed.

Based on your situation, you may find it easier to use fewer or more folders or envelopes, or just drop everything into a box until tax time and sort it out then.

Tax preparation checklist

Before you sit down to do your taxes, make sure you have everything you need. This will include (but is not limited to):

• Your Social Security Number, and the SSNs of those on your tax forms
• Bank account and routing numbers if you pay electronically
• Your EFTPS information if you file electronically
• List of previously paid taxes: self employment tax, estimated taxes, property taxes, etc.
• W-2s, 1099’s, 1098’s and related tax documents.
• Interest paid on mortgage or student loans
• Charitable donation receipts
• Contributions to tax deferred retirement accounts (401k, IRA, self-employed retirement accounts).
• Homebuyer tax credits
• child care and education costs
• Medical costs and receipts (if you can deduct them)
• Other related documents

Printable tax preparation document. This is just a partial list. For a printable Tax Preparation Checklist, please check out the TurboTax – Tax Preparation Checklist.

When in doubt – seek professional tax advice

I have had no problems using tax preparation software in the past – TurboTax, H&R Block @ Home, and TaxAct are all great options. But you may run into a tax situation that isn’t clear. I would rather err on the side of caution when it comes to the IRS and avoid paying late fees or penalties, especially now that my small business complicates my tax situation. Don’t hesitate to reach out to a tax professional if your tax situation is unclear.

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Related Articles:

1. How Long Should You Keep Financial Documents?
2. I hate doing taxes
3. Do You Need An Accountant?

If you pay estimated taxes, then consider yourself warned – your year end estimated taxes are due January 15th!

Who owes estimated taxes?

If you are a salaried employee or hourly worker, chances are your employer withholds your taxes from your paycheck. But if you have small business income, freelance income, or income from other sources, you may not have had taxes withheld and you may owe estimated taxes. There are other situations when you may owe estimated taxes, so check with a tax professional if you are in doubt. You may also be required to pay self employment tax, which is another issue entirely.

Estimated tax schedule

Estimated taxes are due 4 times per year. They are often referred to as quarterly estimated taxes, even though the payments are not spaced exactly 4 months apart. Here are the estimated tax deadlines:

• April 15th
• June 15th
• September 15th
• January 15th

Just a note about the estimated tax dates: Notice the January deadline covers the final quarter of the year, and the April 15th deadline is for the first quarter’s income. So many freelancers and self-employed individuals have twice the reason to dislike April 15th – it’s the deadline to file their annual taxes and their first quarter estimated taxes – fun!

Paying estimated taxes

There are two ways to pay estimated taxes. The easiest, fastest, and safest way to pay is online with the IRS Electronic Federal Tax Payment System (EFTPS). Sign up is free and only takes a few minutes. Here is a detailed tutorial for how to enroll for electronic tax payments for your individual or business taxes. Keep in mind that while it only takes a few minutes to sign up for the EFTPS, it takes about 15 days to receive your PIN, so don’t wait until the last minute to sign up! (you can create an account for your personal taxes and a separate account for your business taxes if you have an EIN).

You can also pay estimated taxes by mail with the IRS Form 1040-ES. Download the pdf to calculate your estimated taxes, then fill out one of the vouchers on the form to send along with your estimated tax payment.

For more information about estimated taxes, check out the estimated tax guide on this site, or visit these IRS resources:

• Publication 505, Tax Withholding and Estimated Tax
• Estimated Taxes
• Form 1040-ES

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3. Estimated Taxes Reminder

I’m a big fan of saving money and doing things myself. But I’m also a fan of maximizing time and resources, and sometimes that means spending money by outsourcing business and personal tasks. Some people are much more efficient at certain tasks, and paying a pro can often be worth the time savings, not to mention the piece of mind of having a professional complete the task.

Until last year, I had always done my own taxes, usually with TurboTax because I got a free copy a couple years in a row when I was in the military, and it was easier to continue using a product with which I was already familiar. Then my situation changed, and it made sense to outsource my taxes and hire an accountant.

Why I decided to hire an accountant

Before last year, my tax situation was fairly simple – a W-2 for myself, one for my wife, and a couple 1099s for earned income from interest, dividends and other investments. The only deductions we had were tax deferred retirement contributions, a couple charitable donations, and interest on our mortgage. Our taxes took about an hour to complete once we got out paperwork together. Just plug the numbers into TurboTax and be done with it.

But owning my business changed everything.

I keep my business finances separate from my individual finances, which means a lot more paperwork. I organized my company as an LLC, opened a business checking and savings account to keep my personal and business income separate, started a Solo 401k to contribute toward retirement, and kept track of it all with QuickBooks (an accounting program made by Intuit, the makers of Quicken).

The end result was a couple manila envelopes full of receipts and vouchers, and multiple 1099s and other tax documents from various companies and institutions. I had a laundry list of itemized income receipts, expenses, deductions, and credits, and I only had a “pretty good” idea what I was doing. When it comes to taxes, “pretty good” isn’t good enough.

The difference between personal and business taxes.

Keeping your personal and business finances separate is usually the best way to go. You are required to report all earned income, regardless of amount or source, and you also need to keep track of business expenses and depreciate assets. For me, that would include my laptop, printer, and other accessories. In addition, you need to pay quarterly estimated taxes, and self employment taxes. That means expensing items, tracking payment vouchers, calculating how much to contribute for the Solo 401k, and other fun tasks. I researched each of these items, and felt that I knew what I was doing, but it’s also a good idea to have a professional double check everything.

When I got everything together, I realized my tax situation was a lot more complicated than the previous year. All these intricacies made me decide that meeting with a tax professional was in my best interest. My tax situation is even more complicated this year because I have made a few other changes at the recommendation of my accountant, which include putting myself and my wife on the payroll, meaning we now need to pay associate taxes such as FICA, state and federal unemployment insurance taxes, and more. Fun!

Interviewing and hiring an accountant

I asked some coworkers and neighbors for recommendations and received a few leads. I ended up interviewing a couple accountants and chose an accounting firm right down the road. They not only offered the best match of expertise and price, but were the closest location. Score!

I recommend meeting with several people if you decide to get your taxes done by a professional. Experience, specializations, and prices vary widely. Be sure to ask if they have specializations if you have a specific tax situation (such as owning real estate, a small business, if you are in the military, a pastor/minister, day trader, or someone with any other complicated situation). Read about another blogger and small business owner who decided to outsource his taxes.

Should you hire an accountant or CPA?

If you have a complicated tax situation and aren’t experienced or simply don’t have the time or desire, then I highly recommend hiring a tax professional. The time savings and piece of mind is well worth the price of admission. But if you have a simple tax situation, or if your earned income is low enough to qualify for free online tax filing, then its probably not worth paying to have your taxes done.

Whichever choice you make, I recommend enrolling in EFTPS, which allows you to pay your taxes directly to the IRS online. It’s the fastest, easiest, and safest way to pay your taxes online. The best part is that it is free and only takes about 5 minutes to set up (but it takes about 2 weeks to receive your PIN, so be sure to sign up in advance)!

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Related Articles:

1. How to Organize Your Tax Documents
2. Newlyweds and Taxes…
3. Estimated Taxes Due January 15th