For no limit IRS Free File, just use FreeTaxUSA[1]. Not only will it be better quality than whatever the IRS/Gov has turned out, not only is it Free (as-in Beer for IRS Filing), but it also offers very cheap State Filing options ($15).
Using the IRS' option (Direct File) [1] [2], if able, shows uptake, which will be used to gauge success and continued operation and improvement. If you can use it, you should. It is how for profit tax prep gets driven to the margins, and is eventually sunset (except for perhaps the most complex returns).
> Just use FreeTaxUSA...
That is how the status quo remains. Hasn't served us well to be honest. Of course, use FreeTaxUSA to avoid paid options if you don't fall into the IRS pilot criteria. But if you fall into the criteria, please consider participating.
> Using the IRS' option, if able, shows uptake, which will be used to gauge success and continued operation and improvement. If you can use it, you should. It is how for profit tax prep gets driven to the margins, and is eventually sunset (except for perhaps the most complex returns).
FreeTaxUSA is part of the IRS' free filing program, except it exceeds the IRS standards by offering free Federal Filing for any AGI... no maximum.
FreeTaxUSA is already marginalizing tax filing software. It cannot get cheaper than free. Additionally, they're the cheapest/easiest State Filing system I am aware of.
> > Just use FreeTaxUSA...
> That is how the status quo remains. Hasn't done very well for us tbh.
This is exactly how the status quo is destroyed. FreeTaxUSA provides the same outcome as vastly more expensive software and/or tax preparation services, at no cost to you for Federal Returns.
I don't believe you actually are aware of what you are talking about. There is no government option currently, except manually filling out forms.
Furthermore, it is naïve to believe the government will provide better service and/or usability than a private organization who's entire existence and purpose is to make submitting tax returns easy.
~145M potential taxpayers across the states you list is a fine pilot program population to start with (out of 331M people in country). Walk, then run. As your pilot moves into a fully operationalized state, you then have customer support and engineering capacity to work out edge cases. I don't see a problem; I see the beginning of success. You have to start somewhere.
The only thing keeping me from using FreeTaxUSA is its inability to import brokerage transactions/1099-Bs. As far as I'm aware, if you input 1099-B summaries (as opposed to individual transactions), you have to mail physical copies of all 1099s to the IRS.
I just completed my filing with FreeTaxUSA yesterday.
Which included 1099-B, because I got RSUs and sold them.
I manually entered the info about stock sale. And the end, the webapp told me, that IRS requires the copy of 1099-B, so I need to upload it. I uploaded PDF, which I got from Fidelity. That's it.
IIRC, you can now attach electronic copies of your brokerage statements to your return instead of mailing it to the IRS. I believe it changed for the 2022 tax year, I did have to mail in my complete 1099-B with transaction history in 2021 and before.
There are many folks who reflexively append .com to everything. Even if it redirects to .gov someday, depriving fraudsters of the .com is absolutely worthwhile.
My email address is firstname@lastname.me. The amount of times I've dealt with customer service... "We have your email address as firstname@lastname.me.com" or similar is notable.
I have firstname@lastname.io (younger me got swept up when .io was a big thing). Customer service gets confused, but also occasionally websites will tell me it's not a valid domain and I have to fall back to Gmail.
Couldn't agree more. I used it last year and it was awesome (I didn't find any feature missing). In any case, it's one of the "IRS Free File participants" according to the OPs link.
The original intent of the program seems to be a quid pro quo, where the IRS promises a non-compete with the tax preparation industry [1] in exchange for free federal tax prep for 70% of U.S. taxpayers [2].
As of 2019-12-26, the IRS no longer promises the non-compete [3], perhaps so it could start the Direct File pilot [4].
> The Consortium will offer Free Services to taxpayers at no cost. [...] During the term of the Agreement, the IRS will not compete with the Consortium in providing free, online tax return preparation and filing services to taxpayers.
Sorry I was unclear. I was trying to speculate on the question, "Why is there an income limit?".
Before digging into this, I thought the IRS set the income limit. (e.g. "We the IRS want all people earning less than $65k to have free tax prep.")
It appears it was the other way around: the memos show the IRS sets the % of the population it wants to have free tax prep services (70%), and the FreeFile income limits are calculated so in theory only the highest (30%) of incomes must pay for tax prep.
So I speculate that the answer to "Why is there an income limit?” may be "It was part of an attempt between the IRS and the private sector to have the richest 30% subsidize everyone else's tax prep."
This is free filing with "trusted partners," but the IRS also has their Free File Fillable Forms (not open yet) which have no income limit. The UI is a little rough, but matches the official IRS forms.
I got mad enough paying H&R Block a couple years ago and decided to download the fillable PDFs and do it manually. It was a good learning experience. Since I'm filling out the PDF forms anyway I wish I could just upload those to FFFF, instead of having to re-enter everything manually.
Still it's better than my state (Indiana) where I can't file online without a third party. It does bring me some satisfaction that I fill out the PDF forms, print them, mail them to the state, and someone gets to (probably) type it all back in to a computer. Efficient.
I've been using free fillable forms for years. Luckily my state also uses them. One year they didn't and I filed paper (by filling out PDFs, as well), and wrote a letter to the department of revenue promising to file paper returns every year they didn't have a free efile option.
And the next year they brought it back. Because of me, I'm sure. ;)
But until the IRS has full service online, I'm not paying a third party out of principle. The only time I shell out is if it gets too complex, and then I pay an accountant.
Because Intuit Turbotax lobbyists take congressmembers out on their yachts, and our representatives aren't interested in saving the country's citizens money
I think it's more like that 50% of representatives think that taxes shouldn't exist, so by making taxes an annual pain point, they are increasing their own support. "If it wasn't for That Other Party we wouldn't have you paying $39 to Intuit every year, but that's all they do, subsidize Big Tech with your Personal Information."
Because the tax preparation services lobbied the federal government to make it illegal for the US government to offer its own filing service.
I like 1040now.net. The UI is atrocious but it basically just offers an HTML version of the actual IRS forms. If all you need is a 1040 and a W2, then you just fill those out and skip the rest of the forms. I've been using it for several years. It costs $20 to file your federal returns if you make more than a certain amount, and it also offers State tax filing as well
If you just have W2 income, there's no reason you can't fill out the regular 1040 form yourself. Sure might take you an hour or so, but no software to purchase. Just costs a stamp to mail it in!
Just a caveat: in 2020, processing paper returns was considerably more delayed than digital submissions. If you want your return to be processed quickly, digital is almost always faster.
I have a form telling me about the interest the IRS sent me because amendments to forms are almost always paper-sent, and it took so long to process my additional return that they owed interest on it.
This is true. The thing that most people won't appreciate is that taxes that are not done online are processed at a very slow pace. Most people don't try to optimize their withholding in a way to get close to 0 tax returns and won't be willing to wait long times to get any kind of returns. We all are paying cost of capitalism.
It seems odd to be willing to give the government a loan over the course of the year, in the form of overwithholding, but then not be willing to wait a few more weeks to get the payout. If somebody is impatient to get their hands on that money, why not fix their W-4 so they get it with every paycheck?
(Also, as noted in the parallel comment, the forms can be submitted online, separately from the Free File service)
Well most people are just not literate when it comes to finances. They are not aware of what withholding means, how to calculate things. I'm sure it's not simple to do when you are working multiple jobs, or temp jobs in between (well these won't be those simple W 2 scenarios we are talking about).
We are know that the tax codes are intentionally complicated and big firms don't want government to fix them. Rules being complected allows having loopholes for certain people.
I think we’re talking about different, related things.
The tax code in the US (and the filing process) is overcomplicated for a variety of political, corporate, and cultural reasons.
The average US taxpayer is under-educated on finances generally and tax code specifically.
That said, the W-4 is one area that’s actually gotten simpler in recent years. I simultaneously think the tax code needs serious simplification and that the average person has the capacity to read a W-4 and get reasonably close on their withholding. The reason many of them don’t is because they like getting a refund check once a year.
Government: creates a byzantine tax code to allow the richest/most competent avoiders keep their wealth while consistently over-targeting lower-income groups for audits
For profit tax-co’s: do back door deals with the government to prevent lower-income/competence individuals from working directly with the gov’t while engaging in dark patterns to make the lower cost products harder to use/find
This guy: It’s the citizen’s fault and they get what they deserve for having other priorities than wealth management!
I think it’s fair to assume that all users want taxation to be as close to 0 overage as possible while also wanting all overage returned as quickly as possible. Anyone not working towards that sucks and is the universal enemy.
I know plenty of people who do not want their tax return to be close to zero. They like getting a big refund check back. This is the kind of person being described in the comment I replied to.
If you only have income from one W-2, two if you are married, yes it is easy. But if you have any variability in your income, it's hard to predict how much you tax you are going to owe. Not every income supports withholding (i.e. savings accounts) and the way you can set withholding varies by income source (W-2 supports a dollar amount per paycheck, RSUs often use a percentage). So getting the right combination of withholding settings to cover your tax liability across all income sources can be tricky.
If I don't get the refund quickly, I don't trust that I'll get it ever. Things can fall through the cracks, and support dwindles for older tax returns.
To pop up Intuit, makers of Turbo Tax. Lower income people are still more likely to go to a tax preparer service than to attempt to file their own. The idea of doing your own taxes is a middle class and up ideal, or those who are more likely to have the education and training to do their own taxes.
AIUI, this is the result as a compromise. Instead of the IRS creating its own free tax prep software, the existing tax prep industry had to make their offerings free for people under a certain income threshold.
Of course, the tax prep industry engaged in all sorts of dark patterns to make actually obtaining the legally-required-to-be-free software for free as difficult as possible, so the IRS is now working on its own free tax prep software (which is the Direct File system, not the Free File system).
I suspect it’s more to ease into letting people file for free by cutting out “higher risk” filers. The income cap pretty much guarantees everyone filing falls into a simple class that doesn’t need itemized returns.
No, it is not. As the name implies, it is gross income, adjusted for certain (but nowhere near most) deductions.
Itemized (or standard) deduction is subtracted from AGI to arrive at taxable income. Also, a temporary provision for something called QBI might be deducted from AGI to arrive at taxable income.
given how many things can lower AGI from actual gross, this is splitting hairs simply over the word “most”. you can have negative AGI, this kind of adjusted gross is nowhere near actual gross.
A CPA friend of mine stated that software engineers are pretty screwed when it comes to taxes, they pay the highest effective rate. In effect, when you are in the $125k to $250k ballpark, you're at a high tax bracket but not making enough to take advantage of the things that allow (for example) Warren Buffet to have an effective tax rate of 11% [1]. So, in the shoes of a typical software engineer, their effective tax rate is ballpark 30~35% and their deductions are pretty minimal.
One example my CPA friend gave was landlords getting it good. They can both deduct depreciation and also repair costs - double dipping! Further, any interest on real estate loans they have are also tax deductible. I don't know of more specifics personally, the impression my friend gave me was that those examples are just the beginning.
>They can both deduct depreciation and also repair costs - double dipping! Further, any interest on real estate loans they have are also tax deductible.
Either your CPA friend is ignorant (since after all not all CPAs specialize in income tax) or you misunderstood.
Depreciation is how the cost of placing a new asset in service is spread over time to match the income generated by the asset (roughly speaking). Repairs are the cost of keeping existing in-service assets in normal operating condition. There is no double dipping.
As for mortgage interest, only interest on the loans used to acquire or improve the property are deductible, not cash-out equity loans. This is basically the same rule that owners of their own principal residence get to use, although there are some temporary limits that can reduce the full deduction, especially for those in areas with expensive houses for sale.
> Either your CPA friend is ignorant (since after all not all CPAs specialize in income tax) or you misunderstood.
I might have misunderstood, but he was keeping it simple for me. I'm 100% positive that he was correct though, to what angle - I'm not exactly sure.
After doing some more research on my own, I think the double-dipping stands. In essence it comes down to a statement like this: "my property is worth less year over year - look, the shingles are starting to come off! Oh, by the way, I spent $2000 fixing the shingles."
So, first, let's tackle depreciation. For rental, the entire property value depreciates and this is tax deductible. It's about 3% of the property value every year [2], regardless of any repairs. If there is an improvement made, that changes the cost basis [2, 4] which then changes the size of the pie where 3% is then taken out of that [2]. In essence, the IRS, per the tax code, essentially thinks that a rental property after 25 years will be worth nothing. To some extent, this makes some sense, appliances wear out, buildings do need maintenance and eventually they are re-modeled and re-done.
But, repairs & depreciation are mutually exclusive for the tax code, so long as that repair does not enter the 'improvement' territory. So, if you fix all of things that are depreciating, you still get to claim the depreciation overall, and you get to claim the repair costs of those depreciating items.
> You can deduct the costs of certain materials, supplies, repairs, and maintenance that you make to your rental property to keep your property in good operating condition
Note, it does not say "or" repairs, and that list does not include improvements. Basically this is to say, a $100,000 property after one year of renting, to the IRS is worth $97,000 - whether or not there was actually $3000 worth of wear and tear is immaterial, and if you spent $3000 to fix that wear and tear is also immaterial, you get to claim the depreciation and repairs both.
The [4] reference really emphasizes why land lords do not want to replace things, and instead will focus on repairs:
> Landlord Tax Deduction #3: Repairs
A significant tax break for landlords can arise when they make repairs to their properties: The cost of repairs to rental property (provided the repairs are ordinary, necessary, and reasonable in amount) are fully deductible in the year in which they are incurred. Good examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows.
For some completeness, resource #4 addresses depreciation as the 2nd bullet point right before repairs:
> Landlord Tax Deduction #2: Depreciation for Rental Real Property
The actual cost of a house, apartment building, or other rental property is not fully deductible in the year in which you pay for it. Instead, landlords get back the cost of real estate through depreciation. This involves deducting a portion of the cost of the property over several years (27.5 years for residential real property). Landlords can reap the benefits of depreciation even if the property increases in value.
Thus, my conclusion - if a person is fixing everything that is breaking and wearing out in a rental property - I don't see how exactly that property is depreciating by 3% every year. The depreciating things are getting fixed! I would call that double dipping. Reasonable people might still disagree.
Though, to the larger point, resource [4] has a section "Other Important Tax Tips for Landlords", reading through that list is a whole slew of things not available to W2 employees, eg: "A special tax rule permits some landlords to deduct 100% of their rental property losses every year, no matter how much." Taken in aggregate, tax-wise, it seems FAR better to be a landlord than a W2 employee. (A peer comment noted that 1099 get really great tax treatment, and that's basically the gist of it. If you can claim you are own your own boss - the tax breaks are huge, otherwise for the run-of-the-mill W2 - there are lot less tax breaks).
I assume by "double dipping" you mean, deducting the same expenditure twice.
There still is no double dipping. If you buy a $100K asset, and over its depreciable life you also spend $15K on repairs, then you have spent $115K in total and you only deducted $115K, not a penny more -- so no double dipping. Also, FWIW, if you later sell the fully depreciated asset, the entire sale price is taxable income.
>A special tax rule permits some landlords to deduct 100% of their rental property losses every year, no matter how much.
Yes, if one qualifies as a "real estate professional" (not easy for anyone who is not a full-time landlord). However, a successful real estate professional is not going to stay in business long if they have large losses every year.
You seem to be taking this all from the angle of a possible loophole. That's fine and all. But another way to look at it is:
Renting is a business. You can say let's tax gross income (and some places do that) but in general in the US only net income is taxed. That is income after costs. For renting there is the cost of the property, there is interest on various loans, there is the cost of maintenance and repairs, there is the cost of upgrades, there is utilities and local taxes, etc. For income there is the rent, and there is the proceeds from the sale of the property at the end, etc.
The cost of the property is a cost - that's hard to argue. The question would be how to take it into account. It's currently taken into account with depreciation (of the building, not the land for that matter.) A certain percentage every year goes against the income until it's fully depreciated. And then when the building is sold, the part of the cost that was depreciated is taxed (there is yet another calculation to decide at what rate it's taxed - depreciation reduced basis but "sale minus basis" does not necessarily get taxed at capital gains rate.)
The hows can get complicated but the general principle of "how to take into account the business costs" is pretty simple? And the building cost and maintenance are both costs. Doesn't really matter in there how long the building is supposed to last. It's a fairly arbitrary number in the calculation.
[If you do want to look at preferential treatment, you can look at "like kind exchange"]
correction: W-2 software engineers that don’t do anything else are pretty screwed
1099 software engineers have some of the best tax deductions, and that earnings range is the sweet spot
one of my favorite things to do is contribute $66,000 to a 401k for that tax deduction (thats how high the employer match limit really is), immediately borrow $50,000 from the 401k and donate that same money to a donor advised fund for a charitable donation. $116,000 tax deduction before looking at actual expenses. its not advice, its one of my favorite things to do, you have to pay back the 401k over time
off $265,000 in earnings (number chosen because thats the minimum to max out a self directed 401k) the AGI would be $199,000 and the MAGI would be $149,000. keep going and get it as low as possible. I would typically try to do a FMV charitable deduction from my existing portfolio. Combined cash+asset charitable deductions can lower that year’s earnings by 60%. if you achieve that the government is only looking for taxes on $106,000 and again this is before you look for expenses. But if there are pre-existing externalities like a mortgage and home depreciation, then you’re pushing your AGI (and subsequently MAGI) down further and further.
you can get to Warren Buffett %’s pretty easily even without having long term capital gains tax treatment.
And you are also permanently out $50K of charitable contribution in just a single year. Pretty hard to justify if you have young kids who might go to college some day, or if your spouse doesn't wish to contribute to charity at that level.
And somewhere in your example you seem to forget that charitable contributions reduce taxable income, but not AGI.
Lastly, you forgot to take into account the deductions for self employed health insurance, and the deduction for half of self-employment (SUTA) tax, both of which reduce the amount available for retirement plan contributions.
money not really out of your control if you have a donor advised fund or private foundation or both
my comment mentions MAGI specifically for someone like you, I’m aware this thread started off with being able to use the IRS’ free filing software and now is talking about not paying the government much or anything in taxes
there is very little that a W-2 employee can do if thats the only thing they do, aside from depreciating real estate and mortgage interest
if your goal is to earn and park money in a bank account, the government is trying to tell you to do literally anything else by taxing that the heaviest. their aggregate goal is for velocity within the economy because that is more useful for the government than its tax revenue, and so that is rewarded.
so its not really useful for me to write tax deductions that likely don't apply to you
> But, remember, the goal is to maximize after-tax gains/revenue, not minimize taxes.
yep. most of the things I like to do will satisfy that. people generally don't understand that the IRS is not this adversary that's waiting to be offended because they didn't get anything, when a lot of offices of the IRS basically helps you not pay them. Have to know how it functions and that requires education.
Your earlier post would have been more helpful if you'd specified that you're only talking about a tiny minority of the working population. "Lower your agi" sounds like you're making a general recommendation.
it is a general recommendation as the observation is that if more of the population educated themselves in this field and structured their life accordingly, more of the population could have the same flexibility in lowering their agi at their discretion
right now, it is a tiny minority of the working population that does anything preemptively for tax purposes, it doesn't have to be that way.
For no limit IRS Free File, just use FreeTaxUSA[1]. Not only will it be better quality than whatever the IRS/Gov has turned out, not only is it Free (as-in Beer for IRS Filing), but it also offers very cheap State Filing options ($15).
Just use FreeTaxUSA...
[1] https://www.freetaxusa.com/pricing