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Selling on Etsy & Your Taxes

Updated for Tax Year / October 16, AM


OVERVIEW

Selling your kid's old bicycle is not likely to cause any tax consequences, but when you sell crafts, vintage or specialty items on websites like Etsy, you must report and pay taxes on your net income. You will also likely need to pay self-employment tax on your profits, and in some locations, you may also be responsible for charging and collecting sales tax.


Woman making jug on a pottery wheel

Paying federal and state income tax on Etsy income

If you sell items on Etsy, you must pay income tax on your income—usually, the total amount you earned by selling your products, less your business expenses. Etsy reports your gross income to the IRS on Form K, but even if you don't receive a K, you must report Etsy sales income on your tax return. If your state has income tax, you must pay state income taxes on the net income from your Etsy sales as well.

Deducting business losses from Etsy sales

If you sell on Etsy for profit as a business, you can deduct business expenses like:

  • Cost of materials
  • Advertising
  • Shipping

These can be deducted even if they exceed the money your business earned. If your business expenses are greater than your Etsy income, you'll have a business loss from your sales, which you can then deduct from any other income you have—even from another job or business. This deduction can reduce your taxable income.

Business expenses if your business is a hobby

If your Etsy selling is considered a hobby by the IRS then you cannot take business loss deductions to directly reduce your selling income. For tax years prior to , you take them as an itemized deduction on Schedule A. For tax years beginning with , you will not be able to reduce your hobby income by any expenses. Therefore, most taxpayers will try to avoid having their Etsy selling being classified as a hobby.

You are more likely to avoid hobby classification if you run the operation in a businesslike manner, depend on the income from the business, keep precise business records and show a profit in three out of five years.

Paying self-employment tax

If your total net income from Etsy sales is $ or more, you must also pay self-employment tax on the income. Self-employment tax is comprised of Social Security and Medicare taxes — the percentage that would normally be withheld from your paychecks as an employee, plus the percentage your employer would have contributed.

When you're a self-employed individual and your income is less than $, ($, if filing jointly), you're responsible for paying both types of taxes yourself. As of , this means a total of:

  • % of the first $, you earn for Social Security tax
  • % of your total income for Medicare

If your income is greater than this amount, then you will likely be subject to an additional Medicare tax of %.

If your income is considered a hobby, then it will be subject to income taxes but not to self-employment taxes.

Charging, Collecting and Paying Sales Tax

Some state and local governments charge sales taxes—usually a percentage of the value of each sale. In many cases, it’s the responsibility of the online  seller to collect this tax from the buyer and send it on to the taxing authorities.

Sales tax laws are not the same in each jurisdiction, so make sure to research the rules in your area.

Don’t worry about knowing which tax forms to fill out when you are self-employed, TurboTax Self-Employed will ask you simple questions about you and your business and give you the business deductions you deserve based on your answers. TurboTax Self-Employed uncovers industry-specific deductions. Some you may not even be aware of.

Perfect for independent contractors and small businesses

Find more tax deductions so you can keep more of the money you earn with TurboTax Self-Employed.

Get more with these free tax calculators and
money-finding tools

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

Sours: https://turbotax.intuit.com/tax-tips/self-employment-taxes/selling-on-etsy-your-taxes/L27IWu

h&r block vs. turbotax

The start of a new year means it’s time to file your federal tax return. Many people stress about filing taxes, but there are a number of tax filing services to make the process easier. Two of the most well-known services are H&R Block and TurboTax. Each is known for offering a friendly user experience. In fact, they both provide information along the way so you understand what you’re doing and they offer affordable filing options. This makes them both viable tax filing options, though which is best for you will vary based on your needs. If you have questions about how to minimize your taxes, consider working with a financial advisor.

A Quick Look at H&R Block

H&R Block has provided consumer tax filing service since It’s become one of the most popular filing services since then, because it combines simple tools and helpful guidance. That’s useful whether you’ve never filed taxes or whether you’ve been filing for decades. Of course, tools and guidance come at a price. H&R Block currently offers four online filing options. You can see the choices and their prices and features below:

H&R Block Filing Options
Filing OptionCostsFeatures
H&R Block Free Online– Federal: Free
– State: Free
– Best for new filers or simple tax returns
– Supported forms include with some child tax credits
H&R Block Deluxe– Federal: $60
– State: $50
– Best for maximizing your deductions
– Includes all free features plus forms for homeowners
– Allows you to itemize
H&R Block Premium– Federal: $90
– State: $50
– Best for investors and rental property owners
– All previous features, plus accurate cost basis
– Includes Schedule C-EZ, Schedule D, Schedule E, Schedule K-1
H&R Block Self-Employed– Federal: $
– State: $50
– Best for small business owners and the self-employed
– All previous features, plus Schedule C

The cheapest filing option is the free option. It lets you file your federal return and all state returns for free. The catch is that this options works for just basic returns. The major forms that it supports are the , Schedule EIC for the earned income tax credit and Schedule for the Additional Child Tax Credit. You can also use this form with some other common tax forms: Form (B, DIV, INT and R), (E and T) and (A and B). Filing other forms will require you to upgrade to a paid plan.

Paid plans range from $60 to $ for federal filing. All state filing costs $50 per state with the paid plans. When it comes to these paid plans, most filers can get away with the Deluxe option, which costs $60 and includes software for maximizing tax deductions. If you do freelance work or own a small business, you’ll likely need to upgrade to the Self-Employed plan, which costs $ at a base level.

One standout feature for H&R Block is its physical locations. If you don’t want to file your return online, you can stop by one of its 10, tax offices in the U.S. The tax professionals there will be able to walk you through your filing.

Filing in person starts at $69 for federal returns. Alternatively, you can work with an H&R Block tax professional without visiting a store by paying for the online tax professional service, which allows you to upload your tax documents and then have a tax pro do the work for you. There’s also Tax Pro Review, a paid service where a tax professional will review your return for you before filing.

A Quick Look at TurboTax

TurboTax has been around since the mids. Part of its popularity is due to the fact that it’s owned by Intuit. Intuit also makes a software called Quickbooks, which millions of companies use to manage their accounting. But TurboTax is also popular because it offers a user-friendly design and straightforward step-by-step guidance.

Like H&R Block, TurboTax has a free filing option that allows you to file your federal return and one state return at no cost. However, the free option only supports simple returns with form If you want to itemize your deductions with Schedule A or if you need to use any other forms, you will need to upgrade to a paid plan.

There are three paid TurboTax plans that run from $60 to $ for federal filing. State filing is always $50 per state with the paid plans. The free option includes one free state return. Here’s a breakdown of your options with TurboTax:

TurboTax Filing Options
Filing OptionCostsFeatures
TurboTax Free Edition– Federal: Free
– State: Free
– Best for simple returns using Form
– Comes with easy import, error check, refund explanations, deductions for dependents
TurboTax Deluxe– Federal: $60
– State: $50
– Best for homeowners and for maximizing deductions
– Comes with all previous features, plus charitable donations calculator
TurboTax Premier– Federal: $90
– State: $50
– Best for investors and rental property owners
– Comes with all previous features
– Focuses on investment and rental property income, accurate stock reporting, refinancing deductions
TurboTax Self-Employed– Federal: $
– State: $50
– Best for self-employed, independent contractors, freelancers, consultants and small business owners
– All previous features, plus access to self-employment tax experts, maximizing business deductions

As with H&R Block, TurboTax’s free option supports the with some child tax credits. The Deluxe option will be enough for most filers if they want a paid option, though. It costs $60, which is the same price as H&R Block’s Deluxe plan. You get slightly more features for that additional cost, however. Small business owners and self-employed individuals will need to upgrade to the Self-Employed option, which costs $ for a federal return. TurboTax also frequently runs sales on its services and products during tax season.

TurboTax doesn’t have any physical locations like H&R Block, but it does provide access to tax experts like CPAs and EAs. It will cost extra for you to get access to an expert, but there are four plans available, corresponding to the four plans listed in the table above. For only expert advice, plans run from $80 to $ for federal returns. But if you want full expert service, plans will cost you anywhere from $ to $ for federal returns. State filing still costs $50 per state with each of these versions.

H&R Block vs. TurboTax: Cost

h&r block vs. turbotax

Cost is always a consideration when you choose a tax filing service. H&R Block and TurboTax are the two most comprehensive online services available and likewise they are also some of the most expensive. However, while H&R Block was once cheaper than TurboTax, the companies are now nearly perfectly aligned when it comes to cost.

As mentioned, both services offer a free option, covering simple returns. You can also file some additional schedules and forms with this option. However, H&R Block does cover more forms and schedules with its free option. It also allows you to file multiple state returns for free. By contrast, the free plan from TurboTax includes only one free state return. This all gives H&R Block a slight advantage if you qualify for the free option.

It’s great if you can file your taxes for free, but the average filer will need to upgrade to another option. The Deluxe option is enough for many filers. Both Deluxe options include deduction-finding software, help with charitable donations and access to tax financial experts through online chat.

There are a couple of big differences between the options in the forms that they support. TurboTax’s Deluxe option supports Schedule SE, which allows you to file self-employment taxes. It also allows you to file Schedule C and Schedule C-EZ if you have business income to report but do not have any expenses to report.

If price is your primary concern, you may want to consider a cheaper service like TaxAct. TaxAct is well-known for being affordable but it doesn’t quite provide the same level of simplicity and educational material that these two services offer.

H&R Block vs. TurboTax: Comparing Free Options

TurboTax’s Deluxe option is the more comprehensive option for the average filer, but let’s briefly consider the free options again.

H&R Block and TurboTax both offer a free option for filers with simple returns. You can often use those options if you don’t own a home, you have no investment income other than simple dividends or interest and you don’t have rental properties or business expenses.

You cannot use either form if you itemize deductions. However, there are a few deductions available with the free plans. Notably, you can claim the EIC and Additional Child Tax Credit. H&R Block also includes Schedules 1 through 6, unlike TurboTax.

So if your finances are simple, the biggest consideration is exactly what forms you need to file, because H&R Block includes more forms and schedules with its free plan.

H&R Block vs. TurboTax: User Friendliness

Both of these services are known for their ease of use, but TurboTax is generally the more user-friendly of the two. This is generally true for both desktop and mobile users.

TurboTax’s interview-style approach will guide you through the filing process with simple and straightforward questions. There is minimal tax jargon. H&R Block is also user-friendly, but its questions and explanations are not always as clear as you would hope.

The filing process with TurboTax also includes encouraging phrases throughout. This isn’t a necessary feature, but taxes are stressful for many people. Seeing, “You can do this,” throughout the process may help to reduce some anxiety.

Another important consideration is how easy it is to upload documents. Both services do well on this front. H&R Block and TurboTax both let you upload your W-2 by taking a picture of it. Both services allow you to import your previous returns no matter which tax service you used (as long as you have a PDF version of the return). They also make it easy to fill out your state return after going through your federal return. Your information quickly transfers so you don’t waste time retyping everything.

Bottom Line

h&r block vs. turbotax

So, who wins? Well, it depends what exactly you’re looking to do. H&R Block covers more filers with its free option. The two Deluxe options are the same in terms of price, but TurboTax’s Deluxe option supports more forms that self-employed, freelance and contract workers may need. Both services are user-friendly but TurboTax is slightly simpler with more straightforward language.

Beyond these factors, which tax filing service you choose may come down to personal preference. Some people prefer one over the other because they simply like the way it looks. They might also choose H&R Block so they can have the option of filing at a physical location.

Of course H&R Block and TurboTax are not the only two tax filing services. You may want to consider other options like TaxAct or TaxSlayer if you’re looking for a budget option. Credit Karma also allows you to file entirely for free.

Tips for Choosing a Tax-Filing Service

  • Tax season is a good time to take stock of your overall financial picture. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • TurboTax and H&R Block are two of the most well-known tax-filing services. There are other great services to consider, though, so make sure to shop around. Check out our list of the best tax filing software, as well as the best free online tax software.

Photo credit: ©iStock.com/AndreyPopov, ©iStock.com/Xesai, ©iStock.com/mediaphotos

Sours: https://smartasset.com/taxes/hr-block-vs-turbotax
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5 Hidden Ways to Boost Your Tax Refund

Updated for Tax Year / October 17, AM


OVERVIEW

Here are five tried-and-true ways to reduce your tax liability at tax time. Pay no more than you owe, or even increase your tax refund.


For information on the third coronavirus relief package, please visit our “American Rescue Plan: What Does it Mean for You and a Third Stimulus Check” blog post.


 

boost tax refund


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While Americans may disagree on how the government spends their taxes, at tax time, many of us are looking for ways to pay no more than we owe — or even boost our tax refunds. These strategies go beyond the obvious to give you tried-and-true ways to reduce your tax liability.

1. Rethink your filing status

One of the first decisions you make when completing your tax return — choosing a filing status — can affect your refund's size, especially if you're married. While approximately 96% of married couples file jointly each year, a joint return is not always the most beneficial option.

  • Married Filing Separately status often requires more effort, but the time you invest can offer tax savings — under the right conditions. For example, if one spouse has a lot of medical expenses, such as COBRA payments resulting from a job loss, computing taxes individually might allow for a larger deduction.
  • The Child Tax Credit is available to separately filing spouses. For , the credit is $2, per child under 17 years old in , and it can now be claimed by a separate filer with less than $, in adjusted gross income (it's $, for joint filers).
  • For your tax return that you will prepare in , the Child Tax Credit is expanded by the American Rescue Plan raising the per-child credit to $3, or $3, depending on the age of your child and includes 17 year-olds. The credit is also fully refundable for To get money into the hands of families faster, the IRS will be sending out advance payments of the Child Tax Credit beginning in July of  For updates and more information, please visit our  Child Tax Credit blog post.

Choosing to file separate returns can have its drawbacks, such as losing certain deductions available to joint filers. You'll need to weigh this carefully to maximize your refund potential. Also, both spouses must take either the standard deduction or itemize their deduction. You can’t mix-and-match between the two returns.

  • Calculating your taxes both ways will point you in the higher refund direction.
  • When you use TurboTax, we’ll do this calculation for you and recommend the best filing status.

Unmarried taxpayers who claim a qualifying dependent can often cut their tax bills by filing as Head of Household if they meet the requirements.

  • This filing status enjoys a higher standard deduction and more favorable tax brackets than filing as Single.
  • A qualifying dependent can be a child you supported financially and who lived with you for more than six months. Or, it can be an elderly parent you supported.

Many taxpayers who care for elderly parents don't realize they can claim Head of Household status. If you provide more than half your parent’s financial support — even if your parent doesn’t live with you — you can file as Head of Household.

2. Embrace tax deductions

Many deductions exist that you may not be aware of, and several of them are pretty commonly overlooked. The deductions you qualify for can make a significant difference on your tax refund. They include:

  • State sales tax – Using the IRS's calculator, you can determine how much of your state and local sales taxes you can deduct.
  • Reinvested dividends – This one technically isn't a deduction, but it can reduce your overall tax liability. When you automatically have dividends from mutual funds reinvested, include that in your cost basis. This way, when you sell shares, you might reduce your taxable capital gain.
  • Out-of-pocket charitable contributions – Big donations aren't the only way to get a write-off. Keep track of the qualified small expenses too, like ingredients for the yummy cake that you donated to the bake sale. You might find yourself surprised by how quickly a few charitable expenditures here and there can add up.
  • Student loan interest – Even if you didn't pay this yourself, you can take the deduction for it as long as you are the one who is obligated to pay. Under new guidelines, if someone else pays the loan, the IRS views it as if you were given the money and used it to pay the student loan. If you meet all of the requirements then you would be eligible for the deduction.
  • Child and dependent care – For , up to $6, of qualifying expenses can be used for the Child and Dependent Care Credit.

For , the American Rescue Plan brings significant changes to the amount and way that the child and dependent care tax credit can be claimed. The plan increases the amount of expense eligible for the credit, relaxes the credit reduction due to income levels, and also makes it fully refundable.  This means that, unlike other years, you can still get the credit even if you don’t owe taxes.

So, for tax year (the taxes you file in ):
  • The amount of qualifying expenses increases from $3, in to $8, for one qualifying person and from $6, in to $16, for two or more qualifying individuals
  • The percentage of qualifying expenses eligible for the credit increases from 35% to 50%
  • The beginning of the reduction of the credit is increased from $15, in to $, of adjusted gross income (AGI).

Also for tax year , the maximum amount that can be contributed to a dependent care flexible spending account and the amount of tax-free employer-provided dependent care benefits is increased from $5, to $10,

Although these new provisions only apply to tax year (the taxes you file in ), they can significantly improve your tax return’s bottom line if you’re a working parent responsible for the cost of the care for your dependents.

  • Earned Income Tax Credit, or EITC – This credit helps families with low and moderate income levels. It's meant to benefit working families with children. If you have three or more qualifying kids, the credit could be worth up to $6, for you for tax year ($6, in ) — and could net you a refund even if you don’t have any tax.
  • State income tax paid on last year’s return – If you paid money on your state income tax return last year, you can add that to any other state income tax, up to $10,, and use it as an itemized deduction.
  • Certain jury duty fees – If your company paid you while on jury duty and your employer required you to hand over your jury duty pay from the court; you can claim the amount that you handed over as an adjustment to your income.
  • Medical miles - Subject to an overall AGI threshold for total medical expenses and worth 20 cents per mile in and The threshold is any qualifying unreimbursed medical expenses that exceed % of your AGI.
  • Charity miles - Fully deductible at 14 cents per mile in and  So, if you drove 50 miles per week to volunteer for a charity, that’s an additional $ deduction:
    • 52 weeks/year x 50 miles/week = 2, miles you drove in a year
    • 2, miles x $/mile = $

It’s important to keep good records for your deductions especially when you don’t receive some type of receipt as with some charitable contributions and charitable or medical miles. Nothing fancy is required — even a spiral notebook in your glove compartment is fine. Make sure to keep track of:

  • The date, miles and medical or charitable purpose of each trip
  • The market value of any in-kind donations, such as clothing and household goods
  • The dollars you spend in order to do charity work — for example, when you bake for a fundraiser the cost of your ingredients is deductible, but the value of the time you spent baking isn't

3. Maximize your IRA and HSA contributions

You have until the filing deadline (unless it's delayed due to a weekend or holiday) to open or contribute to a traditional IRA for the previous tax year.  That gives you the flexibility of claiming the credit on your return, filing early and using your refund to open the account.

  • Traditional IRA contributions can reduce your taxable income. You can take advantage of the maximum contribution and, if you're at least 50 years old, the catch-up provision can add to your IRA.
  • Although contributions to a Roth IRA don't give you a deduction, they still qualify for the valuable Saver's Credit if you meet income guidelines.
  • If you're self-employed, you have until October 15 to contribute to a certain self-employed retirement plans, provided that you timely file an extension. If you don't file for an extension, the regular filing deadline for that year is the deadline for most contributions.

Pre-tax contributions to a Health Savings Account (HSA) can also reduce your taxable income. You can make these up until the filing deadline as well. Certain requirements must be met in order to open and contribute to an HSA:

  • You must be enrolled in a health insurance plan that has high deductibles that meet or exceed the IRS’s required amounts.
  • That plan must also impose the maximum annual out-of-pocket cost ceilings that meet the IRS’s limitations.

You won’t be able to participate in an HSA if any of the following are true:

  • You have other “first-dollar” medical coverage
  • You enroll in Medicare
  • You are claimed as a dependent on another taxpayer’s return

Read this article to learn more about HSA requirements and how these accounts work.

4. Remember, timing can boost your tax refund

Taxpayers who watch the calendar improve their chances of getting a larger refund. Look for payments or contributions you can make before the end of the year that will reduce your taxable income. For example:

  • If you can, make January's mortgage payment before December 31 and get the added interest for your mortgage interest deduction.
  • Schedule health-related treatments and exams in the last quarter of the year to boost your medical expense deduction potential.
  • This could be the time to make some charitable contributions — but make sure it’s a qualified charity and be sure to keep track of your expenditures in your records.
  • If you’re self-employed, look at any purchases you’ll need to make that can qualify for deductions. Buy things like office equipment and software before the end of the year to help boost your refund.
  • If you are able to claim the home office deduction, you can even deduct the cost of painting your home office if you want to start the new year with a fresh new look in your workspace.

5. Become tax credit savvy

Man holding a stack of dollar bills

Tax credits usually work better than deductions as refund boosters because they're a dollar-for-dollar reduction of your taxes. If you get a $ credit, you get $ off your taxes. Many Americans leave money on the table when it comes to claiming tax credits.

The Consolidated Appropriations Act (CAA) was signed into law on December 27, as a stimulus measure to provide relief to those affected by the pandemic. For tax year , the CAA allows taxpayers to use their earned income if it was higher than their earned income in calculating the Additional Child Tax Credit (ACTC) as well as the Earned Income Tax Credit (EITC). For , taxpayers can use either their or income to maximize the credit.

If you're a college student or supporting a child in college, you may be eligible to claim valuable education credits.

  • The American Opportunity Credit is refundable up to $1, This means you could receive as much as $1,, even if you don't have a tax bill. The total credit is $2, per student and applies only to funds paid towards the first four years of qualified undergraduate higher education expenses.
  • If you're in graduate school or beyond, you may be eligible for the Lifetime Learning Credit. You can claim 20% of your qualified costs up to $10,, or a maximum of $2, per tax return, depending on your income.

Tax credits for energy-saving home improvements can also keep more money in your wallet throughout the year and at tax time.

  • The credit for through is up to 26% of the cost of certain qualified energy expenditures. The credit drops to 22% for and then goes away completely. That means if you installed solar panels at a cost of $20,, your total credit is $5, in or $4, in
  • Any portion unused in carries over to
  • That carryover doesn’t apply to the credit for electric vehicles, but the IRS is still offering up to $7, per qualifying vehicle for , subject to manufacturer sales limits. The credit begins to phase out once each manufacturer has sold more than , qualifying vehicles.

Remember, with TurboTax, we'll ask you simple questions about your life and help you fill out all the right tax forms. Whether you have a simple or complex tax situation, we've got you covered. Feel confident doing your own taxes.

All you need to know is yourself

Just answer simple questions about your life, and TurboTax Free Edition will take care of the rest.

For Simple Tax Returns Only

Get more with these free tax calculators and
money-finding tools

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

Sours: https://turbotax.intuit.com/tax-tips/tax-refund/5-hidden-ways-to-boost-your-tax-refund/L0AZGnJuS
How to do Taxes for the First Time

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