College is a crazy time. You are trying to keep up with you school work, deal with your student loans, and juggle personal life along with working a part-time job. Because of this and being new to the world of taxes, you might not realize that it is important to file a tax return and you might qualify for special tax breaks for college students.

Filing a tax return is important for college students. First, filing a tax return is helpful while filling out the FAFSA form to see what type of grants and student aid you qualify for, including if you qualify for the work study program through your school. Also, you may qualify for a tax deduction or credit that can give you a tax refund. You can put your refund towards next semester’s tuition to avoid further student loans.

Photo Source: Kristen

Before you start, here is some advice for filling out your taxes and claiming the tax breaks for college students:

Claim your Tuition Deduction

• Your 1098-T will tell you how much you paid in tuition expenses and will also report any scholarships or grants you received through your school. This is important information you will need while filling out your taxes and taking the Tuition & Fees Deduction.
• Qualified expenses are the tuition and any other fees, materials, supplies, or equipment that is paid directly to the school. This can include books needed for the course, supplies, and equipment that were purchases as part of the required tuition along with health and wellness fees.
• Things that do not qualify as expenses include any late charges, application fees, processing fees, books or materials bought at the bookstore or other places besides directly to the university.
• So here’s an example of how this works. If you paid $1,000 for a course at your college and that $1,000 included a camera to take pictures and a work book required for the class, it can count for a qualified expense. However, if you get a syllabus and the syllabus says you are required to buy a book, this book does not count. Even though you need it, if you aren’t purchasing it directly through the school, even the bookstore, it does not count.
• In addition to reporting what your tuition and qualified expenses are, you will have to write down the amount of any money you received for scholarships and grants.
• You can fill this out and claim your deduction if you gross income is less than $80,000 or $160,000 if you’re filing a joint return with your spouse. You also must be or have been enrolled in an eligible educational institution.
• You can’t claim any tuition expense if you or your spouse was a nonresident alien for any part of the year.
• Filling this out and claiming your deduction can reduce your income subject to tax by up to $4,000.
• In most cases, your college will mail you a copy of your 1098-T or send you an e-mail containing the official file. This is a great reason to be sure both your current mailing address and e-mail address is up-to-date. If you haven’t received it, check your official school e-mail address since this is probably where the document was sent. If you still can’t find it, contact your financial aid office, a record office, or any other administrative office that is going to have this on file for you.

Get a Tax Credit

• Use Form 8863 to claim your education credits, either the American Opportunity Credit or the Lifetime Learning Credit.
• The American Opportunity Credit is a refundable credit that can help you receive up to $2,500 per student. You must be enrolled at least half time for at least one of the academic periods and enrolled in an accredited university where you are trying to earn a degree.
• The Lifetime Learning Credit is a nonrefundable credit, which means it can reduce your tax, but it will not give you additional money, unlike the American Opportunity Credit. Also unlike the American Opportunity Credit, you do not need to be pursuing a degree for this. So any classes you are taking to enhance your work skills can qualify towards this credit.

Keep in mind you cannot claim both of these credits for the same student during the same year. In addition, you must decide between the tuition deduction and the tax credit. To help you decide which one is better see Tuition Deduction Versus Tuition Tax Credits.

In addition, be sure to discuss your dependency status with your parents, as it will impact the tuition tax breaks on both of your tax returns.

Write off your Student Loan Interest

• If you have been making payments towards your student loans this past year or at least paying the interest on any of your loans, you may be able to deduct any amount of your payment that went towards your loan’s interest.
• Form 1098-E will give you the information you need to fill it out. Your student loan lender will provide you with this document. They mail a paper document of this, so be sure that your correct information is on file. You may also be able to attain a copy online by logging into your account. If you can’t find the document or have not received it, be sure to contact your lender as soon as possible so they can send out another copy to you as soon as possible.
• When you are looking at Form 1098-T, box 1 will show how much interest was received by the lender. This is the amount you report on your taxes.

Helpful Tip

Contact your financial aid department for any questions or advice. They may be able to help you fill out your taxes or help you understand what is going on with them.

Check your student event calendar from now until taxes are due. When I was in college, many organizations offered free tax preparation help. There were events that helped you get organized and offered tax tips. Some student groups even offered to help you file your taxes for no charge. Of course, you always want to be extra careful with who you are sharing personal information with like your social security number.

What are some helpful tips for college students filing out their tax forms? What are great resources for college students filing out their taxes for the first time?

More Tax Topics for College Students

• How Much Money Do You Have to Make to File Taxes?
• Tax Calculator to Project Your Tax Refund
• 8917 Form for Tuition and Fees Tax Deduction
• Tuition Deduction Versus Tuition Tax Credits
• What Will the Tax Rates Look Like?

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When you file your taxes, you are going to notice that there is a figure known as you adjusted gross income or AGI. Knowing what the adjusted gross income definition is, and how it impacts your taxes, is important toward filing an accurate return and getting all the money back that you are potentially entitled to.

What is Adjusted Gross Income?

Your adjusted gross income is your gross income minus any applicable adjustments. Not very helpful, huh? For example, if you run a business or own a rental, you can take business expenses off of your gross income. This will lower your gross income and lower your adjusted gross income. Keep in mind that your adjusted gross income will further be reduced by your standard deduction (or itemized deductions) and personal exemptions to arrive at your taxable income.

Adjustments to Arrive at Adjusted Gross Income

To calculate your adjusted gross income, start with your gross income and subtract the adjustments. Some examples of adjustments that you will subtract include:

• Contributions To Retirement Accounts including IRAs, SEP IRAs, and SIMPLE IRAs
• Education Expenses Such As Tuition and Fees Or Student Loan Interest
• A Health Savings Account deduction
• Moving expenses
• Alimony
• Penalties to banks on early withdrawals
• Teachers business expenses
• Half of your self employment tax
• Self Employed Health Insurance Deduction
• Business and Rental expenses (losses)

To help you calculate your adjusted gross income, you can use the tax calculator.

How Does Adjusted Gross Income Help You?

Adjusted gross income lowers your taxable income right off the bat. For example, if you made $30,000 last year, but you have $1,000 in student loan interest, you will have an adjusted gross income of only $29,000. If you had business expenses of an additional $15,000, your adjusted gross income goes down even further. Lowering your AGI will then lower your taxable income and put you in a lower tax bracket.

Adjusted Gross Income vs Gross Income vs Taxable Income

Your gross income is all the money that you made in the past year. Your adjusted gross income is what the IRS is going to start with when it comes to what you may owe as tax. Your taxable income is the income that you are going to be taxed on. You adjust your gross income with the qualified adjustments to get your AGI, then you take the standard deduction and personal exemptions afterward to get your taxable income.

An example of this would be:

You make $30,000 this year (gross income) and you have $10,000 worth of adjustments, so your AGI is $20,000. After deducting $5800 for the standard deduction, and then taking $3700 as your personal exemption, assuming you are filing status is single, you would have a taxable income of just over $10,000.

To sum it up, your AGI will lessen the amount of your income that taxed.

Now that you understand adjusted gross income, of course, we have to mention that is different than your modified adjusted gross income.

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I previously wrote about the upcoming fiscal cliff and highlighted many of the issues that the media was not focusing on that could have a big impact on many Americans should we go over the fiscal cliff. Today, I wanted to go more in depth regarding one area of tax law that could be changing (and most likely will) come 2013: gift tax.

Photo courtesy: asenat29

Current Gift Tax Law

Currently for 2012, you can gift up to $13,000 to as many people as you like without filing a gift-tax return. Even better, you and your spouse can gift up to $26,000 to anyone you like. For 2013, the limits are raised to $14,000 per person or $28,000 for spouses. Should you gift more than this amount, then you would be required to complete Form 709, which is a gift-tax return.

Note that the above amounts do not apply to 529 plans. For gifting to these accounts, you can gift up to $65,000 per child, grandchild, or other recipient and spread that amount over a five year period. If you choose to do this, you will have to file Form 709.

So What’s The Big Deal?

You might think that there is nothing to worry about since the limits for gifting are increasing in 2013. While this is true, the limit on lifetime gifts drops in 2013. Currently, thanks to President Bush, everyone gets a credit that exempts up to $5 million of taxable gifts over your lifetime. Because of inflation adjustments, the limit is actually $5.12 million. If you are married, that limit is $10.24 million. Should you gift more than this amount, the gifts are taxed at a flat 35% rate. This tax is paid by you, the grantor, not the recipient.

As many of the Bush tax cuts are set to expire, beginning in 2013, the $5.12 million limit drops back to the previous level of $1 million and the tax rate increases to 55% for the estate and gift tax.

What Does This Mean For You?

If you have an estate with more than $2 million in assets, and are married, it would be in your best interest to look into gifting some of your assets away to take advantage of the expiring law. Realize that any gifts are irrevocable, meaning you can’t ask for the money back. Here is how the math would play out:

If you have an estate worth $3 million and you are single, you could hypothetically give your entire estate away before year end and pay no tax.

If you pass away in 2013, assuming no deal is reached, $2 million of your estate would be taxed at 55%, or $1,100,000. That leaves $1,900,000 for your heirs.

This is not saying you should gift away everything you have before year end. I am simply suggesting that if you have an estate larger than $1 million ($2 million if married), and you were thinking of gifting money in the near future, it makes sense to go ahead and make the gift now in 2012 as opposed to waiting to 2013.

Finally, just for reference, President Obama is on record saying that he would support a $3.5 million exemption limit along with a 45% tax rate on gifts above the exemption limit. So there is definitely a gray area in where gift taxes will be heading.

More Tax Questions

• Will the Bush Tax Cuts Expire in 2012?
• Do You Have to File a Gift Tax Return?
• What is The Fiscal Cliff?
• What Will the 2018 Tax Rates Look Like?

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The end of the year is predominately the time of year when charities receive the bulk of their annual donations. Some people give now because it is the holidays and they want to provide for the needy. Others want to get the last minute charitable tax deductions in before the end of the year. And still others simply donate now because the attention the media gives to charities this time of year is increased.

Photo courtesy of miss.libertine

Donate Clothing

For me personally, I give throughout the year. I have a rule that if I purchase any piece of new clothing, I must get rid of another. This keeps me honest with myself – if I haven’t worn a shirt or pair of pants in the past year, odds are that I won’t be wearing it in the next year. As long as the item is in good condition, I donate it to the local Goodwill store.

My parent’s usually have a yard sale every other year. Whatever doesn’t sell, as long it is in good condition and can be useful to someone else, we pack into the car and take it to the thrift store.

Donate Gifts

When I worked for my last employer, the company was involved in a Secret Santa event every year. We would sign up and be assigned a family that we had to buy gifts for. Most times the adults just want gift cards for groceries while the kids want toys. I tried to ‘toe the line’ and buy the kids a few toys, but also work some clothing into the mix as well. While it’s not as fun to open up a box on Christmas morning that has a sweater in it instead of the hottest video game (trust me I know!), it certainly helps the family out.

Donate Money

Since I’ve left that employer, I have started my own Salvation Army Red Kettle Drive online. It’s basically one of the red kettle’s you see outside of stores this time of year, only it’s online. All proceeds go to the Salvation Army and it’s a nice way for me to help out.

Charitable Donations

As a society, America as a whole is a very generous one. Of the close to $300 billion that was donated to charities in 2011, over $200 billion was given by individuals, as opposed to corporations. This makes me feel good inside, knowing that even with the economy in tough shape, people are still willing to help out those in need.

I urge you to continue to donate to a charity this holiday season. If you haven’t given before, I urge you to start. You don’t have to donate money. You can donate clothing and other household items as I do throughout the year. Even better, you can donate your time by volunteering at shelters and homeless centers. The types of work you can do at these places are virtually endless and the organization will be more than thankful for the help you provide. Plus, you will feel great about helping others in the process. Trust me, the old adage that giving is better than receiving is true. You’ll know it too when see you the joy on the faces of those you help out.

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Just about every news story now talks about the fiscal cliff we are headed for. Overall, the fiscal cliff is a combination of the expiring Bush tax cuts, which will raise rates for all taxpayers, along with the start of the taxes we will pay due to the implementation of the Affordable Care Act, commonly referred to as Obamacare. Combine this with a push to cut back on spending and possibly raising taxes even higher on the wealthy, one can see why the media is calling this a fiscal cliff.

Update: Stay tuned for additional details from the Fiscal Cliff Deal in process.

Photo courtesy of Scarto

What is The Fiscal Cliff?

The term fiscal cliff is all over the news these days. The problem is that many do not understand what all entails the “fiscal cliff”. Overall, the “fiscal cliff” refers to a myriad of tax changes that all go into effect beginning January 1, 2013. Among the highlights:

• The end of the “payroll tax holiday” that workers have enjoyed for the past two-plus years. While some call this a tax increase, it really restores the Social Security payroll tax from the current rate of 4.2% to 6.2%.

• The end of the Bush tax cuts will cause tax rates to increase. Gone will be the 10% tax bracket. The highest bracket will go from 35% to 39.6%. Not only will the tax rates rise, but the child tax credit will be reduced while personal exemptions and itemized deductions will be phased out based on income. Also impacted will be the estate and gift taxes.

• The implementation of the 3.8% Affordable Care Act tax on investment income for taxpayers married filing jointly who earn more than $250,000 and for single taxpayers who earn more than $200,000.

• Stiff budget cuts to defense and Medicare, among other programs.

• If no deal is made, fixes made to the Alternative Minimum Tax (AMT) to reduce the effects of the marriage penalty will go away. This is important because currently 4 million taxpayers are subject to AMT. Without continuing the fix, 32 million will be impacted by AMT. For example, right now taxpayers married filing jointly that earn more than $75,000 per year could be subject to the AMT. If the fix goes away, those earning just $45,000 could be impacted. Same goes for single taxpayers. Currently those earning above $48,000 could be subject to AMT and if no fix occurs, those earning just $33,000 could be subject to the tax. On average, those impacted by the AMT could see their tax liability increase by $4,000.

Why The Fiscal Cliff is in the News

Obviously, these tax changes are going to impact everyone, not just those earning $200,000/$250,000 that everyone is talking about. It’s important for everyone to know that they can be impacted by the fiscal cliff. The news is focusing on the effects of higher taxes on high wage earners and not focusing on the other specifics of the fiscal cliff. Be certain to follow the developments so that you won’t be surprised by the new taxes.

How Will The Fiscal Cliff Impact You?

Most readers will feel the sting of higher taxes, both through the end of the payroll tax holiday and the increased federal income tax brackets. These will both be felt with your first paycheck of 2013. The other changes won’t be felt until you file your 2013 tax return.

Because of the higher taxes, many are focusing on finding ways to lower their future taxes now. My advice for those worried about the new taxes is to take a step back before acting and assess the entire situation.

Step, Don’t Leap

When it comes to higher taxes on your investments, probably the most important thing of all is to step and not leap into making drastic changes to your portfolio. Why? Because no one knows how this is all going to play out. Sure, you might be able to say with 90% certainty that taxes will rise, but how sure are you that there won’t be a special provision in the tax code that allows for an extra deduction for you? You can’t unequivocally say for sure what taxes will look like come January 1, 2013. So why completely change everything you have been doing because of a feeling? That is the exact opposite of what you should be doing.

You should have a well-thought out financial plan that you follow. Once you let your emotions creep into your investment decision making is when you start to lose. And having a feeling about where taxes are going to be is just that, a feeling. This is not to say you shouldn’t do anything. You can take some capital gains off of the table or hold off on making a charitable deduction until next year if you think taxes will be higher. But don’t sell all of your holdings or put off all charitable deductions until next year thinking that you can use them to offset the higher tax rate. After all, what if there is a limitation on charitable deductions? You just cost yourself this year and next year by paying higher taxes all because of a feeling.

Same goes for your investments. Don’t sell out of all your dividend paying holdings because you don’t want to pay a higher tax on dividends. Research new strategies for dealing with higher dividend rates now so that when rates go higher you will be able to make a sound decision that makes sense for you and still keeps you within your plan. If you don’t come up with a solution right away, all hope is not lost. You can easily make changes early enough in the new year so that you aren’t hit by higher investment income for the entire year.

Think back to times when you made decisions based on emotion. You know they did not end well. This is the same thing. The worst time to make important decisions is when you are in an emotional state and when things are not clear. Stop, step back and see where things are going before you react. It’s good to be proactive and this is no exception, but be proactive by taking a step, not a leap.

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Are there states where you can live and you do not have to pay income tax?

Yes, there are seven American states that do not require residents to pay any income tax. In addition, to the states with no income tax there are two states that only tax dividends and interest income.

States with No Income Tax

Which states don’t have an income tax? They are:

• Alaska
• Florida
• Nevada
• South Dakota
• Texas
• Washington
• Wyoming

States With Limited Income Tax

The two states that tax only dividend and interest income are:

• Tennessee
• New Hampshire

Why don’t these states have to collect an income tax?

These states have another way to fund state operations. Generally, these states may have a higher property or sales tax. They also may have higher taxes for fuel, alcohol, cigarettes, or other products and services. Or they can have a unique circumstance such as Alaska that has the sale of petroleum or Nevada that has gaming tax collections to fund the state.

More Tax Topics

• Federal Income Tax Brackets
• How Much Money Do You Have to Make to File Taxes?
• New Investment Tax: What it Means For You

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Now that the Supreme Court has upheld Obamacare and President Obama won re-election, it is certain that come January 1, 2013, many Americans will face new taxes. The press is focusing on one aspect of the new taxes that will help pay for Obamacare, the 3.8% investment tax. But there are many other changes to the tax code because of Obamacare that the press isn’t focusing on. I will do my best to keep things simple, which is hard because well, we’re talking about the tax code here!

New 3.8% Investment Tax

The 3.8% tax increase will be on investment income, which includes capital gains and dividends, for filers married filing jointly earning over $250,000 per year and for single filers earning over $200,000 per year.

Remember that is applies to investment income, not wages. So if you are a single filer that earns $300,000 but have no dividends or capital gains during the year, then the tax does not apply to you. However (and this is typical tax law), wages and Social Security can raise your adjusted gross income making you vulnerable to the tax.

For example, let us say that a married couple filing jointly has earnings of $230,000 plus $170,000 of investment income. While their investment income is below the $250,000 threshold, they still owe the 3.8% tax. Their adjusted gross income is $400,000 which is $150,000 above the threshold. This $150,000 is subject to the 3.8% tax which would be $5,700.

As another example, let us say that you are a single filer that has no wages, but you receive $30,000 in Social Security and have $100,000 in investment income. You do not owe the additional 3.8% tax because your adjusted gross income is less than the $200,000 threshold.

This 3.8% tax will be added to whatever tax rates are in 2013, given that the Bush tax cuts are set to expire at the end of 2012.

What is Investment Income?

Before diving into the other taxes that will come about from Obamacare, we need to define what is considered to be investment income. As it stands now, the definition of investment income includes:

• Dividends
• Short and long-term capital gains
• Royalties
• Interest (except municipal bond interest)
• Taxable portions of annuity payments
• Income from the gain of selling your house
• Net gain from selling a second house
• Passive income from real estate investments where the taxpayer does not actively participate

Note that the tax on the gain of the sale of your primary residence is only on the gain above what is in the books for excludable income. Currently these amounts are $250,000 for single filers and $500,000 for joint filers. This means that if you are single, you would only owe the 3.8% investment tax on gains greater than $250,000. For married filing jointly the tax only applies to gains greater than $500,000.

0.9% Medicare Surtax

The Medicare tax that is deducted from your paycheck will also increase for those married filing jointly whose earnings are $250,000 and higher and single filers whose earnings are $200,000 and higher. Currently, as an employee, you a pay 1.45% Medicare tax, regardless of your earnings. As of January 1, 2013, you will now pay 2.35% on earnings above $250,000 for joint filers and $200,000 for single filers.

For example, if you are married filing jointly and your earnings are $300,000, you will owe 1.45% on the entire amount, which is $4,350. You will then owe an additional 0.9% on the $50,000 above $250,000 which comes to $450.

If you are self-employed, there is no deduction allowable on this new tax, meaning you will be paying it.

Other New Taxes from Obamacare

As I mentioned before, there are many other new taxes or changes to current tax law to help pay for Obamacare. Everyone is subject to these taxes, regardless of your income. Here is a highlighted listing of some of the one’s I feel deserve the most attention.

• The Medicine Cabinet Tax: This tax went into effect in 2011 and excludes the reimbursement of over-the-counter medication expenses from your health savings account (HSA), flexible spending account (FSA) or health reimbursement account (HRA).

• There is also now a cap on the amount of money you can place into a flexible spending account (FSA). The new maximum amount you can contribute to your FSA in 2013 is $2,500. While this does not seem like a big deal, many families use the money in an FSA for their special-needs child to help cover the cost of education.

• In previous years, you could itemize your medical expenses if they exceeded 7.5% of adjusted gross income. They must now exceed 10% of your adjusted gross income if you want to itemize.

• The penalty on non-medical withdrawals from a health savings account will double from 10% to 20%.

• There will be a 2.3% tax on medical devices that cost more than $100 in 2013. While this 2.3% tax will be paid by medical device manufacturers, you can be certain that they will be passing on either a portion or all of the tax onto the purchaser of the device.

• Finally, there will be a “penalty” tax that will be phased into effect from 2014-2016 for those who choose not to have health insurance. The “penalty” will vary in size depending on your income, but current amounts start off at $695 a person up to $4,700 a person. Again, the size of the penalty you would pay depends on your income.

Final Thoughts

I hope this gives you a better idea of what is coming your way in regards to new taxes because of Obamacare. The premise of this post was to explain the tax side of the mandate. I am not trying to make this into a pro-Obamacare or anti-Obamacare post. I am simply writing about the new taxes many will experience. I wanted to do this because the media is solely focusing on the 3.8% tax that will hit certain income groups when there are many more aspects to new taxes that relate to Obamacare.

Readers, what are your thoughts on these new taxes? Do you see any that will impact you?

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The mortgage interest deduction is beneficial to many homeowners when they are filing their taxes. Even though many take this deduction, most don’t fully understand it. I am going to do my best to keep things simple as I explain the important aspects of the mortgage interest deduction as well as how to claim it on your tax return.

Mortgage Interest Deduction

For starters, the mortgage interest deduction allows homeowners to deduct the interest paid on their mortgage when they file their taxes. But not everyone can do so. In order to qualify for the deduction, you have to meet the following criteria:

• Mortgage must be taken out after October 13, 1987
• The debt must be secured by the home
• The debt must be used to purchase, construct or substantially improve the taxpayers first or second home
• Indebtedness is limited to $1 million
• Must itemize deductions

The above criteria is fairly straight-forward. Homeowners do have to understand that they cannot deduct interest paid on a third home, unless that third home is used for business or is an investment property.

When it comes to refinancing, the IRS looks at this action as debt used to purchase a home. Therefore if you refinance, you can still deduct the interest you pay on the loan.

Also note that the debt must be secured by the home. This means that you have to be named on the debt in order to write off the interest. Therefore, if you are a secondary note holder of the mortgage, you cannot write off any interest you paid on the home since you are not named on the debt.

Finally, the interest on home equity debt is deductible up to the first $100,000. There is no requirement that this debt be used for purchasing, constructing or improving the home. This is why so many people take out home equity lines of credit to buy cars and pay down credit card debt. It turns the interest paid from not being deductible (credit card and auto loan interest cannot be deducted on your taxes), to being deductible. I am not recommending this strategy because if you default on your car loan you are only out your car. If you default on your mortgage, then you risk losing your home. To determine if you can deduct interest you paid on your mortgage, see the IRS flowchart below.

How to Claim the Mortgage Interest Deduction

Every year, assuming you paid $600 or more of mortgage interest, you will receive a Form 1098 from your mortgage company. On this form will be listed the amount you paid in mortgage interest for the prior year. You take the number listed on this form and use it to complete Schedule A of Form 1040, line 10.

For many homeowners, this deduction is taken when you are in the early stages of home ownership. This is due to the fact that for many of the first years of home ownership, your monthly payment goes predominately towards interest. As you reach closer to the payoff of you mortgage, you pay less towards interest and more towards principal. It is in these years when you will not be taking the mortgage interest deduction because the standard deduction will be higher, assuming you have no other itemized deductions.

What About Points?

I am briefly going to talk about points. I say briefly because as with anything IRS related, there are numerous exceptions. Points are charges paid by the borrower to obtain a mortgage. The most common example of points is if you are quoted with an interest rate of 4.0% with no points or 3.75% with 1 point. In this case, you pay an extra “fee” or point at closing to get a lower interest rate.

Can you deduct points? For the most part, any points you pay are not fully deductible in year you pay them, but rather over the life of the mortgage. Below is an IRS flowchart to help you determine if you can deduct points fully in the year you pay them.

Final Thoughts

This post only begins to touch the surface of the complex world of deducting home interest mortgage on your tax return. I highly suggest you visit the IRS website or read publication 936 from the IRS that covers this topic in its entirety. The PDF covers other areas related to mortgage interest and points, such as insurance premiums which are also tax deductible. There are also numerous examples for helping to guide through this complex topic.

As I mentioned before, when it comes to the IRS, exceptions are the rule. For many of the rules, there are exceptions to the rules. This is why it pays to hire a quality tax accountant so that you can take advantage of every deduction that is available to you.

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It’s time to efile! Since many tax forms are delayed this year, a lot of taxpayers are just getting their final documents.

And of course, while I’m still waiting on a few more forms, many of you finally have everything you need to e file your tax return.

Let’s check out all the free efile options for your federal return to get your taxes done and on their way to the IRS!

These are great options for those of you who like to do your taxes yourself!

Free EFile Tax Return Options

1. TurboTax. TurboTax offers a free online edition available at TurboTax Online. The turbo tax efile includes free e-filing for forms 1040, 1040A or 1040EZ. TurboTax is one of the most popular tax software packages around and it integrates with Quicken. I’m planning to use the free TurboTax software to file free tax returns for my kids this year.
2. H&R Block. H&R Block is offering a free edition if you want to prepare your return online. It also includes free e-filing. I used the H&R Block tax software for many years when it was called TaxCut. The federal efile is available for forms 1040, 1040A, or 1040EZ. It’s available at H&R Block Free Efile.
3. TaxAct. You can prepare, print, and e-file your return for free. TaxAct offers an online version or a download version of their software at TaxAct. I used the download version of their software a few years ago, and I was pleased. The selling point for the free Tax Act is the inclusion of Schedule C, for the self employed, in their free tax efile.
4. IRS Free File. The IRS Free File program is an IRS partnership with various tax software companies offering free filing. There is an income limit of $57,000 or less AGI for the irs.gov efile.
5. IRS Free File Fillable Forms. The IRS Free File Fillable Forms is not a free tax software, but blank forms. However, there are no income limitations. You pick the forms you need, fill in the numbers, and e-file for free. If you know what you are doing, the IRS efile is a great option!
6. CompleteTax. You can efile your basic tax return for free at CompleteTax. Like most of the other software packages, they charge additional fees for the state return.

Free Tax Preparation

All of the options to efile taxes free are great. However, if you are like many people, including most of my friends and family, you really just want someone else to prepare and efile taxes for you. The great news is that there are various options for free tax preparation. In addition, these programs usually offer free state efile too.

• VITA. The Volunteer Income Tax Assistance program offers free e-filing. You go to your nearest VITA location in person and have a volunteer complete your return. I’ve volunteered in the past; it’s a terrific program. There are also may VITA locations that offer free efiling for military personal. The VITA program targets low to moderate income, but our location did not have any income cutoffs, so it’s worth checking out.
• Tax Counseling for the Elderly. The TCE program provides free tax preparation for those 60 and older. You can call 1-800-829-1040 to find a location near you.

Now that you know all of your options, it’s time to efile!

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The IRS just released a new unemployed tax relief program if you can’t afford to pay your taxes this spring. The tax relief is part of the Fresh Start program. Here is a summary of the unemployed tax relief program from the IRS:

Who Qualifies for the Tax Relief?

The unemployed tax relief is for the following taxpayers:

• Wage earners who were unemployed at least 30 consecutive days during 2011 or in 2012 up to the April 17 tax deadline.
• Self-employed individuals who experienced a 25 percent or greater reduction in business income in 2011 due to the economy.

What is the Tax Relief?

The tax relief is a 6 month grace period on failure-to-pay penalties for tax year 2011. You will not have to pay the failure to pay penalty if the tax, interest and any other penalties are paid in full by Oct. 15, 2012. While the penalty is waived, you will still need to pay your taxes and interest. To qualify your 2011 balance due on your taxes cannot exceed $50,000.

Income Limits

The tax relief is for taxpayers who are under the following income limits based on filing status:

• Married filing joint: $200,000
• Single: $100,000
• Head of household: $100,000

How to Claim the Tax Relief

To get the unemployed penalty relief, fill out Form 1127A. You should still file your tax return by the tax deadline. For more information see the IRS news release: unemployed tax relief.

More Unemployed Tax Help

• Unemployed Tax Deductions Provide Tax Relief
• Do You Have to Pay Taxes on Unemployment?
• How Much Money Do You Have to Make to File Taxes?
• What are Your Options When You Owe the IRS Money?

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