The Ultimate How-To on Filing Your Taxes for Free

Filing your taxes probably isn’t one of your favorite things to do, especially if you have to cough up some extra cash on April 15. But whether you owe Uncle Sam this year or not, there are ways to file your taxes for free in 2019. And, given that IRS found that approximately 70% of taxpayers are eligible to file their taxes for free, you should. Here are some possibilities to consider as you think about doing your taxes.

File for Free with Paper Forms from the IRS

Let’s go back to the basics—you can still file your taxes using pen and paper. And if you do, all you need to pay for is an envelope and postage. There are likely several places in your area you can pick up the forms—like your local library or post office—or you can print copies from the IRS website. If you opt to go to the library, you may want to call ahead to verify they have forms and information booklets available. While public libraries are likely the closest option, you may also want to consider university libraries or even your local high school library if these are easier to get to. You can also go to a local tax office.

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File Taxes for Free on the IRS Website

If you prefer to use a computer, you’ve plenty of options for filing your taxes for free online, which you can find at the IRS Free File page on its website. Anyone can use the online fillable forms, which are electronic versions of IRS paper documents.

Which free filing options you can use, depends on your income. If your annual income in 2018 was below $66,000, you can use the Free File Software Lookup Tool to find free file software offers for paying your federal and state income taxes for free. The tool can also help you determine which free filing software is best for your needs.

If you made more than $66,000 in 2018, you can use the Free File Fillable Forms.  If you need to go this route though, it’s recommended that you:

  • Know how to do your taxes yourself
  • Have a copy of your 2017 return
  • Valid Social Security numbers for yourself, your spouse and dependents
  • Documents and receipts for 2018 available that show any other form of income and your Affordable Care Act enrollment if applicable
  • A personal email address, so you can receive notifications from the Free File Fillable forms tool

The Free File Fillable forms can be used only for your federal tax return. The program does basic math for you. Your identity will be verified using your 2018 adjusted gross income (AGI). See the User’s Guide for more information.

Free Tax Help from VITA and TCE

The IRS Volunteer Income Tax Assistance (VITA) program offers free tax help to people who make $54,000 or less, persons with disabilities, the elderly and taxpayers with limited English who need help preparing their tax returns. IRS-certified volunteers provide free basic income tax return preparation and use e-filing to assist qualified individuals in their communities.

Additionally, the Tax Counseling for the Elderly (TCE) program provides free tax assistance to any taxpayer, but it gives priority to those 60 and older. IRS-certified volunteers at TCE programs specialize in questions about pensions and retirement issues.

 
These programs are helpful because taxes can be quite confusing, especially if you’ve never filled them out on your own before. You certainly don’t want to get them wrong or, worse, not pay them at all. Unpaid taxes can impact your finances. If eligible, take advantage of these services.

You can find a VITA location near you using the VITA or TCE Locator Tool or by calling 1-800-906-9887. Use IRS Publication 3676-B on the IRS.gov website to prepare for working with VITA or TCE.

Other Ways to Do Your Taxes for Free

There are other filing options you can use to file for free. H&R Block Free File lets you file both federal and state tax returns for free, and help is offered through their online help center. You can also visit an authorized IRS e-file provider, and file your 1040EZ federal tax return for free. If your return is more complicated, you will have to pay a fee, however. Some authorized IRS-file providers also let you optionally file your state return for a fee.

Other services, such as Jackson Hewitt and TaxAct, let taxpayers file simple federal returns for free online. At Jackson Hewitt, a simple return is typically defined as someone filing singly or married filing jointly, with up to $100,000 in taxable income, no dependent and taking the standard deduction, in other words, not itemizing deductions. Different providers have different offerings and allow for different items with free filing. H&R Block, for example, allows for child and dependent care expenses with its free filing option and includes state taxes. TaxAct also includes state taxes in their free filing.

Choose the Right Tax Filing Method for You

When it comes to choosing which free tax solution to use to file this year, first take a closer look at your specific income and situation to determine which program best suits your needs.

For example, if you live in a state where you have to file state taxes in addition to your federal tax return, make sure the service you choose includes the option to file state taxes as well. Many do, some don’t. Some offer the ability for free, others include state filing only for a price. TaxAct and H&R Block include state tax returns in their free tax filing offers, for example.

Look for an accuracy guarantee before choosing which service to use to file online for free. An accuracy guarantee—often presented as “100% accuracy guarantee”—ensures that if any mistakes or inaccuracies are found on your tax return, the resulting penalties are covered by the tax solution provider you chose.

Prepare to File Your Taxes and Pick Your Approach

Know that if you choose a free online tax preparation method, you’ll need to meet income requirements, depending on which one you choose, and likely take only the standard deduction. Before you make a final decision on how to prepare and file, think about what you’ve done throughout the year that you could possibly deduct, like medical expenses or charitable contributions. Decide whether itemizing is better for you. Itemizing will likely require you do your own taxes or ensure the service you choose supports itemized deductions.

Once you decide which service and method to file your taxes this tax season, and you have the forms you need, you want to gather year-end documents from your employer, financial institutions, healthcare plans and any other records you may need to complete your taxes.

If you choose the free online method, once you have your documents, log in to the tax prep software you’ve chosen to use or grab a pen and a calculator, and fill in the tax forms.

If your return and situation are more complicated and you opt not to go it alone, the services of a tax professional can help add peace of mind. A tax preparer eliminates any guesswork and can go through your tax documents and find you the best ways to get a maximum tax refund this year through tax deductions and other option you qualify for.

A tax professional can also show you the value of a tax refund advance loan and walk you through that process if you find that you need cash fast and don’t want to wait three or more weeks for your refund.

This article was last published March 9, 2017, and has since been updated by another author.

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Reducing Capital Gains Tax on a Rental Property

Reducing Capital Gains Taxes on a Rental Property – SmartAsset

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Owning a rental property can help you to grow wealth long-term and diversify your income streams. Receiving regular rental income can help supplement withdrawals you might make from a 401(k) or an individual retirement account (IRA) in retirement or give you an extra cushion in addition to your regular paychecks if you’re still working. But rental income isn’t tax-free money; you do have to pay the IRS taxes on the income you earn. Capital gains tax can also apply when you sell a rental property. If you’re interested in how to avoid capital gains tax on rental property, there are some strategies you can try. It can also be helpful

How Rental Property Is Taxed

There are two dimensions to the tax picture when talking about rental properties. First, there’s the tax you pay on rental income paid to you. And second, there’s the taxes you might pay if you were to sell a rental property for a profit.

In terms of taxes on rental income, it’s subject to the same treatment as any earned income you might have from working or side-hustling. In other words, rental income is taxed as ordinary income at whatever your regular tax bracket may be for the year. The good news is, you can reduce what you owe in income taxes on rental income by claiming deductions for depreciation and rental expenses, such as maintenance, upkeep and repairs.

When you sell a rental property, you may owe capital gains tax on the sale. Capital gains tax generally applies when you sell an investment or asset for more than what you paid for it. The short-term capital gains tax rate is whatever your normal income tax rate is and it applies to investments you hold for less than one year. So, for 2020, the maximum you could pay for short-term capital gains on rental property is 37%.

Long-term capital gains tax rates are set at 0%, 15% and 20%, based on your income. These rates apply to properties held for longer than one year. If you own rental property as an investment year over year, you may be more likely to deal with the long-term capital gains tax rate. If you’re interested in minimizing capital gains tax on rental property or avoiding it altogether, there are three avenues open to you.

Use Loss Harvesting

Tax-loss harvesting is a strategy that allows you to balance out capital gains with capital losses in order to minimize tax liability. So, if your rental property appreciated significantly in value since you purchased it but your stock portfolio tanked, you could sell those stocks at a loss to offset capital gains.

Essentially, this could cut your capital gains tax bill to zero if you have enough investment losses to cancel out the profits. This strategy assumes, of course, that some of your other investments didn’t perform as well over the previous year.

If your entire portfolio did well over the past year then you may need to consider other ways to cut your taxes than loss harvesting. Or it may not yield enough of a benefit to offset all of your capital gains from selling a rental property.

Use a 1031 Exchange

Section 1031 of the Internal Revenue Code allows you to defer paying capital gains tax on rental properties if you use the proceeds from the sale to purchase another investment. You don’t get to avoid paying taxes on capital gains altogether; instead, you’re deferring it until you sell the replacement property. There are a few rules to know about Section 1031 exchanges. First, this is a like-kind exchange, which means that the rental property you buy must be the same type of property as the one you sold. The good news is the IRS allows for some flexibility in how like-kind is defined. So, for example, if you own a duplex and you decide to sell it, then use the proceeds to purchase a single-family rental home that could still meet the criteria for a 1031 exchange.

You also need to be aware of the timing when executing a 1031 exchange. If you want to use this strategy to avoid capital gains tax on a rental property, you must have a potential replacement property lined up within 45 days. The closing on the new property must be completed within 180 days. If you don’t meet those deadlines, you’ll owe capital gains tax on the sale of your original rental property.

Again, a 1031 exchange doesn’t let you off the hook for paying capital gains tax on rental property. But it could buy you time for paying those taxes owed if you’re interested in swapping out your rental property for a new one.

Convert a Rental Property to a Primary Residence 

One perk of being a homeowner is that the IRS offers a significant tax break if you sell at a profit. Single filers can exclude up to $250,000 in gains from the sale of a primary home from taxation. That amount doubles to $500,000 for married couples who file a joint return.

If you like your rental property enough to live in it, you could convert it to a primary residence to avoid capital gains tax. There are some rules, however, that the IRS enforces. You have to own the home for at least five years. And you have to live in it for at least two out of five years before you sell it.

This might be something to consider if you’re no longer interested in owning a rental property for income or you’d like to move from your current home into the rental.

The Bottom Line

Capital gains tax on rental properties can quickly add up if you’re able to sell a property you own for a large profit. Keeping an eye on conditions in the housing market and reviewing your overall financial situation can help you determine whether it’s the right time to sell to minimize taxes. For example, if your regular income is down for the year, then selling a rental property at a capital gain may not carry as much of a sting if you’re in a lower tax bracket. Talking to a tax expert or a financial advisor can help you find the best ways to manage capital gains tax.

Tips on Taxes

  • Consider talking to a financial advisor about how including rental properties into your financial plan could affect your taxes. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool can help you connect with professional advisors in your local area in a few minutes. If you’re ready, get started now.
  • Tax-loss harvesting isn’t limited to rental properties. You can also use stock losses to offset stock gains, for example. One thing to keep in mind, however, is the IRS wash-sale rule. This rule specifies that you can’t sell a losing stock and then replace it with a substantially similar one in the 30 days before or after the sale.

Photo credit: ©iStock.com/xeni4ka, ©iStock.com/designer491, ©iStock.com/supawat bursuk

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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Uncharted territory: Here’s what travel looked like in 2020

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Housing Finances Archives – MintLife Blog

Home Ownership vs Renting As A Minimalist Lifestyle Decision

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When it comes to buying a home or renting, there are many things to consider. While there are tons of resources on the financial implications of both options, I’d like to share my thoughts on buying versus renting from an intentional living and minimalist perspective. The decision to buy or rent is just as much a lifestyle decision as it is a financial one. Ultimately, if the decision to buy is made, a home affordability calculator is a great resource to get started.

Longevity and Flexibility

It’s important to consider how long you’re planning to be in a certain area and how much location flexibility you need when you’re making the decision to buy or rent. When renting, the leases are typically 12 months or less and there may be options to work out a more flexible move-out date with the landlord or management company. If you end up needing to move to a different area, you have more flexibility to do so.

It becomes a lot more complicated if you need to move away from a home you own. You’ll likely need to sell the house or rent it out—options that require more time and resources than if you were renting an apartment. With the amount of investment and time that a house requires, it’s probably best to stay in a location for at least a few years if you’re going to buy.

Personal Values

Think about how you want to spend your time. Similarly, it’s also important to consider how much responsibility you’re willing to take on. During the time I lived in an apartment, I barely changed a light bulb. There were no repairs, no additional investment and no worries.

For the past five years I’ve owned a home, it’s a whole different experience. I spend time cleaning the gutters, mowing the lawn, buying and fixing appliances and other maintenance activities that you never have to think about when you’re renting.   Regular or unexpected repairs can quickly add up to large sums when you own a home. Part of the benefit of renting is that you don’t have to deal with or budget for anything like that.

Customization

Another thing to think about is how much customization and control you’d like to have. A home you own can be customized to your exact liking, a rental on the other hand has more limitations. From painting the wall a different color to making bigger changes to your living space, you’ll have greater control if it’s your home. With a rental, any customizations would need to be approved by the owner.

Amenities

Amenities are another lifestyle consideration when it comes to buying or renting.

Most likely, an apartment will have more amenities than a typical home, such as a workout room, pool, large party room or even a concierge service. Of course, you may have the option of building or adding similar amenities to a home you buy, but it can be pricey and impractical investment. If you want a pool without the cost and maintenance that owning one would require, then renting an apartment with a community pool is the way to go.

From my perspective, whether you buy or rent has a significant impact on your lifestyle, particularly over the long-term. Thinking about what’s important to you and how you want to spend your time will help you determine what best fits your desired lifestyle.

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