<p>Even though I’m an accountant (obviously not a tax accountant) I have not yet used Turbotax to complete my return. I’m considering it for this year but am not sure if it will even work for me, for the following reason.</p>
<p>About 15 years ago our state adopted an income tax (omg! has it been that long? They swore it was temporary, hahahah). For the tax year in which it was adopted, I thought I’d be really clever and include the new income tax in the deduction for State & Local taxes during the FIRST year. So, I completed the 1040 down to AGI, then switched over to the state form, figured my state income taxes, and included them on Federal Schedule A for the current year. So when the form comes from the state, telling me what my taxes paid/refund is, I disregard it, since I already took the deduction for the whole tax amount. Obviously I’ve had to continue this method for consistency.</p>
<p>Will Turbotax accommodate this method? If it will not, I am not sure how to switch over to the “normal” way.</p>
<p>Thoughts??? Am I the only one who does this?? Can I use Turbotax (or another package)?</p>
<p>I’m a Floridian and we don’t have state tax, so I’m not too experienced in that area. But if I’m understanding you correctly, you’ve been basically figuring your state tax first and then taking the deduction on your Federal return in that same tax year, right? For example, your 2008 Federal return would normally include a deduction for state taxes paid in 2008 on 2007 income. But the way you’ve been doing it, your 2008 Federal return shows a Schedule A deduction for your 2008 state taxes based on 2008 income?</p>
<p>Whatever the case, I’m pretty sure you can use Turbotax either way. However, if you want Turbotax to figure your state tax, I believe it asks you to complete your federal return so that it can transfer the appropriate figures over to the state return. But you can probably also just do the Turbotax State return manually (without transferring from the federal) and then carry the state tax amount back to your federal return. Seems like a pain, though – why not just switch to the “normal” way by doing the 2009 federal return without a state tax deduction (because you’ve already taken it in '08), then completing your 2009 state tax return, paying the state tax in '10 and taking the deduction on your 2010 federal return?</p>
<p>You can overwrite most lines in Turbotax. So go ahead and do the Turbotax in the “normal” order (Federal and then State). Then go back to the Federal and overwrite the state refund line. Make a notation in the Federal turbotax that you’ve done this (in case you get audited). Next year, Turbotax will forward this year’s information to next year’s return. Just do it all again next year.</p>
<p>P.S. I love turbotax. I’ve been using it for about 10 years. I’m an accountant too (not tax). Turbotax allows me to play whatif scenarios and do tax planning early using the prior year’s turbotax.</p>
<p>Patsmom, yes, exactly. I would calculate the 2008 state income tax based on 2008 AGI, then use that calculated state income tax amount on my 2008 schedule A.</p>
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<p>I hesitate to switch to the “normal” way, and forgo that piece of the State & Local tax deduction for a year…icky. I’d rather not do that. Bad choice, I guess, since forgoing that deduction back way back when (when we only had one income) would have been MUCH less costly.</p>
<p>Well, then, I’d suggest doing what ShesOnHerWay said. Turbotax will let you overwrite any calculated amount. It’s not recommended, but sometimes it’s necessary. As long as you keep good records, it shouldn’t be a problem.</p>
<p>I love Turbotax, too – I’ve used it since about 1994. I’ve beta tested it for the past couple of years and I like the improvements they’ve made for 2009. By the way, if you have a Vanguard or Fidelity account, you can get it at a 25% discount.</p>
<p>It sounds as if you are basing your state taxes paid on the accrual method. As far as I’m aware, for all states of which I am aware, it’s supposed to be on a cash basis of the state/local income taxes paid. If you itemized on federal, and receive a state refund, the state refund is taxable income in the year in which it is rec’d.</p>
<p>I second Sryrstress. How much is the spread from what has been actually paid? The withheld amount plus under payments in the year to the amount actually calculated and deducted? I am not a tax accountant but I think you are allowed to switch to the acceptable method at any time. Turbotax will do the acceptable method.</p>
<p>Syrstress…huh. When you mentioned cash basis vs accrual basis, a lightbulb went off. I just never really thought about it that way! (reason #124873 why I’m not a tax accountant)</p>
<p>TheresaCPA, I looked at the spread you mentioned. Within $40 for 2008 taxes; I don’t know yet what 2009 will look like. Hopefully close again - then I wouldn’t have any qualms with switching methods, especially if the deduction in the “new” method is lower than the old…</p>
<p>I was sort of unclear–sorry, been a bad couple of days.</p>
<p>Yes, Schedule A of the 1040 is definitely supposed to be what was actually paid during the tax year, through withholding and/or estimates. No matter how “close” the difference between the two are, I would recommend changing to the “cash” basis. IRS agents are always happier when a taxpayer voluntarily switches to the approved method. Unless you had some really outlandish amount in relationship to your income, this is not something that is going to make your return any more subject to audit or correspondence-at least I’ve never seen that in 23 years. I’ve never even seen them question that line on any audit.</p>
<p>No, No, I really mean that a lightbulb went ON, like a eureka moment! It made perfect sense. I just never really thought about the fact that what I was doing was in effect accruing for my tax liability in the current year. </p>
<p>In looking at the history of the variances over the past few years, its been no greater than +/- a couple hundred dollars each time (the years with bigger variances in income have a bigger variance between methods). I’ll seriously consider getting myself on the cash basis for this year. Which, to answer my original question, would mean that I could just use Turbotax for that!! :P</p>
<p>We had paid an accountant for many years to prepare our returns.
Pretty sure that in recent years he had an assistant use software, probably Turbotax, and then billed us large $$$$s.</p>
<p>Now I spend a day Turbotaxing returns for DH and myself and also DS.
It is kind of ‘fun’.</p>
<p>I have a question unrelated to Turbotax, but I thought I’d post it here. I’m hoping that some of the loyal CCers can help.</p>
<p>On the form 8880, Credit for Retirement Savings Contributions, line 4, it says to “Enter the total amount of distributions you, and your spouse if filing jointly, received after 2006 and before the due date (including extensions) of your 2009 tax return.” The instructions say it includes "Qualified retirement plans as defined in section 4974(c). I’ve searched the IRS site trying to find 4974(c) and, naturally, have had no luck. My husband is a retired teacher who draws a pension from the state each month. Do any of you know if I have to fill in the amount he receives from his pension on line 4? I’m planning to call a rep from our state teacher retirement system next week to see if they know the answer, but I thought that perhaps a member of the CC “brain trust” could help me out :)!</p>
<p>I think I need to do an Emily Letella, “Never mind.” I just typed section 4974(c) plus IRS into a search engine and got what seems to be a pretty definitive answer. The page I found says that pretty much any retirement plan or pension is included. So, it looks like I do have to include my husband’s pension from 2006-2009 on line 4 of form 8880. The bottom line is that I do not qualify for a tax credit for contributing to my retirement plan. I am self-employed and just started a SIMPLE IRA for myself this past summer. Until this summer I had no retirement plan other than the little bit I’ll get from Social Security. All of my income went toward things like…wait for it…college tuition! </p>
<p>This tax credit is one of the many quirks in our tax laws that puzzle and annoy me. Because my husband has already retired, I do not qualify for a credit for saving for MY retirement. Another pet peeve is the fact that the IRS says that a kid over the age of 17 does not qualify as a child. Most 17 year olds in this country are still in H.S. Both of my Ds were. Parents lose the tax credit for those elderly teenagers just as they are applying for college. My youngest D was certainly a big drain on the family resources during her senior year of H.S., LOL. We had our usual out-of-pocket expenses for her arts training - voice lessons, vocal coaching, acting lessons, and umpteen dance classes - plus the expenses related to multiple trips for college auditions. Of course, we were able to claim Hope credits for the girls when they started college, but I still found it annoying that the IRS no longer considered them qualifying children just as our expenses for them skyrocketed.</p>
<p>dancersmom–You should be able to take the deduction for your retirement plan contribution. It is separate from the “retirement credit”. There are many people who do not receive the credit. It is not available to taxpayers filing “married, joint” if their adjusted gross income is greater than ~$53,000.</p>
<p>The “deduction” was on line 28 of the 2008 Form 1040 (should be about the same for 2009). If your state bases state income tax on federal adjusted gross income, then the deduction will also help reduce your state income tax. The retirement credit will not, unless your state has a something similar to the federal law regarding this credit.</p>
<p>Thanks. I’m aware that I can deduct my contribution to my SIMPLE IRA on line 28. I was venting above because it would have been nice to be able to “double dip”. A deduction plus a credit is better than a deduction alone! I am aware that there are many people who cannot take the retirement savings credit, including those whose AGI is greater than $55,500 for those filing jointly. My H’s and my joint income is beneath the threshhold. I may see what happens with our tax liability if we file seperately.</p>
<p>I understand completely. Vent away. I can really understand your frustration if you are under the AGI threshhold. I also very much agree someone was in lala land when the “under 17” child tax credit was passed. Are they joking? 17 to graduation is the most expensive time of all!</p>
<p>The IRA/Simple deductions have really liberalized in the last 5-10 years, although, as you’ve shown, still not fair in many regards. In years past, I’ve had breadwinner H who couldn’t deduct a dime of retirement contribution because their W worked at the school as a cook/aide, made $6500 a year and as a school employee, a very small amount (~$25-50) was put into their retirement account.</p>
<p>There is usually some rationale to tax law, but in more than a few instances, it appears blatantly obvious (to me!) that it’s unfair. There are many deductions/credits where someone using “married, filing separate” is effectively penalized.</p>