What you Need to Know About Income Tax Programs

Nowadays, almost every household in America has at least one computer and Internet access. This has changed the lifestyle and methods of doing different things. Education, shopping, paying bills and communicating have become cheaper and more convenient. Another means that the Interne access has made a lot easier is the filing of taxes. In 1998, Congress required that by the year 2007, 80 percent of all tax returns be filed electronically. A lot of people prefer it that way, because it is much easier. Now, there are available income tax programs that give taxpayers an alternative to traditional tax preparation services and their fees.

The electronic filing of taxes was introduced by the Internal Revenue Service in 1986 through authorized agents. In 1993, the IRS finally approved income tax programs in which taxpayers would fill out tax forms, print and mail them to the IRS electronically.

Preparing and filing using an income tax program is quick and easy. In addition, most programs available offer assistance against an IRS audit. The software is guaranteed to be up-to-date on the latest tax changes. According to users, it offers help and support in every aspect necessary.

How long does it take to file and receive refunds?

The available income tax programs allow taxpayers to prepare and file tax returns in a much faster and more convenient way. Also, tax refunds can arrive as early as 8 days after filing the forms electronically through an income tax program. This is a week earlier than receiving the refunds in a paper check.

What benefits does the program offer?

The software programs help the taxpayers to minimize, if not eliminate, errors. They also help users to make the necessary adjustments by suggesting errors that might not otherwise be found, and review returns for errors that might have lead to an audit.

What other options are available when filing online?

The IRS has partnered with different programs that can prepare the tax returns for free and file them electronically. The IRS website offers these services through their website. However, there is an adjusted gross income limit of $56,000.

What else do I need to know before using the program?

before purchasing or downloading an income tax program, you should verify if it’s compatible with your computer’s operating system first. Also, check for any available program updates after installation to ensure the product’s accuracy. Once in a while, check whether there are changes and updates in the software.

Preparing and Filing your State Tax Return

It’s that time of the year again when you have to stress yourself about that annoying income tax return. Unless you’re lucky that you live in one of the few states that d not have income tax, such as Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.

Where to Begin:

Before anything else, you have to make sure that your federal return is accurate and complete. Your federal return is always the starting line for just about every state income tax return. If not, don’t even bother thinking of preparing your state return.

Adjusting your Federal Income to State Income:

Once you have verified that the information from your federal return is accurate, you can now enter them on your state income tax return. You will need to make some additions or subtractions to it to reconcile the differences between your federal taxable income and your state taxable income. One of the adjustments that you will need to make is addition which are usually add-backs of any federal deductions that you have taken but are not permitted on your state return or income items. They may not be allowed since they are tax-exempt for federal purposes, but are taxed at the state level. On the other hand, subtractions should be done for income items that are taxable under federal tax law, but are tax-exempt under state tax law. Also, subtraction is done for state-specific deductions. The adjustments that you need to make on your tax return will depend upon the extent your state conforms to the federal tax code.

Common Additions:

Below are the common state additions to federal income:

  • Bonus depreciation
  • Interest on municipal bonds from other states
  • Moving expenses
  • Student loan interest

Common Subtractions:

Below are the common state subtractions from federal income:

  • Deduction for federal income taxes, only if your state offers this deduction
  • Social Security and other retirement benefits that are taxed federally
  • Contributions to your state’s 529 college savings plan
  • State income tax refunds
  • State lottery winnings

Figuring your State Tax Liability:

After you have calculated your taxable income for state income tax purposes, you will come up with your gross state tax liability. Most states implement tax brackets with tax rates that depend on income. For instance, tax rates increase as income increases. To calculate your tax, a table is necessary. However, there are a few states that have one flat tax rate that all taxpayers pay regardless of the amount of income.

Calculating your Tax Due:

Once you have your tax liability, you will need to  reduce that by any state tax credits that you are qualified for. States have varied tax credits, but many have their own types of child tax credits and earned income credits. Most tax credits can only reduce your tax liability to zero. However, there are some refundable tax credits, which are treated as a payment of tax with any leftover credit that you refund.

Filing Your State Income Tax Return:

After preparing your state income tax return, you are now ready to file it. Nowadays, people prefer to do it electronically since it is more convenient. To have a more accurate return, you can make use of a software program. You can also get your refund faster if you file and choose direct deposit electronically as well. If you’re not aware of these software programs, you can check out your state’s website. For instance, some states have purchased tax software programs like Turbo Tax, which includes a state tax return preparation to make your life a lot easier.