Taxes: Don’t rush it

I was really excited about filing my taxes this year. For once, I wasn’t really in need of any pricey things for the house (though I have plenty of wants. Hello, wood stove!), and was rubbing my hands together with the thought of the emergency savings fund I’d soon have in the bank account! Thanks to my husband’s tax-free military pay, and my lowish freelance income when he’s overseas and full-time caring for the boys, we are due a large refund again.

I had a lot of to-dos on my list last week, and the taxes had the biggest payoff, so I tackled them one late night after finishing two other little projects. I could make that week’s e-filing cycle window if I got them done before morning, so I plunged on through, guessing at one number for which I couldn’t find documentation. It was part of the mortgage interest, and I knew I probably wouldn’t make the itemized deduction cutoff, so it wouldn’t have any effect on my taxes, anyway.

My husband’s school expenses were the only new thing to consider; he’s taking online courses while he’s deployed. I didn’t think there would be much tax effect, but I dutifully added the numbers from the statement I had into the appropriate part of the online tax form. It was late, and I rushed. I just wanted to cross the to-do off my list. I could see that checking account cushion materializing before my eyes… submit! submit!

Well, it wasn’t until the next morning I realized that filling in those numbers meant I included Form 8863, and clicked a wrong button on it to boot. Because of the fiscal cliff, the IRS is holding returns that included Form 8863 (American Opportunity Tax Credit and Lifetime Learning Credit) until “mid-February.” Once they do process returns, my error could mean our refund is delayed even longer.

No take-backs in tax filing

Once a return is sent, even if you discover an error two minutes later, you’re sunk for the time being. At least until the return is processed. If you try to send a second return before the first one has been processed, as far as I can tell by the instructions, your return will cause a rip in the space-tax continuum. (I oh-so-briefly considered sending it through a different service without the form, which may or may not be illegal, but is certainly a Bad Idea.)

If you’ve made a mistake, and you realize it right away, you must wait until the IRS has accepted and processed your return until you file an amended return, and it must be filed in paper form (1040x). In most circumstances, this isn’t very long.

I had rolled my eyes and yawned through the “alerts” and the endless box-checking required to file electronically, and next year I’ll stop my snark and just pay attention. I’ll do it in the middle of the day. I’ll leave plenty of time. Though I might have missed that week’s refund cycle window, by including that form I’ll probably miss two or three weeks’ worth, if not more.

Documentation trickles in

Last year, I submitted my taxes quickly, right around January 31, the date most employers and payers are supposed to send tax forms to you, your W-2s and your 1099s. But I received one important piece of tax documentation I hadn’t been expecting a week later (the year is long, for a freelancer, and I’d forgotten).

This year I’ll keep track of all the forms I received, and make a list to check off, including:

  • W-2s from all employers for both partners
  • 1099s for all freelance jobs and other payers (and keep a list of these)
  • Mortgage and, if applicable, second mortgage/home equity loan interest statements
  • Mortgage interest statements from two companies if your mortgage was sold this year (it’s happened to my mortgage so many times I’m used to looking for two!)
  • Taxes-paid statements for real estate and other non-income taxes
  • Interest income statements from retirement funds or savings accounts
  • Capital gains/losses statements from stock accounts
  • Schedule K-1 for any LLCs or partnerships of which you’re a part
  • Form 5498 for IRA rollovers
  • Form 1099-C for any debt charge-offs (if you negotiated to pay off a large debt, for instance)
  • Receipts from tax-deductible donations

Mistakes can cost you (even if you don’t know it)

The big mistakes we’re all worried about making are the ones that will mean we’re paying more taxes, or getting a lower refund, and we never figure them out. It’s a lot less likely you’ll leave out the important documentation and button-clicking if you spend plenty of time.

You have three years to catch mistakes and amend your taxes. If the mistake is in your favor, you will get a refund then. If you get it wrong, you have to pay interest and fees (the government doesn’t owe you, sadly, if it’s the other way). But not just time value of money is working against you; inertia is. If you’ve already made it once through the chore of taxes, it’s hard to do it again, even for several hundred dollars. After all, that money is theoretical.

Take your time

How much time? The average seems to be a whopping 22 hours; yep, as much as working half-time at it for a week. This means that you should not try to fit it in between essay-writing and 2:30 a.m.

If you, like me, could carve out time in the daylight hours to do this, I’d suggest you set aside two afternoons or early mornings (whenever you work best) just to gather your paperwork together. Perhaps you’ve already done one session near the end of January, and save the next one until the second week in February, just to make sure you catch all the trickles.

Then, on a weekend day without distractions like Super Bowl parties or gardening — pick a nice, blustery, rainy day — sit down and go through the whole deal. Finish it up all the way to the alerts (if you’re filing online). Run them once.

Come back the next day

Then, come back the next day with a new cup of coffee or kombucha or whatever gets you jazzed in the morning. Look at it again. Print it out before you press “submit” just to see all the forms you’ve generated. It’s amazing what you can see just running your finger down a number of columns; if you don’t understand anything, look it up.

Then press “submit.” You might even have your taxes processed before mine are. I’ve learned my lesson!

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There are 62 comments to "Taxes: Don’t rush it".

  1. Jane Savers @ The Money Puzzle says 11 February 2013 at 04:25

    January? That’s amazing. In Canada the employers have until the end of February to provide the T4 form and the rest of the paperwork will trickle in slowly and it will be March before I will take the bundle to the accountant.

    I am still deciding what to do with my return. First $100.00 is for fun then I may split if between debt and retirement savings or do something spontaneous like buy a stock I have a hunch about.

    • Elizabeth says 11 February 2013 at 05:55

      I’m getting impatient waiting for my T4! I found that downloading a checklist of what the return should include helps me figure out what paperwork I’m waiting for.

    • Sheryl says 11 February 2013 at 06:27

      The tax deadline in Canada is also a little bit later, though. Although we certainly have a shorter window between employers providing the documentation and filing the taxes as our are due at the end of April.

  2. Mary @ Gresham Wealth says 11 February 2013 at 04:44

    I hate it every year when its time to sort out taxes. Every year I say I won’t leave it ’til the last minute and every year I do.

    I completely agree though, the best way to tackle this is to set yourself a good chunk of time to deal with it and try and relax into it whether that means having a nice cup of coffee or listening to some relaxing music while you get stuck into it!

    Saying all this, I am in no doubt that I will end up leaving it to late yet again and end up rushing!

    – Mary

  3. Mrs PoP @ Planting Our Pennies says 11 February 2013 at 05:15

    I’d believe 22 hours on tax prep. After spending at least that long (if not longer) trying to do ours last year, we finally gave up and hired someone to do them. Our finances had gotten complicated enough that I didn’t want to risk not knowing every nuance of tax law.

    • Debi says 11 February 2013 at 10:08

      Several years ago we made the same decision for the same reasons: hours spent, frustration and anxiety incurred, and increasingly complex filing due to investment income and my husband’s home business. Hours spent worth much more than dollars spent with a tax professional. We have a folder where we collect current year documentation and wait until late March to file. We use the refund to fund my husband’s IRA for the next year.

      • Kristy says 16 February 2013 at 04:52

        I just don’t believe it. I’m sure that business owners spend many hours on tax related stuff, but I do not spend anywhere near the cited 10 hours to complete a 1040.

        I spend really no time “gathering” our tax documents. As they arrive in the mail, I put them in a file. The first week of February, we have everything, and I fire up TurboTax and 30 minutes later, I’m watching the little flashy thing transmit the Federal return, and printing the state to mail.

        We itemize, and this year, I needed 6 documents to file. In years past, I used the 1040EZ, and it took less than 15 minutes to complete, by hand, at the library where I picked up the form (and some books I’d placed on hold).

  4. Clark says 11 February 2013 at 05:51

    The fact that you will be getting a large refund points to your greater mistake. You have in effect decided to make a no-interest loan to the government for a year. My suggestion is that you get less exercised about when and how to file your taxes and more concerned about having the correct amount of withholding.

    • Jane says 11 February 2013 at 07:46

      It’s like clockwork that someone states the obvious about refunds. Having written in the personal finance world for years, don’t you think Sarah already knows this? Plus with interest rates so low, I hardly know what she could do with this refund that would make it much more profitable. Should she be putting it in a bank and getting .5% interest? And then deal with the possible stress of having to write a big check in April? Plus it might be that these refunds coming to her don’t have to do with withholding but rather various credits she gets from her husband being in the military.

      But as we all know, money is about more than strict math. Many people put their “foolish” refunds to good use. Think of it as forced savings for the “less enlightened” among you.

      • Johanna says 11 February 2013 at 08:25

        Another hidden benefit of expecting a large refund (for me, anyway): It’s motivation to get my taxes done early. The sooner I file, the sooner I get my money, and the sooner I don’t have to worry about it anymore. For me, that’s well worth the $10 or so in lost interest.

      • Clark says 11 February 2013 at 10:16

        Perhaps the advice comes “like clockwork” because it is accurate. If your point is that it’s OK to waste money if the amount isn’t large then please send me $3 today. Thanks in advance.

        • Jane says 11 February 2013 at 15:58

          I guess you could say you are trading in a very small amount of money for the security of paying ahead. My question is – why are you being so dogmatic about something rather miniscule for the average tax payer? Moreover, do you pay any sort of fee for any sort of banking service? A yearly fee? An admin fee to your Roth or a 529? If so, you are being rather hypocritical to call someone out for being foolish for giving the gov. a small amount of money to save their money for less than 12 months.

          Plus Sarah and others have clearly stated that this often has nothing to do with withholding and is rather about credits.

          I might leave $3 on the table, but I would be loathe to give it to someone who lacks the imagination to understand that there are many ways to approach personal finance.

        • Marc says 12 February 2013 at 10:10


          And yet this site is dedicated to money. How to save, earn, invest and all sorts of things. I’ve always liked the phrase “The devil is in the details”. Don’t we all complain about bank fee’s and do everything we can to get them removed or kept to a minimum? Why is keeping your money from the govt an exception?

          I get that people don’t want to pay in and that some people have more complicated tax returns. I understand their concerns. But if you’re getting over $500 a year back from the govt in tax returns you’re paying in too much.

      • Ivy says 11 February 2013 at 10:29

        I literally just came back from a meeting with our tax guy. And for a first year ever we are not getting a refund but need to pay (a combination of a decent bonus last year and significantly reduced mortgage payment post refinancing). Some how having to pay “back” to the governmant the several thousand “free loan” doesn’t make me feel too excited. I would still prefer the refund, if only for the positive feeling:-)

    • Toni says 11 February 2013 at 08:39

      I get a big chunk at tax time, but it isn’t because I’ve given the government a “tax-free loan.” I make little enough and have enough deductions that I get the earned income credit and child credit above and beyond what I’ve paid. So don’t assume that a refund means you’ve let Uncle Sam hold on to your money all year long.

      • Peach says 11 February 2013 at 14:51

        Good point. When my children were young, I needed every available dollar I made just to cover our expenses. Earned income credit gave us an emergency fund. With so many people underearning last year due to job cutbacks, that credit is the key to saving anything this year. I’m glad Sarah’s looking forward to banking some of hers. Good thinking!

    • Kristen says 11 February 2013 at 11:51

      Sometimes it’s difficult to properly calculate your expected tax responsibility, and it can shift greatly from year to year. In addition, for the self employed, you typically need to deposit as much in estimated quarterly taxes as you were responsible to pay for the previous year: if our tax bill was $25,000 for the tax year 2011, we need to deposit that same amount in estimated taxes the following year to have some assurance we won’t pay penalties if our 2012 tax bill goes higher. For those of us who aren’t accountants it can be a real headache and not all that easy to predict. In some cases it’s better to give the gov’t a free low interest loan than to spend hours of time we can’t get back trying to figure out our taxes. I’d rather live my life and let my accountant figure it out at year end.

      • Debi says 11 February 2013 at 12:32

        Well said, Kristen. The self employed part is difficult. It’s dangerous to reduce the amount of estimated taxes paid. Better to be safe knowing you’re overpaying. At 0.05% interest on savings account it’s money well spent.

      • Lea says 11 February 2013 at 12:34

        “Sometimes it’s difficult to properly calculate your expected tax responsibility, and it can shift greatly from year to year. ”

        I agree with this. I get a refund but it’s under a thousand and my salary has been changing over the years. It seems safer to leave as is until it settles.

    • sarah gilbert says 11 February 2013 at 12:56

      Like Sheryl, I get an earned income tax credit (or have for the past two years) because my husband’s income is tax-free and my income is freelance, and relatively small — my expenses are high. There is no withholding to change.

      I think we’ve discussed this before, but I generally agree that only the very disciplined typically can make use of the “don’t give the government an interest-free loan!” advice. With such a low interest rate on savings these days, you’re not giving up much, so if it helps you save, it’s not the end of the world and it certainly doesn’t make you financially inept in my opinion :).

  5. Kraig @ Young Cheap Living says 11 February 2013 at 06:01

    This is exactly what I’m doing this year. Having earned income from my blog for the first time last year, I have to figure out what do to do claim is properly. Is my blog a business? If so, what was my net income earned? If I treat it as a business, I’ll be claiming a loss. And from what I’ve read, claiming a loss will offset my wage income and lower my tax liability. This kind of thing apparently increases my risk for an audit. All this combined means that I’m taking my time this year to file, making sure that I do it right. I guess I’ll be talking to a tax professional, even though I’ve already paid for Turbo Tax.

    • Mom of five says 11 February 2013 at 07:27

      Just my opinion, so take it for what it’s worth: I’d save my money and go with the Turbo Tax filing. Stick with categorizing the blog as a hobby until you’re close to making money and projecting a steady increase in income. I think the IRS expects a business to make money 3 out of 5 years. Otherwise, additional income is considered a hobby and Turbo Tax can guide you on how to handle it.

      Here are the IRS guidelines:

  6. Jeff says 11 February 2013 at 07:00

    Well-timed. I discovered an error yesterday in our taxes we filed last weekend. I miscalculated my wife’s mileage deduction for her business by half.

    We keep track of her daily mileage, but we only track one way, this year I forgot to add the *2 in the sum cell at the bottom of the Excel sheet (to account for the trip home).

    (Un)fortunately it is a $896 additional refund due to us, so we will have to file an amended return, although we have once before and it wasn’t a big deal.

    I’ve been using Turbotax for about 8 years, and the best advice I can give is to put in all the info and complete the process without filing. Hit save and come back another day. Review again and then submit. (Although to be honest, I did this and didn’t catch this specific error).

  7. Mary says 11 February 2013 at 07:34

    I missed only one thing, due to weird window sizing coupled with a bit of rushing:
    The $8000+ that was deducted from my paycheck for taxes. I couldn’t figure out how I could owe $8660–I haven’t hit submit yet, and since the error was so huge I caught it, but yikes.

    I’m still trying to figure out my union dues, so I can’t submit yet.

  8. Matt says 11 February 2013 at 08:19

    22 hours seems like a lot to me. I’m about 90% done right now and think I’ve put in about 4 hours. Only a couple times do I think it’s taken us anywhere near that long – that was in years where we had some complicated stock-related stuff.

    Every year there does seem to be one thing that in early February is stopping me from filing – one form we need from someone. Very annoying!

    • sarah says 11 February 2013 at 08:51

      I agree. My taxes are fairly complicated and they take me 4-6 hours using TurboTax online.

    • Elizabeth says 11 February 2013 at 10:22

      Check out the post Sarah linked to: “To be fair, the form completion accounts for just four of those hours. The rest of the time is made up of record keeping (10 hours), tax planning (3 hours), form submission (1 hour), and “other” (3 hours).”

      The numbers reportedly come from the IRS, so you have to wonder about the source…

  9. Juli says 11 February 2013 at 08:37

    I have always done our taxes myself before, either on paper or e-file. But this year will be the first time we are itemizing deductions, and DH rolled over two old 401k’s to a Roth IRA last year, so I know we will owe for that. I know this isn’t nearly as complicated as a lot of people, but I have a CPS brother-in-law who will do them for me for cheap, so I’m going to take advantage of his offer and keep all the paperwork so I know how to do it myself next time.

  10. Toni says 11 February 2013 at 08:41

    I jump the gun almost every year, but usually I just enter all the numbers on an online tax program and wait another week or two until I get all the necessary documentation. Still, there are those stragglers (as you mentioned) that you forget about, and I’ve found myself filing amended returns more often than I should. Thanks for the heads up!

  11. Erica says 11 February 2013 at 09:13

    Any time I ever get a tax-related document, I stuff it in a tax return folder so when I sit down to my tax software I have all the paperwork already assembled.

    Anyway, I just did taxes on Saturday, double- and triple-checked it through the software check, slept on it, reviewed it Sunday morning and found one thing I missed. I fixed that, then I e-filed my federal, prepared my state and local returns (not yet mailed), and celebrated.

    *Then* I checked the mailbox and found an amended 1098 from my mortgage, the only difference being the addition of the PMI that is now tax deductible.

    For crying out loud, why didn’t I check the mail on Saturday?

    • JMB says 11 February 2013 at 12:21

      PMI is now deductible? Is this a recent change? I was under the impression that this deduction wasn’t extended to 2012, and can’t find anything to the contrary online. Thanks!

      • Erica says 11 February 2013 at 13:24

        Yeah, I didn’t know either.

      • Meghan says 11 February 2013 at 19:38

        It was part of the debt ceiling negotiation and was extended (retroactively) for 2012 and for 2013. See the “American Taxpayer Relief Act of 2012.”

  12. Mike says 11 February 2013 at 10:06

    I’m curious to know what military education expenses you are deducting? If the military pays for the tuition, what is there to deduct?

    • sarah gilbert says 11 February 2013 at 13:05

      Mike, I’m not deducting the expenses; I just entered the information from the forms we received from the university, and my online tax form service said we were eligible for some sort of education credit. The way the military repays tuition is also convoluted and very slow — basically, they help you get loans and then pay them back — so it’s very confusing what we’re eligible for. (We very well may be eligible for that credit, which may be offset in the future by income from the loans being repaid; it’s confusing!)

      I was erring on the side of believing we wouldn’t be eligible for a credit, so unchecked a little box so we wouldn’t file for it, but the software overruled me and sent the form anyway. If I’d taken more time with it I would have realized!

  13. Kurt @ Money Counselor says 11 February 2013 at 10:15

    Sadly we must factor exploding tax return identity theft into filing timing these days. The longer you wait to file your return, the greater the likelihood a crook will file a return before you do with your name and SSN on it and claim a big refund. One million fraudulent returns were filed last year, and tax related id theft has grown 650% since 2008!

    • Laura says 11 February 2013 at 12:44

      YES. I’ve done our taxes in early February for years, and for this reason alone I will continue to do them at the earliest possibility. I need to beat the crooks.

      It’s also really nice to not have it hanging over my head. I’m always surprised when file-your-taxes stories pop up around April 15, because I’ve long forgotten it by then.

  14. Kelly@Financial-Lessons says 11 February 2013 at 11:10

    Like anything else (especially important things like filing taxes) the best tip is to do it and then give yourself some time away to then come back and double check with fresh eyes. I did this and realized I made a few mistakes that I’m really happy I caught the second time around. Making sure to double and even triple check at different times is the best thing I think, as well as have someone else look it over.

  15. Simple Economist says 11 February 2013 at 11:52

    I feel like the first 90% is easy then there is always one question or snag that takes a while to get figured out!

    I too am looking forward to getting mine filed and returned, just waiting on a SSN for a newborn! Didn’t realize how long it could take to get those.

  16. Crystal says 11 February 2013 at 12:08

    We submitted too early before and had to do an amended return as paperwork popped up in mid-February, so now we just wait until March. It does take my husband about 20 hours of work. Getting all of the appropriate papers together takes a few hours sometimes depending on how on top of it we were throughout the year. Then he has like 7-8 forms to fill out and he does it by hand before checking himself with software. Great advice – double check and triple check before sending. We will try not to make that mistake again…

  17. Darnell Jackson says 11 February 2013 at 12:13

    Do you still think it’s a good idea to let so much money be withheld at 0% interest rate by the government?

    Wouldn’t it be better to break even or owe a small amount of tax at the end of the year if you get to have more of your money every month?

    • David S says 11 February 2013 at 12:34

      If you plan out what you are going to do with the saved portion of taxes instead of just increasing your spending that would be fine. Otherwise some people use the refund to pay down a lump sum of debt.

      You could even take out a 1k loan from the government (as long as what you owe is less than 1k you avoid penalties) and save that 1k earning interest along with way to make money off of taxes.

      As for me I finally adjusted my withholding (which was a slight pain due to having to actually mail the W4) to lower my tax rebate and send the extra into the 401k. Still will get a refund but only in the low hundreds.

  18. David S says 11 February 2013 at 12:27

    I spread out those 22 hours over the entire year. Each time I pay a taxable item I file keep a log under which form it goes with, so when tax time comes I just mark them off as I receive them. Since I already pre-fill the forms at the beginning of January with what I recorded during the year I just have to wait until each form comes into my mailbox. Makes it pretty easy and painless. I have only needed to amend once and it was for the New Homeowners Credit since the home finished closing after we sent in our taxes.

    • PB says 11 February 2013 at 12:37

      I am not quite so organized, but do something similar. Every January or February I get a HUGE envelope, mark it “TAXES 20–” and then just throw everything into that as it comes along. Everything is in one place and takes about two or three hours of sorting out. Then I go to the accountant — it is too stressful for me to try to do the taxes on my own. He has gotten to the point of looking forward to my visits (he says) because he almost always has everything he needs to fill in the forms.

      This year should be interesting — first time in 30 years that we will not be deducting children!

  19. getagrip says 11 February 2013 at 12:35

    I run my tax numbers through my software in mid January before I get all the details. Generally you know from your last paystub, December bank statments, what you paid during the year, etc. what your ballparks are. Then I let it sit a while as the actual tax forms come in, then mid February I do the final run. It gives me a chance to have an idea of what I can expect as well as double check it with a fresh eye two weeks or more later than the first run.

    I know that you don’t want to necessarily wait on a refund, but I’d rather do that for a few weeks than correct a mistake. Additionally if I owe, I’ll know how much and just not send in until later in the year.

  20. Aryn says 11 February 2013 at 13:07

    I believe 22 hours includes the time it takes to gather documents. I’ve never had it take more than a few hours on a weekend to actually run it though the software. I spend a couple hours the weekend before gathering the various W-2s, interest statements, and printing and double-checking business expense statements. We have a tax folder that we dump everything into, so come filing time, it’s easy to just fish out the folder, print out what I need, and go. Definitely not 22 hours.

  21. Laura says 11 February 2013 at 13:07

    2013 taxes are done – I did it on Feb. 3 (and still had plenty of time to watch the Super Bowl).

    One major reason this is possible: our family income is all from two W2’s and interest income from savings (which totalled a whopping $25 this year). It would probably be wonkier if we had other income streams (which I’d like anyway, but we’re not there yet). But since our income is simple, the process is (relatively) simple.

    Throughout the year, if there are any tax-related documents that come my way (e.g., a donation statement), I scan it and put it in an e-folder marked Taxes-20XX (whatever the year is). I download my W2 and scan DH’s W2, and download mortgage-related documents. So I have everything on hand when I sit down one day with plenty of tea and hot chocolate (I don’t drink coffee) in front of the computer and fire up Turbo Tax.

    Although it kills me to pay $65 to file my taxes, it’s worth it to let Turbo Tax import all my info to fed and state forms. (Turbo Tax even flagged the PMI issue on our mortgage statement, and I got the right info to plug in.) I go slowly through the hundreds of questions, taking time to research as needed, and add the pertinent info. I usually have all the documents on hand, thanks to “Taxes-20XX”. Since our financial situation isn’t changing much from year to year (sadly), our taxes remain about the same.

    So far (knock on wood), I haven’t had to file any amended returns.

    We are those unholy people who allow Uncle Sam to hold our money in an interest-free loan. Since money is about mindset more than math, it’s worth it to us – we know we’ll always get a refund and will never have a tax bill, and after years of struggling to pay bills, the peace of mind is worth the $10 interest I’d miss from putting the extra money in a Big Box Bank (if I didn’t lose it from some stupid fee they charge). Plus we always have a large bill around the same time the refund arrives, thanks to the need to cover some summer program for DS (used to be summer day camp, now it’s a high school honors course at a local university that he wants to attend after graduation). This way, I know it’ll be covered instead of spent on some other problem.

    The rest of the refund will go in the emergency fund and house repair fund. It will be nice to have money there again. The new roof held up nicely after this past weekend’s blizzard.

  22. LeRainDrop says 11 February 2013 at 13:34

    I’m all ready to go except for one problem — I made a personal loan to family under a promissory note and need to report the interest income. I have the amount and know that it belongs in Section 1 of Schedule B, but in the TurboTax walk-through I can’t figure out where I should report it! I know that it technically would be wrong to report it with the 1099-INTs. The search for help feature is not helping. Grrr. Does anyeone know the answer? Maybe I’ll just do my taxes on my own without TurboTax.

  23. Jeff Skinner says 11 February 2013 at 15:10

    I used Tax Act On-line to file this year, as I have in the past. This is the first time there has been a mistake in their calculations. Fortunately it was only $3. I hadn’t noticed the mistake until I got a call from the Nebraska Department of Revenue. Tax Act figured the Sales Taxes on my On-line Purchases wrong for the Local Part. It was a 1.5% tax and they took out only $2 when it should have been $5. The Dept. of Revenue is sending a bill for the difference and it’s not big deal. Thing is, even though it was a small mistake I hadn’t checked to make sure all the calculations were right. Which is my mistake. Even if you are using Tax Software, you need to make sure everything is right before you hit the Submit Button and file electronically.

  24. Matt at Healthy N' Wealthy says 11 February 2013 at 15:17

    Sorry for the slightly off-topic rant, but the income tax should be replaced by a national sales tax. Why do we tax cigarettes in order to curb smoking and expect a different result when we tax earning?

    All of the time, resources, and money spent on taxes could be used in productive endeavors that actually raise our standard of living. All of those accountants, all those IRS agents, all of those tax advisors, etc. would be free (and forced) to satisfy another consumer demand. Sarah could have used those 22 hours to do something productive that would satisfy someone else’s demand, like another great blog post for us! Instead, she was forced by the government to spend that time and labor on taxes, which benefits no one.

    When it’s more profitable for GM and GE to hire accountants than to hire engineers, you know that our tax system is messed up. Taxes should be as low and as simple as possible.

    • Matt says 11 February 2013 at 15:49

      @ Matt @ HelthyNWealthy – Is this truly a serious proposal/question?

      A sales tax is by nature regressive (meaning it in effect taxes those who must spend most of their income on necessities more heavily than those who have more/disposable income). To replace our income tax system, we’d need a whopping federal sales tax – which would make it extremely difficult for many lower-income people to purchase what they need, which would in turn push even more people into the federal aid/welfare programs (unless we also raised the national minimum wage to a “living wage” – but that in turn varies by location).

      The base principles of our income tax system are not complex – all the exceptions we’ve built into it to encourage/discourage behaviors or reward certain industries make it complex.

      • Matt at Healthy N' Wealthy says 11 February 2013 at 16:20

        I agree that the exceptions/deductions/rewards etc. make taxes needlessly complex and often backfire,…but it’s the income tax that is regressive, not the sales tax. As for the poor spending on necessities, that’s easy: necessities, ie food, would be exempt. I know this is entirely unrealistic in today’s world, but that’s how backwards our economics/politics have become.

        By taxing income, the government is penalizing earning. If you’re poor and have no savings, earning is your only shot at building wealth. Also, by taxing income but not spending, this incentivizes people to borrow and spend more than if sales were taxed.

        If you tax consumption, then you penalize borrowing, debt, etc. all the things that we know, here at GRS, are bad. You also tax rich people who spend a lot. If they don’t spend the money, ie if they dont get to enjoy it, then they’re not penalized. When rich people don’t spend their money, it is available for lenders to lend out to small businesses, home buyers, etc. That’s what grows an economy.

        I did a blog post on why taxing the rich more actually hurts the poor.

        Here’s a link to a video by an economist talking about this:

  25. Julie says 11 February 2013 at 15:39

    For those rushing to do their taxes, remember that the mailing deadline for a Consolidated 1099 for investment activity is February 15th.

    • Kiernan says 11 February 2013 at 20:26

      That’s what I’m waiting for. I was surprised at how many commenters have been able to file their taxes already – maybe everyone invests with Vanguard? I got that 1099 early, but Fidelity waits till the last minute.

      This year is complicated – I had a big stock sale to help fund a new home, became a landlord, and established a home office. So far I think I’ve been able to navigate all the issues with TurboTax, but I will definitely be double and triple checking.

    • Sara says 14 February 2013 at 12:21

      Yes! My father runs a hedge fund and we need to wait for him to give us a K-1 every year, and he doesn’t get his info until Feb 15th. We don’t usually file until early March.

  26. Meghan says 11 February 2013 at 19:32

    Oh how timely this post is! I’m building a house and am in a temporary apartment, so while I waited to file until the end of January, right after it was accepted, my friend (who is getting my forwarded mail) brought a 1099 that I forgot about. D’OH! I thought I’d break even, but I was shocked by a $1720 refund. Now I’m going to get the refund and turn around and write a check for most of it to the IRS and to the state for the rest, plus some. I plan on amending the return and paying by April 15th so I don’t take a hit. Stupid Me! I’ll also keep better track for next year.

  27. Tushar @ Everything Finance says 11 February 2013 at 19:38

    Wow, that is a picky process. It’s too bad you can’t just correct an error without waiting for so long. It can’t be that efficient for the government, either.

    • Meghan says 11 February 2013 at 19:40

      Yeah, I’ll likely do it before April 15th, but now that the return is in the processing stage, I need to wait or I’ll screw with their system. God knows I don’t need to get stuck in that loop.

  28. Sara says 11 February 2013 at 23:41

    Taxes are not that a big problem if being paid on time, as I am a regular tax payer so in that way I don’t rush 🙂

  29. Jake says 12 February 2013 at 14:58

    I like the idea you have of coming back to it a few different days. Sometimes staring at the same screen for more than a few hours lulls your mind to sleep and you won’t notice something that you’ll notice the next day.

    Also, it is important to look at how much taxes are being taken out to see if they seem reasonable. By doing this last weekend, we found out my wife wasn’t paid the correct amount for a while in 2012 (I noticed because the tax % was so low) and they are now going to give us the difference back for their error. I’d like to think that a company’s paychecks are always correct, but that is just being optimistic.

  30. Timothy Mobley says 12 February 2013 at 17:34

    Very good points! One thing I tell everyone is triple check, triple check, triple check!

  31. Sara says 13 February 2013 at 16:53

    22 hours?! That seems like a lot. I set aside the better part of a day to do it, and I don’t time myself, but I’d say it takes me no more than 8 hours (and that’s for federal, state, and local). Good thinking on the checklist of forms — I’ve been doing this for years. I also have a tax folder for each year, so I have everything in one place when I start. I think those simple preparation steps save a lot of time.

    I always do my taxes as soon as possible after receiving all my forms — usually before the end of January — but I ran into a snag this year. I made my full Roth IRA contribution at the beginning of 2012, but I made more money than I expected and now I don’t qualify to contribute the full $5000. I had to send in a form for the brokerage to withdraw the excess contribution and now I’ll have to report the earnings on it as taxable income.

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