And that means you’ll be free to earn even more money doing other things – or just enjoying your life. Jeff Rose is a big advocate of passive income, and he even wrote an article outlining 28 ways to make it a reality.

But like all forms of income, passive income is generally subject to income tax. How is passive income taxed? Much of it will depend on the source (such as passive income apps), as well as the type of income it is. As we’re about to see, not all passive income taxed the same way.

What Makes Passive Income Passive?

The definition of passive income I’ve given in the introduction (and italicized) is very general. It may even be a bit misleading. We can take it a step further and say that it’s also often subjective.

Let’s start with this: getting an income source to the point where it becomes passive is often anything but passive!

Still, another gray zone in the definition is in the amount of effort put into the activity. This is also where the definition can become subjective.

For example, you might build a successful blog that earns you $10,000 per month. But you’ve moved it to a point where the blog earns that income with no more than about 50 hours of work per month on your part.

This is an example of what would best be considered a semi-passive income source. And let’s not forget the years you spent building up the blog, when you may have been working 60 to 70 hours per week to make it happen.

Semi-passive income sources are often lumped in with true passive income sources, which is where the passive income gray zone lies. As we’ll see in a moment, the IRS has very specific guidelines on passive income.

That’s why it’s important to understand the often subtle difference between a truly passive income source, and a semi-passive one.

9 Examples of Passive Income Sources

Let’s start with a list of truly passive income sources, the kind that requires no effort on your part whatsoever. (But we’ll ignore the reality that real effort went into creating or building these sources.)

True passive income sources include:

1. Interest-earning investments, like bonds and certificates of deposit.
2. Stock investments, either earning dividends or producing capital gains.
3. Direct real estate investing for rental income and long-term capital gains, or both.
4. Most types of real estate crowdfunding, like pass-through business entities, in which you earn income, but have limited liability and are not involved in management. These typically include partnerships, S corporations, and limited liability companies.

Semi-passive income sources (those requiring little effort on your part):

1. Buying or building a business that requires only minimal work from you to earn an income.
2. Renting out part of your home.
3. Selling products through affiliate marketing.
4. Creating a digital product, like an e-book or instructional course, that’s sold through affiliate marketing arrangements.
5. Buying and selling websites, domain names, and other digital property.

Each of these ventures will require some effort on your part, even if it’s only a few hours a month. But that participation, small as it may seem, is critical to the success of the venture.

Passive Income for Income Tax Purposes

For income tax purposes, the IRS has very specific guidelines as to what constitutes a passive income activity. It centers around the question of material participation.

It’s the deciding factor in passive versus non-passive income sources, at least according to the IRS.

The IRS defines material participation as follows:

You materially participated in a trade or business activity for a tax year if you satisfy any of the following tests:

• You participated in the activity for more than 500 hours during the tax year.

• Your participation was substantial in relation to the activity of all individuals for the tax year, including the participation of individuals who didn’t own any interest in the activity.

• You participated in the activity for more than 100 hours during the tax year, and you participated at least as much as any other individual (including individuals who didn’t own any interest in the activity) for the year.

• The activity is a significant participation activity, and you participated in all significant participation activities for more than 500 hours.
  
  A significant participation activity is any trade or business activity in which you participated for more than 100 hours during the year and in which you didn’t materially participate under any of the material participation tests, other than this test.

• You materially participated in the activity (other than by meeting this fifth test) for any 5 (whether or not consecutive) of the 10 immediately preceding tax years.

• The activity is a personal service activity in which you materially participated for any 3 (whether or not consecutive) preceding tax years.
  
  An activity is a personal service activity if it involves the performance of personal services in the fields of health (including veterinary services), law, engineering, architecture, accounting, actuarial science, performing arts, consulting, or any other trade or business in which capital isn’t a material income-producing factor.

• Based on all the facts and circumstances, you participated in the activity on a regular, continuous, and substantial basis during the year.

Clear as mud, right? If you’re having difficulty figuring out if you materially participated in a venture based on the seven criteria above, I strongly recommend you consult with a tax professional.

Special Considerations for Passive Real Estate Income

Direct investment in real estate is probably the most confusing form of passive income. Unless you turn the job of managing investment properties over to a real estate management company, investment real estate almost always involves some sort of effort on your part.

But most real estate investing is considered passive for tax purposes.

By contrast, if you participate in fix-and-flip real estate investing, which is really more of a business, it’s considered a nonpassive activity. This is because it’s a business in which you buy, refurbish, and sell properties for a profit.

But rental real estate, as a passive activity, enjoys certain tax benefits, including:

• The ability to write off expenses incurred in connection with producing the income.

• Depreciation, which is a non-cash expense that reduces your profit without cutting into your cash flow.

• Lower long-term capital gains tax rates on the sale of your property held for more than one year. We’ll cover this topic in more detail shortly.

• Qualified Business Income (QBI) deduction, also known as Section 199A. It allows eligible taxpayers to deduct up to 20% of their qualified business income (QBI), plus 20 percent of qualified REIT dividends and qualified publicly traded partnership (PTP) income.

These tax benefits are one of the major reasons why real estate is such a popular investment. In fact, within certain limitations, losses from rental real estate can be deducted from other income sources. (More on that in a bit.)

Reporting Passive Income on Your Income Tax Return

Like any other kind of income, passive income must be reported on your income tax return. And despite the tax advantages listed above, most passive income is taxed as ordinary income.

“Contrary to popular belief, passive income is taxed at ordinary income tax rates although it is sometimes possible to use deductions to reduce the liability,” reports Brennan S. Schlagbaum, CPA and host of the blog BudgetDog.com.

“One common misconception is that income made from investments is ‘passive income.’  While that is technically the case, that type of income is not deemed passive by the IRS; it is considered ‘portfolio income’ and taxed accordingly.

There is a level of complexity for the tax code when it comes to this type of tax.”

Where to Report Passive Income on Your Tax Return

How you report passive income on your tax return depends on the source. If you own rental real estate directly, you’ll report income and expenses on IRS Schedule E, and carry the results through to Form 1040.

If you live in a part of the property and rent out the other part, you’ll report income and expenses only from the rental portion.

Passive income earned from traditional investment sources, partnerships, S corporations, and limited liability companies (LLC) must be handled based on how they are reported by the issuing company.

For example, a bank or investment broker will issue form 1099 for interest income (1099-INT), dividend income (1099-DIV) and capital gains transactions (1099-B).

If you have income from a pass-through entity, like a partnership, S corporation or LLC, you’ll be issued IRS Form K-1. The advantage of this form is that it can reduce a complicated income situation to a very simple one.

It will break down exactly what’s considered passive income, ordinary income, portfolio income, and other information.

In each case, you’ll need to transfer the information from the 1099 or the K-1 to the appropriate line on your income tax return.

If you do have passive income, you can take advantage of the best tax software to include it on your return. Tax software, like TurboTax and H&R Block, can easily accommodate tax situations like passive income.

But if you have a particularly complicated tax profile, or you feel uncomfortable with the proper way to report passive income, be sure to take advantage of the services of a tax professional.

How Is Passive Income Taxed?

Typically, net income from passive income investments is reported as ordinary income. More particularly, that means it will be taxed at your regular income tax rate.

But there is a special category for capital gains income.

Capital Gains Tax: Long-Term vs Short-Term

Exactly how that tax works depends on whether it’s long-term or short-term. According to IRS rules, a short-term capital gain is one earned from an asset held for one year or less.

A long-term capital gain is one earned from an investment held longer than one year. That means an investment held for one year and one day qualifies as a long-term capital gain.

Short-term capital gains are taxed at your ordinary tax rate. Long-term gains, on the other hand, get the benefit of lower long-term capital gains rates.

Capital gain tax rates look something like this for the 2024 tax year:

• 0% for taxable income up to $47,025 for single filers, or $94,050 for married filing jointly. (The tax rate for most filers in this income range is 10% or 12% for ordinary income/short-term capital gains.)

• 15% for taxable income of between $47,025 and $518,900 for single filers, or between $94,050 and $583,750 for married filing jointly. (The tax rate for most filers in this income range is 22%, 24%, 32%, or 35% for ordinary income/short-term capital gains.)

• 20% for taxable income greater than $518,900 for single filers, and greater than $583,750 for married filing jointly. (The tax rate for most filers in this income range is 35% or 37% for ordinary income/short-term capital gains.)

As you can see, the tax benefit for long-term capital gains is substantial. A married couple filing jointly earning $100,000 in taxable income will pay 22% on ordinary income, but only 15% on capital gains. That can represent a savings of $7,000 in taxes on the sale of property with a $100,000 profit.

Not only can you earn long-term capital gains by selling an investment property, but they can also come from pass-through entities and REITs.

Passive Income Limitations

As a general rule, passive losses can only be deducted against passive income. For example, if one activity has a loss of $6,000 and another has a gain of $10,000, you can offset the loss against the gain, resulting in a net passive income of $4,000.

However, if the situation was reversed – if instead you had a net loss from the two activities of $4,000 – you would not be able to deduct that loss on your tax return. Unfortunately, passive losses cannot be used to reduce income from nonpassive sources.

But the IRS does allow you to carry the losses forward. For example, the same $4,000 loss in 2021 can be carried forward and deducted against a $10,000 passive gain in 2022.

This allowance is phased out at certain income limits. It’s reduced by 50% of the amount of your modified adjusted gross income (MAGI) that exceeds $100,000. At $150,000, the $25,000 allowance disappears completely.

At Risk Limits

Under at risk limits the IRS limits deductible losses to the amount of your investment in a passive activity. For example, if you’ve invested $10,000 in a passive activity that produces a $15,000 loss, only $10,000 of the loss can be deducted, and then only against other passive income.

Bottom Line on Passive Income Taxation

Passive income really is the best type of income. It can be earned while you’re busy doing other things – like earning more money. It also has more than a fair share of generous tax breaks, particularly in the area of long-term capital gains.

And if you’re a small investor, with a taxable income below $150,000, you can even use some or all your passive losses to offset income from non-passive sources.

But the benefits that come with those tax breaks will definitely add complication to how passive income is taxed. For that reason, be sure to take advantage of top-quality tax-preparation software. Or be ready to pay a little extra for the services of a qualified tax professional.

The post How Is Passive Income Taxed? appeared first on Good Financial Cents®.

Two available versions are the SEP-IRA and the Roth IRA. So, what are they? And, can you choose to have one or the other? – or even both?

In fact, a reader submitted this exact question:

Let’s dig down and take a closer look at the SEP IRA vs. a Roth IRA mystery.

The goal is to help you see the virtues – and disadvantages – of each so you can make an informed decision about which will be the right choice for you.

What Is a SEP IRA and How Does it Work?

A Simplified Employee Pension Plan, or simply “SEP IRA” for short, is part IRA, part pension plan. The IRA part is that it works much the way a traditional IRA does.

But the pension side is that if you own a business and have employees, you can include those workers in the plan.

The word “simplified” is included in the name because a SEP IRA is easier to set up and administer than traditional pension plans, like 401(k) plans.

A SEP IRA can be set up in just three steps:

1. Execute a written agreement to provide benefits to all eligible employees.

2. Give employees certain information about the agreement.

3. Set up an IRA account for each employee.

The last step requires some additional explanation. Unlike most employer pension plans, all participants are not included in a single plan.

Once the plan is established, each participant – you included – will have his or her own IRA account. The account can be set up with a bank, insurance company, or qualified investment broker.

Since a SEP IRA is an IRA, it can be self-directed and invested in any asset class not prohibited by the IRS.

You can also set up a SEP IRA for yourself alone, if you’re self-employed, and have no employees. But that will give you the flexibility to add employees should you decide to hire them later.

And the fact that you will be offering some sort of retirement plan be an incentive for people to work for you.

General Provisions of a SEP IRA

In most respects, a SEP IRA is like a traditional IRA on steroids:

• A SEP IRA can be established for a sole proprietorship, partnership,  corporation (S or C), or a limited liability company (LLC).

• Contributions are tax-deductible in the year taken.

• Contributions can be made from earned income only.

• You are not required to make contributions each year.

• Contributions must be made by the tax filing today, generally, April 15 (but including extensions).

• Investment income accumulates on a tax-deferred basis.

• Unlike other retirement plans, a SEP IRA cannot have a Roth provision.

• Distributions taken after reaching age 59 ½ are taxable as ordinary income.

• Distributions taken before reaching age 59 ½ are subject to ordinary income tax, plus a 10% early withdrawal penalty.

• Required minimum distributions (RMDs) must begin at age 73.

>> Related: SEP IRA Distribution Rules

SEP IRAs have an important tax benefit that doesn’t get a lot of attention, but it’s huge.

SEP IRA contributions are not subject to FICA (Social Security and Medicare) or federal unemployment (FUTA) taxes.

401(k) plans, for example, do not have the same advantage. You’ll pay both FICA and FUTA tax on your entire income, including your 401(k) plan contributions.

SEP IRA Contribution Limits

Traditional and Roth IRAs have a fixed annual contribution limit. This is not the case with a SEP IRA.

The maximum you can contribute to a SEP IRA is based on your income. You can contribute up to 25% of your net business income, up to a maximum of $69,000 for 2024.

“A SEP IRA is typically an appropriate structure for a small business, especially a single owner and allows for a contribution of up to 25% of an employee’s pay by the employer,”

advises Jacqueline Reeves, Managing Director of Bell Rock Capital LLC

“The SEP IRA contributions are before-tax. Depending upon the plan structure, SEP IRAs could permit employees to contribute like they would be able to a traditional IRA.”

But the contribution calculation isn’t quite as simple as taking 25% of your net income. Before applying 25% to your income, you must first deduct the amount of the contribution itself.

It’s confusing, of course, but the net result is that you’ll effectively be contributing 20% of your net income.

Let’s work out an example, assuming the maximum allowable income.

Your total compensation from your business is $305,000. If you multiply $305,000 by 25%, you get $76,250. But you’ll be limited to contributing no more than $69,000 for the year.

In reality, the calculation looks like this:

$305,000 net income, minus the $69,000 contribution = $239,000 X 25% = $59,750

So, if you’re looking for a quick calculation to determine your allowable SEP IRA contribution, just use 20% of your business net income.

My recommendation is that you hire a CPA to handle your income tax preparation if you have a SEP IRA. That’s especially true if you have employees participating in the plan.

There’s still another complication. In addition to deducting your own contribution to the SEP IRA before making the calculation, you must also reduce that income by one-half of your self-employment tax.

Yeah, hire a CPA!

What About Employee Contributions?

If your SEP IRA does include employees, you must use the same percentage of compensation for every employee participating in the plan. You, as the employer, will make the contributions – not your employees. But those contributions will be tax-deductible to you.

If you choose to contribute 25% of your income to the plan, you must contribute the same percentage to your employee’s accounts. Similarly, each employee will also be subject to the $69,000 maximum contribution (for 2024).

Contributions, when made by the employee, immediately become the property of the employee. There is no vesting requirement.

What Is a Roth IRA and How Does it Work?

Even though they’re both IRAs, a Roth IRA bears little resemblance to a SEP IRA. It’s much more like a traditional IRA, though with special provisions.

A Roth IRA is designed for individuals only. Though Roth provisions are permitted in certain types of retirement plans (not including SEP IRAs), they are more typically stand-alone individual accounts.

The maximum annual contribution is $7,000, or $8,000 if you’re age 50 or older.

But this is where the unique advantage of the Roth IRA enters the picture.

>> See: Best Places to Open a Roth IRA

Roth IRA Contribution Limits

Annual contributions to a plan are not tax-deductible. However, once you reach age 59 ½, and have participated in a plan for at least five years, you can begin taking withdrawals completely tax-free. That includes both the contributions you’ve made over the years and the income you’ve earned within the account.

Roth IRAs have another tax advantage over other retirement plans. Since plan contributions are not tax-deductible, they can be withdrawn prior to age 59 ½ with no income tax consequences. That means no ordinary income tax, and no 10% early withdrawal penalty.

The benefit applies to the contributions only, not to the income they earned within the plan. Early withdrawal of the income portion of your plan prior to turning age 59 ½ will be subject to ordinary income tax, and the 10% early withdrawal penalty.

Fortunately, the IRS allows you to first withdraw out of your contributions, then the income portion only once your contributions have been completely withdrawn from the plan.

This benefit is unique to the Roth IRA. That’s the reason some financial advisors recommend using the plan as a combination of emergency fund and retirement plan.

“The main attraction of a Roth IRA is the 100% tax-free withdrawal it offers,” points out Lyle Solomon, Principal Attorney at Oak View Law Group. “You can withdraw from a Roth IRA account anytime you want, as you have already paid taxes for the invested funds.

But keep in mind that you do have to pay a 10% tax penalty for withdrawals of any earnings on your investments unless you are older than 59 1/2. So, the easy accessibility of a Roth IRA also makes it an emergency fund.

Still, another benefit of a Roth IRA over a SEP IRA is that you do not have to start taking required minimum distributions after the age of 73.”

>> Related: Roth IRA Rules and Contribution Limits

Roth IRA Income Limits

Roth IRA contributions are permitted only up to certain income limits. For 2024, you are eligible to make a Roth IRA contribution up to the following income limits:

• Married Filing Jointly, or Qualifying Widow(ER): Full contribution up to a modified adjusted gross income of $230,000, gradually phasing out up to $240,000.

• Married Filing Separately, and You Lived With Your Spouse at Any Time During the Year: Reduced contribution permitted up to an income of $10,000, then prohibited.

• Single, Head of Household, or Married Filing Separately and You Did Not Live With Your Spouse at Any Time During the Year: Fully deductible up to an income of $146,000, then phased out at an income of $161,000.

The income limits are another area where the Roth IRA departs from a traditional IRA.

With a traditional IRA, income limits limit or eliminate your ability to make a tax-deductible contribution if you are covered by an employer-sponsored plan. But you can still make a non-tax-deductible contribution, even if you exceed those income limits.

Not so with the Roth IRA. Though you can have a Roth IRA with an employer-sponsored plan, you cannot make any contribution at all if your income exceeds the IRS limits shown above.

You can maintain a Roth IRA in conjunction with an employer-sponsored plan, including a SEP IRA. But the total contributions between the two plans cannot exceed $69,000.

Roth IRA General Provisions

The general provisions of a Roth IRA are very similar to a traditional IRA, other than the tax consequences.

Roth Ira’s = Tax-Free Money!

• Contributions are not tax-deductible in the year taken.

• Contributions can be made from earned income only.

• Your plan can be held in a financial institution of your choice and invested in any asset classes not prohibited by the IRS.

• You are not required to make contributions each year.

• Contributions must be made by the tax filing date, which is generally April 15. But that does not apply to extensions.

• Investment income accumulates on a tax-deferred basis.

• Distributions taken after reaching age 59 ½ are tax-free as long as you’ve participated in a Roth plan for at least five years.

• Distributions of the income portion of your plan taken before reaching age 59 ½ are subject to ordinary income tax, plus a 10% early withdrawal penalty.

• Roth IRAs are not subject to required minimum distributions (RMDs). You can literally allow them to continue to grow for your entire life.

SEP IRA Advantages

• You can make larger contributions than you can with a traditional or a Roth IRA. The maximum contribution for a traditional or Roth IRA is just $7,000, while the maximum for a SEP IRA is $69,000.

• Your contributions to a SEP IRA are deductible for FICA and FUTA taxes, in addition to federal and, most state income taxes.

• The plan can be set up to include employees.

• You can set up an individual plan as a sole practitioner, then add employees as you hire them.

• Each employee can maintain his or her own IRA account within the plan.

• Easy retirement plan to set up and maintain.

• A SEP IRA is a completely self-directed plan. You can open an account with any financial institution you choose and invest in any asset class not prohibited by the IRS.

• Contributions can be made as late as your tax filing date, or the tax extension date.

Roth IRA Advantages

• Withdrawals taken from a Roth IRA are completely tax-free once you reach age 59 ½ and have been participating in a Roth plan for at least five years.

• Accounts are self-directed and can be invested wherever you want, and in just about any type of investment.

• Since your contributions are not tax-deductible, they can be withdrawn before reaching age 59 ½. Ordinary income tax and the 10% early withdrawal penalty will not apply. This applies to contributions only, not to investment income amounts earned within your plan.

• You can have a Roth IRA, along with an employer-sponsored plan as long as the total contributions to all plans don’t exceed the IRS maximum limit.

• Roth IRAs are the only retirement plan not subject to required minimum distributions at age 73. You can keep your plan for your entire life.

>> More: 7 Roth IRA Secrets You Wish You Knew Sooner!

SEP IRA Disadvantages

• Since SEP IRA contributions are based on a percentage of your income (effectively 20%) you’ll need a net income from your business of at least $30,000 before a SEP offers larger contribution limits than a traditional or Roth IRAs.

• There is no catch-up provision if you’re 50 or older.

• Like most retirement plans, required minimum distributions apply to SEP IRAs, beginning at age 73.

• All eligible employees, if you have any, must be included in the plan, and you must make contributions on their behalf. The contribution percentage of their income must be identical to your contribution percentage.

• Even though it’s an IRA, a Roth provision cannot be added to a SEP IRA.

• Since the contribution calculation is complicated, you’ll almost certainly need to hire a CPA to prepare your income tax return.

Roth IRA Disadvantages

• Contributions to the plan are not tax-deductible.

• If you exceed IRS income limits for the plan, you cannot make Roth IRA contributions.

• The maximum contribution is limited to just $7,000, or $8,000 if you are 50 or older.

Can I Have Both a SEP IRA and a Roth IRA?

The short answer is a resounding yes! Though a SEP IRA cannot contain a Roth provision, you can have a SEP, and set up your own Roth IRA account.

In fact, having both plans in place at the same time will give you the benefit of a large tax deduction provided by the SEP IRA, along with tax diversification in retirement through the Roth IRA.

The Roth IRA will give you a source of tax-free income to supplement taxable income from other sources. That can keep you in a lower tax bracket during retirement when your income may be surprisingly higher than you expect.

“It is possible, and feasible, to have both a SEP IRA and a Roth IRA,” recommends Sallie Mullins Thompson, CPA/PFS, CFP, CDFA at Sallie Mullins Thompson CPA PLLC. “It’s my opinion that everyone needs a Roth IRA which should be funded to the same extent as tax-deferred retirement plans and which provides a tax-free source of income in retirement. Starting as early as possible with a Roth IRA is recommended since the earnings grow tax-deferred and are withdrawn tax-free, assuming all regulations are followed.”

Even if you qualify to make the full $69,000 contribution through a SEP IRA, plan to reduce the contribution and redirect $6,000 into a Roth IRA.

Bottom Line – Roth IRA vs Sep IRA

Though we’ve titled this article SEP IRA vs. Roth IRA, it really isn’t a competition. In truth, the two plans are completely complimentary. That’s the reason why you should have both.

The SEP IRA offers a very large contribution amount. That will not only reduce your taxes between now and retirement, but it will also enable you to build a very large retirement nest egg.

But a Roth IRA is truly one of the most generous retirement plans offered by the IRS.

It’s the only one that will both provide you with tax-free income in retirement and exempt you from required minimum distributions at age 73.

That last point is particularly important. One of the biggest concerns of retirees is outliving their money. Since you can keep your Roth IRA past age 73, and allow it to continue to earn and grow, it can serve as the retirement account of last resort as other plans become depleted.

You don’t have to choose between a SEP IRA and a Roth IRA – you can have both!

FAQs on SEP IRAs va Roth IRAs

The post Sep IRA vs Roth IRA: What’s the Difference? appeared first on Good Financial Cents®.

We’ve come up with a list of 15 of the best tax software programs available, evaluated based on capabilities, cost, ease of use, and other factors. Based on research by the Good Financial Cents team, we’ve determined that two clearly stand out from the crowd – TurboTax and H&R Block – but especially TurboTax.

File free with our top pick TurboTax

The Best Tax Software of 2024

We’ve selected 15 software programs that represent the most commonly used in the field, and rank them according to the criteria listed near the end of this guide. We heavily favor those at the top – that is, the top five.

The tax software field has gotten crowded in recent years, and while each may fill a specific niche, only a small handful will appeal to a large number of taxpayers.

Quick Comparison:

Platform	Best For	Price to File Federal & State	Get Started
	Best All-Around	$0	Start Filing
	If you need a human backup	$0	Start Filing
	Those looking for an overall finance checkup	$0	Start Filing
	Spanish speakers	$39.95	Start Filing

Here is our entire list of the best 15 tax software companies of 2024. Click through for detailed reviews of each company.

1. TurboTax
2. H&R Block
3. TaxAct
4. E-file
5. FreeTaxUSA
6. Liberty Tax
7. TaxSlayer
8. Credit Karma Tax
9. Jackson Hewitt
10. eSmart Tax
11. EzTaxReturn
12. Community Tax
13. 1040.com
14. OLT.com
15. DIY Tax

Reviews of The Best Tax Software Companies

1. TurboTax – Best All-Around

TurboTax takes the prize for the best all-around tax preparation software on our list. That’s not surprising, given that it’s the most popular in the industry.

Why it made the list: TurboTax is incredibly user-friendly. Even if you know nothing at all about preparing income taxes, the step-by-step, question/answer format requires only that you enter information when prompted. The software will handle everything from there. They’ll do an analysis that takes only seconds and will alert you if there are any errors. If not, it will move you forward in the process, all the way through completion and filing.

Another advantage is that they offer four different levels, ranging from the free filing plan for the simplest returns to their Self-employed version. You can also add TurboTax Live to each plan, which will give you access to either a CPA or an enrolled agent for the completion of your return. However, a TurboTax specialist is available any time you need extra help.

What holds it back: If TurboTax has a “weakness”, it’s price. As a premium software program, it won’t be your first choice if you’re looking for a low-cost tax-preparation option.

• See our full review of TurboTax.

TurboTax Pricing Plans:

• Free Edition: $0 for federal and state

• Deluxe: $40, plus $40 per state

• Premier: $70, plus $40 per state

• Self-employed: $90, plus $40 per state

TurboTax Live:

• TurboTax Live Basic (for simple returns): $50, plus $40 per state

• TurboTax Live Deluxe: $90, plus $50 per state

• TurboTax Live Premier: $140, plus $50 per state

• TurboTax Live Self-employed: $170, plus $50 per state

If you’re looking to save money on the cost of software, and you have a fairly simple return, you should investigate other options on this list. TurboTax is admittedly more suited to those with more complicated tax situations.

Start Filing With TurboTax Today!

2. H&R Block – Best for Transferring Your Return to Live Preparation

H&R Block is probably the best-known of all tax-preparation organizations. And though its tax-preparation software is first-rate, it’s best known for its extremely large network of tax preparers.

During the tax season, the company employs about 70,000 advisors in 10,000 offices throughout the country. The company’s name is practically synonymous with tax preparation.

Why it made the list: H&R Block’s tax-preparation software can give TurboTax a run for its money. And while TurboTax does offer TurboTax Live should you choose to turn your taxes over to a professional, H&R Block has tax pros available at any point in the process.

The service also gives you the ability to shift from one plan level to another. That includes everything from the free edition for the simplest returns, right up to the self-employed version designed specifically for small businesses and independent contractors.

What holds it back: You often can’t tell exactly which plan level you need when you start preparing your taxes. The discovery of an unexpected tax situation can require you to trade up to a higher-priced plan.

• See our full review of H&R Block.

H&R Block Pricing Plans:

• Free online: $0 for federal and state

• Deluxe online: $22.49 plus $36.99 per state

• Premier: $37.49, plus $36.99 per state

• Self-employed: $59.99, plus $36.99 per state

Much like TurboTax, H&R Block software may not be the best choice for someone with a simple return and looking for the lowest-priced service.

Start Filing With H&R Block Today!

3. TaxAct – Best Price Point for Complicated Returns

TaxAct is a worthy competitor to both TurboTax and H&R Block. It doesn’t have quite the functionality of those two headliners, nor is it as well known. But it can accommodate returns with all degrees of difficulty, and generally at a lower cost than what you will pay for the Big Two.

Why it made the list: TaxAct offers an accuracy guarantee of $100,000. That is, it will reimburse you for up to $100,000 for fines or other losses you sustain as a result of a mistake on your returns caused by TaxAct.

They’ll even refund the fee you paid for the software for the same mistake(s). You’ve gotta love a company that puts its money where its mouth is.

We should also disclose that both TurboTax and H&R Block, as well as other tax software programs, also offer reimbursement for errors that are clearly at fault. They just don’t put an impressive dollar figure on it.

It’s worth repeating that TaxAct generally costs less than TurboTax and H&R Block for comparable plan levels. From our perspective, that’s the single most compelling feature.

What holds it back: While TaxAct is a top-level tax software plan, it does fall somewhat short of TurboTax and H&R Block. Its main advantage is a lower price, but that comes at a cost of less live human assistance than the other two provide.

• See our full review of TaxAct.

TaxAct Pricing Plans:

• Free: $0 for federal and state

• Deluxe: $23.96 plus $39.95 per state

• Premier: $31.96, plus $39.95 per state

• Self-employed: $59.96, plus $49.95 per state

If you do have a complicated tax situation, it might be better to spend a little bit more and go with either TurboTax or H&R Block. The level of direct assistance each offers approaches that of having a CPA prepare your return.

Start Filing With TaxAct Today!

4. E-File – Best for First Time DIY

E-file doesn’t have as many features and tools as the tax software plans above, which actually makes it a good starter program if you’re looking to use software to prepare your return for the first time. In addition, the software is reasonably priced.

Why it made the list: The Premium Plus plan covers all deductions and credits, business income, and itemized deductions, for just $34.49 (plus $21 for filing your state return). This is much lower than the price of premium tax software versions provided by most other competitors.

We also like the fact that they charge just $21 for filing your state tax return, regardless of the plan level. This is well below the $29.99 to $39.99 commonly charged by other programs.

What holds it back: Unless you have an extremely simple tax situation, you’ll almost certainly need to sign up for the Premium Plus plan. For example, under the mid-level Deluxe Plus plan, your income cannot exceed $100,000.

The software also seems to be light on investment income accommodation. Customer support is also less generous than it is with other programs.

• See our full review of E-file.

E-file Pricing Plans:

• Free: $0 for federal and state

• Deluxe Plus: $19.49 plus $21 per state

• Premier Plus: $34.49, plus $21 per state

Like a lot of tax software programs, E-file will generally work better for those who have simpler tax situations. If yours is more complicated, you’ll be better served by biting the bullet and paying more for a higher-priced software.

Start Filing With E-File Today!

5. FreeTaxUSA – Best Nearly Free Software

FreeTax USA is “free”. They offer three different plans, Free, Deluxe, and Self-employed, and all are almost free. Deluxe does have a small fee, and you will pay just $12.95 for a state return on all three plan levels.

Why it made the list: We just cited the cost factor, with all three plans being offered nearly free of charge. That being the case, you may as well use the Deluxe plan, which adds live chat and priority support to the service.

The software uses the same question-and-answer format as other tax-preparation software, making it easy to use. And like other software, they also guarantee the accuracy of the final product.

If there are any errors resulting from the preparation of the software, the company will pay interest and penalties charged by the IRS.

What holds it back: The software doesn’t have the clean, user-friendly flow that other options on this list provide.

And unlike many of its competitors, this software provides only audit assistance and not direct representation before the IRS. They also assist you in dealing with state tax authorities. FreeTaxUSA offers two different versions, but even the Deluxe version doesn’t support all tax situations.

For example, it doesn’t accommodate foreign employment income, household employee taxes, or taxes for children with more than $2,000 in investment income. In addition, customer service is limited – primarily to email.

• See our full review of FreeTaxUSA.

FreeTaxUSA Pricing Plans:

• Free Edition: $0 for federal, plus $12.95 per state

• Deluxe Edition (comes with live chat and priority support): $6.99 plus $12.95 per state

• Self-employed Edition (includes freelancers, contractors, and sole proprietors): $0 for federal, plus $12.95 per state

• Prior Year Tax Filing: $0 for federal, plus $14.99 per state

Overall, FreeTaxUSA is a solid tax preparation software to use, as long as you don’t have one of the tax situations described in the previous paragraph that it doesn’t support. Also, if you believe there’s a chance you may be audited, this is not the software to use.

Start Filing With FreeTaxUSA Today!

6. Liberty Tax

Much like TurboTax and H&R Block, Liberty Tax offers the ability to have your completed return reviewed by a live tax professional. However, the cost of that review is included in your plan price. There’s no additional fee for the service.

Why it made the list: Liberty Tax offers their Double Check Guarantee. Much like H&R Block, Liberty Tax has an extensive network of tax preparation offices across the country.

Once you complete preparing your return online, you can bring it to a Liberty Tax office and have it reviewed by a live tax preparer before filing. This is a major advantage for anyone who has either a complicated tax return or prefers the assurance of having their self-prepared return reviewed by a set of trained eyes. Pricewise, Liberty Tax is roughly in the middle of the range.

What holds it back: Liberty Tax has limited import capability. While it will import W-2 information, other documentation, like investment income reports, can be more problematic. If you enter your W-2 information manually, it won’t automatically calculate your Social Security tax.

You’ll need to enter that information directly from your W-2. That’s not a major issue, but it does add an extra step to the input process. Since the software is a bit more cumbersome than many of the competitors, it might best be used by those who have a long history of preparing their own returns, and are familiar with how the final return should look.

If you don’t fit that description, you’ll be better served by trying another service.

• See our full review of Liberty Tax.

Start Filing With Liberty Tax Today!

7. TaxSlayer

That’s triple free as in free for your federal return, free for your state return, and free to file both. That gives TaxSlayer a major advantage over other tax-preparation software services that are free for federal preparation and filing, but charge a fee for state returns.

Why it made the list: The triple-free feature of this software guarantees it a place on our list. However, that’s true only of the Simply Free plan version. In all, TaxSlayer offers five different plans at different price levels. But even the Classic Plan, which will accommodate most taxpayers, is modestly priced at just $17, plus $29 for state returns.

But for an additional $20, you can select the Premium Plan, which comes with extra help from a tax expert. They’ll even throw in enrolled agents and IRS-certified experts to assist you in an IRS audit for up to three years after the IRS accepts your e-file.

But one of the features we like best about TaxSlayer is their Military plan. It allows active-duty military personnel to file their federal returns free of charge.

There’s still the $29 fee for state returns, but the plan accommodates all tax situations and even provides IRS inquiry assistance.

What holds it back: Though the company pitches its free tax preparation software, it’s available only for the simplest of returns. If you have any complications, you’ll need to use a paid version.

Customer service is a bit of an issue here too. It can take up to 48 hours to receive email responses to your questions since phone support is not available.

That can be a serious issue on April 14. If you prefer a service with live preparation assistance, consider choosing a different software.

• See our full review of TaxSlayer.

Start Filing With TaxSlayer Today!

8. Credit Karma Tax

Credit Karma Tax is best known as a free credit score provider. But they offer many other services, including their tax preparation software. And it’s free as in f-r-e-e. That means no premium programs and no upsells.

Why it made the list: With Credit Karma Tax, free doesn’t mean poor quality. It provides many of the services offered by paid software plans.

For example, you can upload your previous year’s tax return from other software, like TurboTax, H&R Block, and TaxAct. The software will even provide a final review of your return, and flag any sections that are either incomplete or in need of revision. The service even comes with an optional audit defense from a third party.

There, you can get help with audit-related questions, as well as get live representation before the IRS or state tax authorities. You can even get a voucher code that will make the audit defense free.

Meanwhile, Credit Karma Tax provides a guarantee that you’ll get the maximum refund, or they’ll refund the difference plus $100.

What holds it back: There’s a bit of a catch when it comes to the free tax preparation software. To take advantage of the offer, you’ll need to sign up for the Credit Karma Tax credit score service.

But since that’s free as well, there’s no cost there either. And if you don’t already have a free credit score service, here’s your chance to get one of the most recognized sources in the industry.

As you might expect, a completely free service won’t accommodate all tax situations. If you have any issues beyond the ordinary, you’ll almost certainly have to use another tax preparation software.

Start Filing With Credit Karma Tax Today!

9. Jackson Hewitt

If you’re looking for more than just tax preparation – like how to minimize your taxes in the future – Jackson Hewitt is the software you’re looking for. It’s another software that’s also part of a chain of tax-preparation offices across the country. They have almost 6,000 locations, including half in Walmart stores.

Why it made the list: Any tax preparation software that also comes with tax professionals in local offices deserves to be on our list. It doesn’t get any more convenient than being able to drop your return off at a Walmart location for preparation or review, while you’re shopping.

The face-to-face assistance also holds the ability to get a better handle on how to reduce your taxes in the future. The service offers easy step-by-step preparation, unlimited online support – including real-time access to customer service – as well as the ability to download your W-2 for automatic data transfer.

Also, if you’re a wage earner, have no more than $100,000 in taxable income, and take the standard deduction, you can file your return for free. They do have paid plans at a modest cost for more complicated returns.

What holds it back: You’ll need to use the Premier plan, at $49.99, plus $36.99 per state returns filed, even if you have common situations.

These include income over $100,000, itemized deductions, credits and deductions, self-employment, and rental property. We won’t say this software is top-of-the-line, but it will serve the needs of most taxpayers and at a modest price.

The only reservation is that you may want to look at one of the true free services if your return is even a bit complicated.

Start Filing With Jackson Hewitt Today!

10. eSmart Tax

Though eSmart Tax isn’t one of the better-known tax-preparation software programs – in fact, it’s probably near the bottom when it comes to recognizability – it’s actually part of Liberty Tax.

For that reason, you don’t have to worry that you haven’t heard of it. And because it’s part of that well-established tax-preparation organization, it also offers live support through eSmart Tax’s online interface. And its plans are available for about half what it would cost for a comparable plan with Liberty Tax.

Why it made the list: The modest cost of this software when combined with the availability of live support makes a strong case for including eSmart Tax on this list. But they also offer free tax preparation for the simplest returns (though they do charge $29.99 for state tax returns). And you can get live support even with the free version.

What holds it back: As a lower-cost software, eSmart Tax isn’t quite as robust as many of its competitors. As well, live support is offered by email and live chat, as there is no phone support available.

You might want to consider an alternative if you’re looking for top-of-the-line tax preparation software. In addition, if you feel the need for phone support, H&R Block and TurboTax are certainly better choices.

Start Filing With eSmart Tax Today!

11. ezTaxReturn

If Spanish is your preferred language, as it is for millions of Americans, ezTaxReturn may be your best option. This tax software is available in Spanish.

Why it made the list: The Spanish language availability certainly qualifies this tax software to be on the list. But it’s also an excellent choice if you want free or low-cost preparation.

You can file a simple return free, and even if it’s a little bit complicated, they offer a federal/state combination enabling you to file both returns for just $39.95. For $39.95, you can add audit defense protection to your plan. You can also purchase amended return insurance for an additional $9.95.

What holds it back: There’s one glitch with this software, and it’s that the free version is only available if you qualify for the earned income tax credit (EITC). Otherwise, you’ll need to purchase the premium version.

And though they provide secure return storage for three years free of charge, they do have a fee of $19.95 to provide a printed copy of your return by first-class mail. And unfortunately, unlike other software on this list, they do charge $19.95 for an amended return.

Many competitors offer this service for free. Also, the service does not offer state tax returns in about half the states in the country. This software is designed primarily for low-income filers, and mainly those who qualify for the EITC at that. You may be better served with a different software if your situation is different.

• See our full review of ezTaxReturn.

Start Filing With ezTaxReturn Today!

12. Community Tax

Community Tax is a tax debt relief service that also provides tax-preparation assistance. They use IRS tax records to account for your income and expenses, then analyze your return for errors.

Why it made the list: Millions of people have IRS debts, and their tax returns may require special handling as a result. If you have an existing tax debt, or you expect to have one when you file your return, Community Tax may be your go-to choice.

They offer a community of advisors and advocates to help you deal with your debt situation. You’ll complete a questionnaire, and the return will be prepared by an in-house tax professional, who will also serve as a power of attorney on your return in dealing with the IRS.

What holds it back: Community Tax isn’t tax preparation software. Instead, it offers enrolled agents and CPAs to provide guidance in the preparation of your return. You’ll be turning your return over to a company that specializes in tax preparation for those with tax debts.

If you don’t have a tax debt or at least one you can’t manage, you’ll be better served by using one of the other software plans on this list.

13. 1040.com

1040.com offers one plan, with a single flat fee. It doesn’t matter what your tax situation is, you’ll pay the same price for your return

Why it made the list: 1040.com charges $25 for any type of return, no matter how much you earn or what the source is. You can prepare both federal and state returns as part of that price, which includes email and live chat support access. You can even sign up for the service and use it for free.

You only have to pay if you’re satisfied with your return, and are ready to send it to the IRS. You can even pay the fee out of your refund, but that will require an additional $24.95. And you can purchase the audit protection package for an additional cost of $29.95.

What holds it back: The software isn’t the easiest to use, and it doesn’t work especially well for more complicated returns, such as those who are self-employed or own rental property. 1040.com will work best for those with moderately complicated returns. If you’re self-employed, have rental income, or have some other complications, look into another software on this list.

14. OLT.com

OLT.com is a free tax-preparation software, that also provides customer service and audit support for an additional fee.

Why it made the list: Just about any free tax preparation software deserves to be included on this list. But one that also offers low-cost audit support has an advantage that other free software programs don’t. Another advantage is that you can file a free federal return even if your tax situation is fairly complicated.

What holds it back: OLT.com isn’t as well known or as well recommended as the other tax-preparation software on this list. It’s a relative unknown, largely because it isn’t as user-friendly as other software. Even though the service is free for federal returns, we strongly recommend using other products on this list if your return is even a little bit complicated.

15. DIY Tax

DIY Tax provides competition for Credit Karma by offering truly free tax preparation software.

Why it made the list: “Free” is a compelling reason to include any tax preparation software on this list.

What holds it back: There isn’t much information available about this service. Even the company website is thin on information. The service is so free that they don’t even offer add-on services, like audit defense. We’re skeptical that we don’t see an income model attached to the service.

For example, other services offer a free version only on the simplest returns. But they earn their revenue on the more complicated returns.

And while Credit Karma is a free service, it requires signing up for their credit score monitoring service, which generates ad revenue for the company. No revenue leaves us concerned the service won’t be around too long – or it may no longer be free.

DIY Tax is ranked #15 because we believe you should consider any of the previous 14 choices before settling on this one.

What You Need to Know About Your Tax Online Preparation Options

Though we’ve provided this list of the best tax software programs, and even indicated which each provider is best for, it’s hardly true that DIY tax preparation is right for everyone. That’s true even with tax preparation software.

Who Will Tax Software Work Best For?

• Those with simple or fairly simple tax situations, who don’t want to pay professional taxpayers hundreds of dollars to do the job.

• Taxpayers with conventional tax situations, such as a single business, one or two rental properties, or ordinary investment activities.

• Those with some general understanding of filing tax returns, other than those with the simplest tax situations.

• Anyone who’s been using tax preparation software in the past. It’s always easier to go with what you already know that the start something completely new.

None of this is to imply that you need a deep knowledge of income tax preparation to use DIY tax software. Most will walk you through the process methodically, using a question-and-answer format, where you simply need to input the required information.

The software will do all the organizing and calculating for you, and even let you know where there may be errors or miscalculations. Though the free versions are certainly attractive, realize they’ll only apply to those with the simplest tax situations.

In most cases, they’ll only be available if you have a total income under $100,000, earn income strictly from W-2s, interests, and dividends, and don’t need to itemize your deductions.

When to Pay a Professional

There are situations when you may need to go with a paid tax preparer:

• When you have a very complicated return, such as multiple business interests, several rental properties, significant international transactions, and other complexities

• When you’ve been audited in the past, and/or there’s a reasonable likelihood it’ll happen in the future

• If your return is complicated, and you lack either the time or the motivation to do your own taxes

Even with tax preparation software, complicated tax situations can be quite involved and time-consuming. You’ll need to measure the cost of DIY tax prep versus other uses of your time (like earning more money).

How We Chose the Best Tax Software Programs

Our Selection Process Was Based on the Following Factors:

• The ability of a service to accommodate the most complicated returns

• Cost

• Ease of use

• Availability of customer support

• Availability of help, review, or completion of a return by a tax professional

• Ratings and reviews by third-party sources

As much as we use the above criteria in an attempt to be objective, your own evaluation of any software on this list will be based on which is most likely to work best in your particular tax situation.

For example, while we feel TurboTax is the best tax software program overall, you may prefer a lower-priced software with more limited capabilities. Our evaluation is based primarily on the benefits we believe will appeal to the largest number of potential users.

Final Thoughts on the Best Tax Software Programs

Tax software programs have come a long way in just the past few years. Not only can they accommodate many more tax situations, but some have become incredibly user-friendly.

Even if you know nothing at all about preparing taxes, a good tax software program can guide you through the entire process, and enable you to create a professionally prepared return in a very short amount of time.

If you need to work with a professional tax preparer, not only will you pay a much higher fee, but you’ll also have to wait for the preparer to have your return completed. By going the DIY route with tax preparation software, you can prepare your taxes on your own schedule.

And that can lead to a faster refund. Even if you’ve never prepared your own tax returns in the past, you should give one of these software programs a try. Unless your tax situation is particularly complicated, you’ll quickly embrace the ease, speed, and cost-effectiveness of these programs.

The post Best Tax Software Programs for 2024 appeared first on Good Financial Cents®.

The best tax relief companies provide valuable services for consumers who find themselves in trouble with the Internal Revenue Service (IRS) or their state tax authority. These firms can help you figure out your best strategy moving forward, including which programs you qualify for to help reduce taxes and any penalties you owe.

For the purpose of this guide, we compared dozens of tax relief companies to find the best of the best. Not only did we compare services offered, but we pored over third-party reviews and rankings, investigated any guarantees these companies advertise, and checked their websites for overall transparency.

Community Tax came out ahead of the pack due to its personalized tax relief services, excellent reviews, and A+ accreditation with the Better Business Bureau (BBB). Community Tax also offers a free consultation and a 100% money-back guarantee.

Get Started With Community Tax

However, we also feel we can recommend several other top tax relief services that offer similar services, including Anthem Tax Services, Optima Tax Relief, Urgent Tax Help, and more.

If you are struggling with debts to the IRS due to federal income taxes you owe and you need third-party help to find a resolution you can live with the best tax relief companies might be your best hope. Below you’ll find a further explanation of our ranking along with individual reviews of each of the tax relief companies that made the cut.

Most Important Factors When Choosing a Tax Relief Company

As you compare tax relief companies, it’s crucial to understand the type of help they offer as well as any guarantees they have. Keep an eye out for hidden fees, as not all companies are transparent about them. Read reviews, look at results, and pay attention to the following factors:

• Assistance Offered: You may need assistance with a tax levy or wage garnishment, or it’s possible you need tax relief services to help you negotiate a settlement for less than what you owe. Some companies specialize in one area of tax relief, so make sure to choose a firm that offers the type of help you need most.

• Money-Back Guarantee: The top tax relief services tend to provide a money-back guarantee that ensures you’ll get the results you need. We recommend checking companies for this type of guarantee before you commit.

• Free Consultation: The best tax relief companies also offer a free consultation that gives consumers a chance to receive instant advice on their situation. This initial consultation is also a good time to ask questions and gain insights into your next best steps.

• Minimum Debt Requirements: Also note that some tax relief firms require a minimum amount of tax debt to get started, although other factors may be considered as well. If you don’t owe a lot, some of the tax relief companies may not be able to work with you. Also, be aware that many tax relief companies offer a form on their website that you can fill out to see if you qualify upfront.

The Best Tax Relief Companies of March 2024

The best tax relief help is attainable, flexible, and easy for consumers to access. We compared all the top companies to find firms that promise tax relief services and deliver on a consistent basis. If you’re struggling with overdue taxes and need help figuring out what to do next, we suggest starting your search with the companies we highlight below.

Company	Highlights
Community Tax	A+ Rating from BBB 100% Money-Back Guarantee Free Consultation Accredited by Consumer Affairs	Get Started
Anthem Tax Services	A+ Rating from BBB Multiple Accreditations	Get Started
Optima Tax Relief	A+ Rating from BBB Free Consultation 15-day Money Back Guarantee	Get Started
Tax Hardship Center	A+ Rating from BBB Free Consultation Great User Reviews	Get Started
Victory Tax Lawyers	Free Consultation with Tax Relief Lawyers	Get Started
Urgent Tax Help	Free Consultation	Get Started
Complete Tax Debt	A Rating from BBB Free Consultation	Get Started
Landmark Tax Group	Free Consultation 15-day Money Back Guarantee	Get Started

Which Companies Didn’t Make the Cut

Tax relief services can be immensely helpful if you’re struggling to resolve a stressful tax situation. However, you should make sure to avoid tax relief companies that promise the world and don’t deliver.

The Federal Trade Commission (FTC) warns that many tax relief companies make false claims and take money upfront, but then fail to take the steps to resolve their client’s tax debts on their behalf. That’s why we only looked at companies that receive excellent third-party rankings and reviews, as well as companies that have exhibited their ability to resolve tax debt for clients.

Reviews of the Best Tax Relief Companies

Ready to compare all the top tax relief services? The reviews below explain each company’s offerings as well as any advantages you can gain by seeking out their services. We’ll also go over any major downsides you should be aware of as you compare each firm.

Community Tax

Community Tax offers tax relief help for consumers who are receiving letters from the IRS, having their wages garnished, or having a lien placed against their property. The company is accredited by Consumer Affairs, and it also boasts an A+ rating with the BBB.

Get Started With Community Tax

Why It Made the List: This company promises a free consultation that can help you determine potential resolutions before you commit. They also offer a 100% money-back guarantee for their services.

What Holds It Back: Community Tax has excellent rankings from third-party reviewers, but they don’t explain the specific tax resolution services they offer clearly on their website.

Anthem Tax Services

Anthem Tax Services offers a tailored tax resolution service that can help you resolve old tax debts and settle for less than what you owe. Services offered include Offer in Compromise (OIC) assistance, tax resolution help, tax preparation services, garnishment and levy rescue, and more. They can also help you negotiate and set up a realistic payment plan with the IRS without the need for garnishments or bank levies.

Get Started With Anthem Tax Services

Why It Made the List: Anthem Tax Services has resolved millions of dollars in tax debt for clients, and this firm still holds an A+ rating with the BBB. They’re also accredited by the National Association of Tax Professionals (NATP), the California Tax Education Council (CTEC), the National Association of Enrolled Agents (NAEA), and more.

What Holds It Back: This firm doesn’t offer any information about the cost of its services on its website. To find out how much you’ll have to pay for help, you’ll need to fill out their contact form or call in to speak with a qualified tax professional.

Optima Tax Relief

Optima Tax Relief is yet another tax relief service that receives excellent reviews from users and has an A+ rating from the BBB. This company claims to have helped resolve over $1 billion in tax debt to date, and they offer all the traditional tax resolution services consumers typically seek. This includes Offer in Compromise, tax lien discharge assistance, bank levy release, assistance with installment agreements, and more.

Get Started With Optima Tax Relief

Why It Made the List: Optima Tax Relief offers a free consultation and a 15-day money-back guarantee for their services.

What Holds It Back: The money-back guarantee this company advertises is only good during the “investigation phase” and no longer applicable once the company begins working to resolve your tax debts.

Tax Hardship Center

The Tax Hardship Center boasts an A+ accreditation from the BBB as well as many five-star reviews on user review sites like Trustpilot. This company offers popular tax resolution help with Offers in Compromise (OIC), installment agreements, tax audit representation, penalty abatements, and more.

Get Started With Tax Hardship Center

Why It Made the List: Tax Hardship Center makes it easy to answer a few questions online to see if you qualify. They also offer a free consultation with a qualified, in-house tax professional.

What Holds It Back: Like other tax relief firms, the Tax Hardship Center doesn’t offer any information on their pricing or plan costs. While this is common among tax relief services, it’s still a major downside.

Victory Tax Lawyers

Victory Tax Lawyers is a tax relief firm that helps individuals and corporations settle unresolved and problematic tax debts. They help their clients set up installment agreements, tax lien resolutions, Offers in Compromise (OIC), tax levy resolutions, and more.

Get Started With Victory Tax Lawyers

Why It Made the List: Victory Tax Lawyers offer a free consultation that can help you figure out your next best steps. Also, note that all consultations and tax relief help come directly from tax relief lawyers.

What Holds It Back: Unlike other tax relief services that made our ranking, Victory Tax Lawyers does not offer any sort of money-back guarantee.

Urgent Tax Help

Urgent Tax Help promises assistance from a team of tax attorneys and specialists who have years of experience resolving problematic tax debts. They offer an array of services, including the resolution of liens and wage garnishments. They can also assist you as you apply for the IRS Fresh Start Program, apply for a penalty or interest abatement, and more.

Get Started With Urgent Tax Help

Why It Made the List: This company offers a free consultation for clients who want to talk over their options before they commit.

What Holds It Back: This firm doesn’t advertise a money-back guarantee of any kind, unlike some other tax relief services that made our ranking.

Complete Tax Debt

Complete Tax Debt is another tax relief service to consider if you are hoping to resolve your tax liabilities for less than what you owe. This company features an A rating with the BBB, and they promise to get you back on track toward compliance with the IRS.

Get Started With Complete Tax Debt

Why It Made the List: Complete Tax Debt offers consumers a free consultation and tax analysis with a qualified tax professional without any obligation to pay for services.

What Holds It Back: Complete Tax Debt offers scarce information on its website about the exact tax relief services it offers. This means you’ll have to complete a free consultation to find out which tax remedies they suggest and assist with.

Landmark Tax Group

Finally, don’t forget to consider Landmark Tax Group for personal or corporate tax debt relief. This firm offers services like the Offer in Compromise (OIC), relief for penalties and interest, and assistance with overdue payroll taxes. They also offer a bounty of information and resources on their website that can help you do some research on your own.

Get Started With Landmark Tax Group

Why It Made the List: Landmark Tax Group has some of the best resources for tax relief on its website. This company also offers a free, no-obligation consultation that can help you decide if this is the company for you, as well as a 15-day money-back guarantee.

What Holds It Back: This company doesn’t appear to be registered with the BBB, nor do they have many media mentions. This is likely due to the fact this company was founded fairly recently, in 2012.

What You Need to Know About Tax Relief

Tax relief is a tricky industry where companies don’t feel obligated to be transparent when it comes to the fees they charge. That’s why it’s crucial to compare companies based on their reviews, their results, and their overall integrity.

There’s nothing wrong with paying out-of-pocket for help with tax relief since you could easily save thousands of dollars if your debts are settled for less than you owe. However, you should be careful to only work with reputable companies that know what they’re doing.

Here are some other important industry issues you should know about:

There Are Many Strategies Used to Resolve Tax Debt on Both the State and Federal Level

First, it’s important for consumers to understand that there is more than one way to resolve tax debt issues, just as there are myriad tax problems that may need resolving. One of the most common tax relief solutions is the Offer in Compromise (OIC), which is a strategy used to help you settle your tax debts for less than you owe. However, tax relief help comes in many forms, and not all consumers will qualify for OIC. Other strategies tax relief companies might suggest include IRS installment plans and negotiations to remove or reduce wage garnishments and tax levies.

Tax Relief Scams Are Common

The Federal Trade Commission (FTC) warns that scams are rampant within the tax relief industry and that consumers need to be careful before they sign up for this type of help. Some tax relief companies charge pricey upfront fees but never take any steps to help resolve your debt, they note.

Other companies promise access to programs consumers can’t even qualify for. Make sure you know the company you plan to work with is reputable, and that they have a long history of qualified customers.

The IRS Offers Its Own Plans That Can Help You Resolve Tax Debt

Consumers should also be aware that they don’t have to seek third-party help in order to resolve tax debt. The IRS offers its own plans that can help consumers directly, including installment agreements and the Offer of Compromise.

While tax relief companies can assist you as you apply for these programs, the IRS Fresh Start Program has made it easier for consumers to set these programs up themselves. Also, note that you can even negotiate your own penalty abatement with the IRS if you can prove financial hardship.

You Can Take Part in a Free Consultation With More Than One Company

While many of the best tax relief companies offer a free consultation, don’t forget that you can take advantage of this perk more than once. Consider speaking with several firms that offer tax relief help in order to hear more than one viewpoint and set of potential solutions. Free consultations can also help you find out which companies you feel most comfortable with, as well as compare pricing and fees.

How We Chose the Best Tax Relief Services

Tax relief companies definitely have a bad rap due to all the scams the worst players try on consumers, but there are plenty of reputable companies to choose from. We compared all the top tax relief services to find ones that offer high-quality assistance that helps consumers resolve their tax debts so they can move on with their lives. Here are the main criteria we considered in our ranking:

Free Consultation

We feel very strongly that tax relief companies should offer consumers a free consultation. As a result, we prioritized firms that offer this benefit above all others. A free consultation is recommended and crucial for you to take part in before you give one of these firms access to your financials as well as financial compensation.

Money-Back Guarantee

We also looked for tax relief companies that offer a money-back guarantee, preferably one without a lot of fine print. A money-back guarantee can provide peace of mind as you begin the process, and it can ensure you’ll get your money back if the tax relief help you were offered doesn’t play out as promised.

Reputation and Reviews

We also considered rankings from third-party companies like the Better Business Bureau, as well as user reviews from Trustpilot and Consumer Affairs. Companies that are affiliated with the National Association of Tax Professionals (NATP), the California Tax Education Council (CTEC), the National Association of Enrolled Agents (NAEA), and other professional organizations also received high marks.

Summary: The Best Tax Relief Companies of 2024

Company	What It’s Known For
	Free Consultation and Money-Back Guarantee	Get Started
	Accreditation and Professional Affiliation	Get Started
	Free Consultation and Money-Back Guarantee	Get Started
	Free Consultation	Get Started
	Help from Tax Lawyers	Get Started
	Free Consultation	Get Started
	Free Consultation	Get Started
	Free Consultation and Money-Back Guarantee	Get Started

The post 8 Best Tax Relief Companies of 2024 appeared first on Good Financial Cents®.

First and foremost, it’s decentralized. It’s not issued by a bank or subject to the control of the central bank, the way fiat currencies like the U.S. dollar or the euro are.

Second, transactions are fast and simple. That’s because they move between individuals, not institutions.

And third, crypto transactions are cheaper because there is no middleman collecting a fee.

Cryptocurrency and Taxes

But there was another quality to cryptocurrencies that seemed particularly…intriguing. Since cryptocurrency isn’t regulated and doesn’t pass through the usual bureaucratic chain, it just might be the perfect payment system to avoid income taxes.

At least, that was the thinking at the time, and there was some merit to it. After all, cryptos were a mere bug on the wall of the financial universe. They were barely drawing any attention from the tax authorities, especially the IRS.

But that was a long time ago, at least in terms of modern investing, and much has changed. Cryptos have grown in popularity and value, and they’ve gone mainstream. Prices for Bitcoin are now tracked and reported regularly by the major financial media.

More important, cryptocurrency is no longer being ignored by the IRS. That being the case, you’ll need to be aware of the impact of taxes on your cryptocurrency transactions.

Even though the IRS treatment of cryptos is still evolving, it should now be obvious that the Tax Man is actively tracking crypto activity. The best strategy for crypto investors is to become educated and be ready to play by the rules.

But what are those rules?

As I said, the IRS is still developing strategies for handling crypto transactions. But before we get into the questions, I need to advise you that I’m a certified financial planner, not a CPA or tax attorney.

That means I’m not an expert on taxes, so you’ll want to consult a tax professional with any questions specific to your personal circumstances.

With that said, I’m going to do my best to spell out what we do know about the IRS treatment of crypto transactions, at least up to this point.

Let’s cover seven common cryptocurrency questions.

7 Common Cryptocurrency Tax Questions

1. Are My Cryptocurrency Transactions Taxable, and Do I Need to Report Them to the IRS?

I’ll get right to the point—absolutely! The IRS has even gotten serious about targeting undeclared crypto earnings. They initiated a program—Operation Hidden Treasure—to track down crypto activity. And they are warning taxpayers that crypto transactions are not anonymous.

If your crypto trading is taking place on an IRS-compliant broker, like Robinhood, you’ll receive a 1099-B from the broker reporting your crypto activities.

But let’s say you’re using an exchange, one that is not IRS compliant and doesn’t provide a 1099-B. You should know that you are not relieved of the tax liability. You’ll need to keep your own records of crypto transactions and report them to the IRS.

Just as you would with the profits on the sale of securities, like stocks and bonds, you’ll need to report and pay tax on any gains on the sale of cryptocurrency. They’ll need to be reported on your tax return.

You can report them on Schedule D, Capital Gains and Losses when you file your individual income tax return.

I’ll get into how much you’ll owe on your crypto capital gains in Question #3 below.

2. Do I Have to Pay Tax on Increases in the Value of My Cryptocurrency if I Don’t Sell It?

Nope, no taxes are due because no gains are realized or recognized—for tax purposes, at least—until the asset has been sold. All that has happened is an increase in the market value of your crypto, which is not taxable.

3. How Much Tax Will I Owe on a Gain?

The answer to this question will depend on whether the gain is the result of a short-term capital gain or a long-term capital gain.

Short-term capital gains are gains on the sale of securities or other assets that occur in one year or less. Long-term capital gains are those that occur in more than one year.

That’s an important fact to be aware of because the tax rates for short-term gains are much higher than they are for long-term gains.

Long-term capital gains have a maximum rate of 20%, and that’s only if your income is greater than $441,450 if you’re single or $496,600 if you’re married, filing jointly.

But if your income is less than $80,000 per year, you may owe zero capital gains tax (amounts over $80,000, but less than the threshold above, are generally taxed at 15%).

Short-term capital gains are subject to your ordinary income tax rate. Depending on your income, that can be anywhere from 10% to as much as 37%.

That doesn’t necessarily mean short-term capital gains are a bad situation. You’re paying tax on a profit. You’ll pay tax based on your highest marginal tax rate. I would have to pay 37% based on my tax bracket. But I’d rather take the profit and pay the tax than take a loss.

4. What Is the Tax Treatment if I Am Lending Online Cryptocurrency?

The income you earn from lending cryptocurrency is treated like interest for tax purposes. This is similar to the interest you can earn on high-yield savings accounts. It will be entered on your income tax return and taxable at ordinary income tax rates.

5. Can I Reinvest My Cryptocurrency Gains to Defer Capital Gains Taxes?

The IRS does have provisions for like-kind exchanges that enable you to defer capital gains. A 1035 exchange applies to life insurance policies and annuities, while a 1031 exchange can be used for real estate.

Basically, either exchange enables you to replace one asset with a comparable asset and defer taxes until the second asset has been sold.

But this is not the case with cryptos. You’ll need to pay tax on any gains you earn, regardless of what you do with the proceeds.

6. Will the IRS Know About My Cryptocurrency Activities?

Big Brother is always watching! Even if you’re trading crypto on a non-IRS-compliant exchange, the IRS will still know you’ve invested money in that exchange when you transfer money from your U.S. bank account to the exchange.

Large or frequent transfers can tip them off that you’ve been very active with crypto investing. Cryptocurrency isn’t nearly as anonymous as it was when it first came out. As it’s grown in popularity, the IRS and other government agencies are increasingly tracking the activity.

7. What if I Exchange My Cryptocurrency for Another One – Do I Still Owe Tax?

This can happen if you exchange, say, Bitcoin for Dogecoin or Ethereum or for one of several different stablecoins.

Let’s say you buy Bitcoin for $10,000, and it rises to $50,000. You then exchange your Bitcoin for an equivalent amount of Ethereum. Unfortunately, that is a taxable event.

Even though the crypto universe views it as an exchange between two cryptos, the IRS will see it as selling one crypto for another.

You’ll need to recognize a taxable gain in your Bitcoin of $40,000, which is the $50,000 sale price, less your $10,000 initial investment. Whether you sell the Bitcoin for U.S. dollars or for another crypto, you’ll need to declare the gain on the Bitcoin sale.

Miscellaneous Crypto Tax Questions

While I was addressing the questions above, I thought of a few more that might be helpful in handling your crypto trades for tax purposes.

What Is the Order of Cryptocurrency Sales of Multiple Crypto Purchases?

For example, let’s say you bought Bitcoin when was $3,000, then again when it was $50,000. The price goes to $60,000, and you decide to sell. Is the gain based on the $3,000 purchase or the $50,000 purchase?

For tax purposes, gains are recognized on a first-in, first-out (FIFO) basis. That means the gain would first need to be recognized on the $3,000 purchase, which would, of course, result in a much larger capital gain at $57,000 ($60,000 − $3,000).

The sale of the $50,000 purchase at $60,000 would result in a $10,000 capital gain. But the gain on the $3,000 purchase would need to be recognized first.

Do the Tax Rules for Crypto Exchanges Change if the Exchange Is for a Stablecoin?

Stablecoin is a type of crypto where the value is tied to the dollar or some other recognized world currency. That’s why these coins are referred to as stable.

The same rules apply to the exchange of any crypto for stablecoin as they do for exchanging for another crypto. You’ll need to recognize the gain on the sale of the crypto at the time of the exchange for the stablecoin.

Once again, it doesn’t matter if your crypto is sold for cash or exchanged for another crypto. The gain on the crypto you’ve disposed of will be taxable.

Is There Any Difference Between Buying and Selling Crypto With a Broker Like Robinhood, Which Doesn’t Have Its Own Digital Wallet, and Through a Crypto Exchange That Does?

Whether you sell crypto through a broker or an exchange—even one based outside the U.S.—doesn’t change the tax consequences of the transaction. All the rules stated above will apply.

The main difference is that a broker like Robinhood, which is US-based and therefore US tax compliant, will issue a 1099-B, while the noncompliant crypto exchange will require that you maintain records and report your transactions from those records.

It won’t matter because wash-sale rules don’t apply to cryptocurrency since it’s considered property and not financial security.

Speaking of the wash-sale rule…

The Wash-Sale Rule: The Crypto Trader’s Best Friend

Up to this point, I’ve been covering the tax consequences of cryptocurrency transactions. But there is a huge tax savings available with cryptocurrency that you can’t get anywhere else. And the benefit is incredible. I had to do deeper research to make sure it was true.

The tax savings are called the wash-sale rule. Basically, if you buy a security and it drops in value, you can sell it at a loss. But you can’t buy the same or equivalent security within 30 days of the sale of the original security (or within 30 days before the sale). If you do, the capital loss will be disallowed.

But as it turns out, wash-sale rules don’t apply to cryptocurrency. Because the IRS classifies cryptocurrency as property rather than as a financial security, wash-sale rules don’t apply, or at least this is the current interpretation.

How Does That Benefit Cryptocurrency Investing?

Bitcoin has taken a dive in recent months. Let’s say you bought $50,000 worth of Bitcoin back in March, which is now worth $30,000. You can sell it today and lock in a $20,000 capital loss.

That capital loss can be used to reduce future capital gains. Under IRS regulations, you can deduct capital losses against capital gains.

If you use the $30,000 proceeds from the sale of Bitcoin to purchase another cryptocurrency, up to $20,000 in gains on those investments will be shielded from taxes.

The volatility of cryptocurrency creates opportunities. At any point, one crypto is going down while another is going up. If you sense it’s time to get out of one and into another, this wash-sale loophole is a big deal. It’s a way of creating tax-free gains from your losses.

Capital Loss Carryforward

Even if there are no crypto capital gains to apply the capital losses to, you can still get a benefit from those losses.

If losses for the year exceed gains, you can still deduct up to $3,000 in capital losses for that year. When the losses exceed $3,000, you can carry them forward into subsequent tax years and deduct them against income earned in those years.

If there are no capital gains in future years, you can continue to deduct $3,000 in capital losses each year until your capital losses have been fully written off on multiple tax returns.

Tracking Your Cryptocurrency Trades

You need to come up with a strategy to track your trading activity, especially if you’re a frequent trader. Personally, I haven’t received a 1099 from any place where I’ve traded cryptos, so tracking and reporting still seem to be something of a gray zone.

cryptos, so tracking and reporting still seem to be something of a gray zone.

You’ll need to use specialized software to help you track your transactions, especially if you’re trading on a non-compliant exchange that doesn’t issue Form 1099-B.

A Final Word of Advice on Cryptos and Taxes

The last piece of advice I want to give is that you should consult a professional tax advisor if you have any questions, especially if you’re an active trader.

I’m trying to make the discussion of cryptos and taxes simple, but it is potentially complicated. The IRS is still working out exactly how to treat crypto transactions, and new rulings are coming out all the time.

Tax professionals are the best people to consult about the latest rules. Yes, it will cost you some money to consult a tax professional. But that’s only a tiny fraction of the thousands of dollars in taxes and penalties the IRS may impose on you if you make a mistake.

The post How to Handle Taxes and Cryptocurrency appeared first on Good Financial Cents®.

Any mistakes you make can subject you to hefty fines, and you could limit yourself from getting the highest return possible.

If you want to avoid both of those scenarios, read on to learn how to do your own taxes effectively without much hassle.

How to Do Your Taxes Yourself

There are three primary ways to prepare your tax return:

• Paper and Ink. This option involved a handwritten return form and mailing it to your local IRS collection address.

• Online Form. You can use the IRS’ online free-file fillable forms.

• Online Tax Software. You can file your taxes through an online tax software program or mobile app.

The choice of the method you use should depend largely on the complexity of your tax situation.

If your situation is not complicated, in that you take the basic deductions and haven’t had any significant life changes, you may only need to use the simple Form 1040.

You won’t even need to use a tax filing software.

Manual Filing vs Tax Software

If your tax situation is somewhat complicated, in that you need to fill out Form 1040 and other supplemental forms, then you’ll need tax filing software. The software will help you handle the workload.

If you opt to do your taxes manually, you’ll download and fill out the necessary IRS forms and send them to your local collection address. You can get these forms at IRS.gov. You won’t pay for them.

To make a tax payment, you have the option of mailing a check to the IRS directly or using a credit card, debit card, or same-day wire transfer via the IRS online payment system. 

This option usually takes more time, but it can be a great option if you have a simple return. You can also use their free e-file system to fill out the necessary forms online.

 If you have a complicated return or don’t have a lot of time at your disposal, you may need to use a tax filing software to guide you through the process.

Using tax software is ideal if you generate regular income through the stock market and need to determine investment taxes, you own rental properties, or you run a business and need to calculate capital gain taxes.

Steps Before Filing Your Taxes: What You’ll Need

There are several steps you need to take before you file your own taxes. They include the following:

1. Determine Your Filing Status

It is imperative that you choose your filing status before you can prepare your tax return.

If you don’t understand your filing status, the IRS can help you figure it out by asking you a few questions.

Here are five common filing statuses that could apply to you:

• Single

• Married Filing Separately

• Married Filing Jointly

• Unmarried Head of Household

• Eligible Widow or Widower With a Dependent Child

2. Have Your Documentation in Order

Before you start preparing your tax return, get all the pertinent information required for filing your taxes. These may include:

• Your W-2s

• School Taxes

• Interest Statements

• Receipts for deductible expenses

• Property Taxes

• A Copy of Your Last Year’s Return, if Applicable

• Other Applicable Forms Like Form 1099, if you receive some kind of income, such as a taxable interest of at least $10

You should keep all of your documentation safe and conveniently accessible. You might need them when you prepare taxes for future years or for other reasons like applying for a loan.

3. Find the Right Tax Filing Software

There are numerous tax software products to choose from. Take your time to review your options and determine which one suits your situation the best. These software products can easily be found online.

While some programs are designed specifically for personal tax filing, others are ideal for business tax preparation, and others can effectively handle both.

Some of the popular tax preparation software include TurboTax, TaxAct, H&R Block, and TaxSlayer.

When you use tax filing software, you will typically be asked questions that are designed to ensure that you pay the right amount of taxes.

Moreover, most paid versions of these software products are packed with valuable information and education that will walk you through every step of the tax filing process.

If you have more questions or don’t seem to understand some things, you can always find help from the IRS website. You also have the option of calling the IRS directly to seek help.

The customer service representatives at the IRS are usually very hospitable and helpful.

Best Tax Software for Filing Your Taxes

There is a wide selection of Tax Filing Software options available on the market today, but let’s explore the top three that you can choose from:

Turbotax

If you have a basic tax return, you can benefit from TurboTax’s free online tax preparation package.

If your return is more complicated, however, you may need to upgrade to the most appropriate of its paid versions, which include deluxe, premier, and self-employed plans.

If you are a freelancer, for example, you’ll need to pay $90 (plus $40 per state return) to be able to file self-employed returns.

With TurboTax, you get access to experienced tax experts to review your returns and if necessary, chat with a real CPA on an “on-demand” basis.

H&R Block

H&R Block also offers a free online tax filing package that is ideal for filing basic returns. Its paid packages range from $29.95 to $89.95, and they are ideal for self-employed individuals and small business owners.

You won’t be charged to file a state return with the free package. However, you may need to pay $39.99 for each state return, depending on the tax preparation model you choose. H&R Block offers its users a maximum tax refund guarantee.

With H&R Block, you also get to enjoy an interest-free loan if you get a federal tax refund not exceeding $3,000.

What sets H&R Block apart from its competitors is exceptional customer support.

This company gives you access to face-to-face support, with specialists available at its 12,000 offices spread across the U.S.

For more options and further reviews, check out our guide to the best tax software programs.

Who Should Do Their Own Taxes?

Generally, people should do their own taxes if they have a straightforward financial and tax situation.

In other words, you can do your own taxes if you don’t have dependents, investments, businesses, charitable contributions, or a considerable number of assets.

Conversely, if you make at least $200,000 a year, it can be overwhelming to do your taxes on your own.

It would be a good idea to hire a professional to do the tax preparation for you. This is because you become more susceptible to an IRS audit once your household income exceeds $200,000.

You could also consider hiring an expert to file your tax returns if you have gone through a life-changing event in the past year.

Engaging a professional may also be essential if you have a more complicated tax situation that may encompass dependents, assets, investments, and businesses.

Another great reason to work with a professional is if you wish to itemize your deductions.

While these factors don’t mean that you can’t do your own taxes, they can make it a bit more challenging.

15 Write-Offs All Self-Employed Workers Should Know

If you qualify as a self-employed worker under the IRS’ definition and own your own business, here are the top tax incentives to remember when filing. 

1. Home Office Deduction

Let’s start with the most popular tax break for self-employed people: the home office deduction. You can claim this regardless of whether you’re a renter or a homeowner. You’ll need to pass two bars in order to qualify, though: first, your home must be primarily where you do business, and second, your home office will need to be dedicated for the exclusive use of your business.

You have two options for how to calculate this:

• Regular Method. You’ll need to do the math to see what your deduction might be, depending on factors like your mortgage interest, home depreciation, insurance, etc.

• Simplified Method. This allows you to claim a flat-rate deduction of $5 per square foot (300 square feet maximum), with no need for math beyond figuring out the size of your office. 

2. Utilities

If you work from home, you can also claim a portion of your utilities as a tax deduction. According to the IRS, that includes things like your trash, electricity, internet, gas, and even cleaning services. 

You’ll use the percentage of your home that your office takes up. For example, if your home office is 8% of your home, then you can claim 8% of your utility bills as a deduction. 

3. Qualified Business Income Deduction

Another gem is the Qualified Business Income (QBI) Deduction, introduced in 2017 and ending in 2025 (unless Congress changes it, that is). This lets you deduct up to 20% of your “qualified business income” as a self-employed individual. 

What actually counts as “qualified” business income? Good question. 

That’s generally most of the money you earn in your business, minus any deductions or business losses. Certain things don’t count, such as interest income from your business savings account or any capital gains or losses from investing in stocks. For a full list, see the IRS’ QBI resource. 

4. Startup Costs

So many people were forced into self-employment, whether they wanted it or not, in 2020. If that’s you, take heart: You can deduct up to $5,000 in startup costs and $5,000 in organizational costs as long as your business costs less than $50,000 to start. 

So whether you need to buy a new laptop, have a lawyer draft agreements and contracts, file business paperwork, or other expenses to open your business, you should be able to get at least some of the expense back.

5. Health Insurance Premiums

Finding health insurance that doesn’t give you a heart attack is one of the major challenges of self-employment, especially if you don’t have a spouse with access to a workplace plan. 

A small consolation is that you might get some of that money back in the form of a deduction for paid premiums toward medical, dental, and even qualified long-term care insurance plans. This even includes health insurance that you purchased to cover your family members, including your kids and your spouse. 

However, there are two big catches: first, your business must have made a profit that year. Second, you can only take this deduction if you aren’t eligible for an employer-sponsored health care plan, whether from a day-job employer or even from a spouse’s employer.

6. Liability Insurance Premiums

Speaking of insurance, another big bummer for self-employed workers is paying for liability insurance. The truth is that almost all self-employed people should purchase some sort of liability insurance since they’re doing work for money and that can easily lead to disputes. 

If you run a dog grooming business, for example, you might need general liability insurance to protect yourself against unhappy pet owners. Even if you’re a digital entrepreneur working from home, it’s a good idea to purchase media liability or professional liability insurance. Either way, you can deduct these premiums from your taxes. 

7. Materials for the Goods That You Sell

Crafty business owners rejoice! You can deduct the cost of the materials you buy to assemble the items you sell. To take this deduction, though, you’ll need to tally your starting and ending inventories each year. It’s not as simple as just claiming your expenses for the materials you purchased.

So if you have an ugly Christmas sweater business, for example, you can deduct the cost of the yarn and tools used to make them. This applies to non-craft-related businesses, too, such as eBay and Amazon resellers, publishers, plant nurseries, and more.

8. Self-Employment Tax Deduction

Another reality of being self-employed is you’ll need to pay twice the amount of FICA taxes (Medicare and Social Security). Normally, your employer pays for half, but since you’re your own employer, you’ll need to pick up the tab for that share, too. The good news is that you can at least deduct the “employer” portion of self-employment taxes (i.e., half of the total amount) that you pay. 

9. Retirement Contributions

If you contribute to a retirement plan for self-employed people such as a SEP IRA or Solo 401(k), and you contribute to it during the year, you can deduct those contributions from your income. 

This is similar to how the deduction for a Traditional IRA works. Unfortunately, if you work for an employer, you can’t deduct your contributions to your workplace plan, such as your regular 401(k) or 403(b). The rules for how the deduction works can get a little wonky though, especially if you have employees, so it’s a good idea to work with a CPA to claim this deduction.

10. Car Mileage

Rideshare drivers here’s one for you! If you use your personal car to drive around for your business, you can deduct the cost on either a per-mileage basis or by keeping track of your car expenses. The mileage rate changes every year: for example, for 2023, it’s 65.5 cents per mile. 

Taking the standard mileage rate is probably easiest, and you can either keep track of your mileage in a physical log book you keep in your car, or through one of several apps, like MileIQ or SherpaShare, just for this purpose. 

11. Travel Expenses

In addition to driving around, you might travel to industry conferences or meet clients as a part of your business. You can deduct the cost of these travel expenses, such as lodging, transportation, meals, baggage fees, etc. 

Sometimes it’s easy for the lines to blend between business and personal in this category. You’re not allowed to deduct any entertainment costs (even if you’re taking clients out to a Broadway show, for example). This means if you travel somewhere exotic for a work conference and stay a few extra days for leisure, you can’t deduct any expenses on those personal vacation days. 

12. Association Memberships

It’s especially important to stay active and network with other people if you’re self-employed. That’s where a lot of membership dues come in, and sometimes these can be substantial depending on what industry you’re in. 

You can deduct the cost of any association memberships, though, as long as it’s a part of your business. For example, if you’re an independent board game designer, you can write off your membership dues in the Game Manufacturer’s Association. 

13. Advertising

Did you pay for ads on Facebook, Instagram, Twitter, Pinterest, or another social media site? If so — or if you paid for any other advertising at all, even to put your business in an old-fashioned phone book or roadside billboard — you can deduct these expenses from your income. 

14. Office Supplies and Software

Whether you’re a service-based business or a product-based business, you’ll still need to have an office so that you can manage your company. You’ll probably need supplies like pens, printers, computers, and software to perform tasks like tracking your time, accounting, drafting your business budget, and more. You’re eligible to deduct all of these expenses from your income. 

You can also deduct equipment and furniture for your business this way. You might see “Section 179” while doing your research. This lets small businesses claim these types of expenses as a one-off deduction in the same year the items are purchased (as opposed to writing off depreciation on these purchases slowly over the next few years).

If you really need a Greek-style thinking couch and you can make a case to the IRS that it’s for your business use, this can be a valuable deduction, too.

15. Subscriptions, Books, Magazines, Courses, and Other Education

There’s no one business playbook that applies to all small business owners. Even though the principles of running a business are all the same, each business is unique. Whether your business is baking pretzels, writing articles, landscaping, or brewing beer, you’ll need to keep up to date in your industry by reading books, subscribing to trade magazines, and taking courses. 

Some of these costs can add up big time. If you need to travel across the country to attend a training workshop, for example, even just the enrollment fee can be huge. And although subscriptions are generally smaller purchases, over time, they can add up to a lot of money. Luckily, you can write off these expenses as deductions from your income.  

Bottom Line – 15 Tax Write-Offs for Self-Employed Workers

There’s no doubt that running your own business is stressful. Even just perusing this list, you might be overwhelmed with thinking about how exactly these deductions all work, and that’s valid. 

There are a lot of deductions, and some of them have specific rules for how you can claim them, such as the home office deduction. It’s useful to know what these deductions are so you can plan for how to use them in your business.

We still recommend working with a CPA to guide you through the tax rules for these write-offs so that you can focus on what really matters to your business — the work that brings in cash. 

The post 15 Tax Write-Offs for Self-Employed Workers appeared first on Good Financial Cents®.

If you’re considering making an Offer in Compromise, you’ll need to know what it means and how to proceed. Here’s everything you need to know to determine if this strategy is right for you.  

What Is an Offer in Compromise?

An Offer in Compromise is an agreement you make with the IRS to settle your tax debt for less than the full amount. It’s used in cases where taxpayers would experience significant financial hardship if they paid the full tax amount that’s owed. 

Qualifying for an Offer in Compromise isn’t easy. The IRS will assess not only your ability to pay the debt but also your income, expenses, and any equity you have in your assets. If it approves your offer, there are two different payment options (monthly or lump sum) available to help you customize your repayment schedule to your needs. 

Offer in Compromise Eligibility

Here’s what the IRS looks for to determine eligibility for an Offer in Compromise: 

• You can’t be in an open bankruptcy proceeding.

• You have to be caught up on filing all of your federal tax returns. 

• You need to have made all of your required estimated tax payments. 

• You’ve submitted all federal tax deposits for any employees. 

Once you’ve met the basic criteria for eligibility, the IRS will review your offer. It typically approves offers where the amount you’ve suggested is more or less the maximum it could collect from you in what it determines to be a “reasonable” amount of time. 

How to Submit an Offer in Compromise

Submitting an Offer in Compromise can be complicated so many people prefer to use a tax relief company to help. If you go that route, be sure to compare the best tax relief companies online before choosing one. Review each company to ensure it has a good track record, excellent customer service, and low tax relief service costs. 

Although you can go through a tax relief company to submit an Offer in Compromise on your behalf, you can choose to submit your Offer in Compromise on your own which can save you money. Here are the basic steps to preparing an Offer in Compromise for the IRS. 

Step 1: Gather Important Documents

You’ll need to provide personal details to complete your Offer in Compromise. First, make sure you have documents that show your total financial situation. You’ll want to have all aspects of your finances documented, such as cash, investments and assets, available credit, debt, and your income. 

Also, if there are others in your household who contribute to expenses you’ll need to provide information about their income and average expenses.

Step 2: Complete Form 433-A (OIC) or 433-B (OIC)

Form 433-A (OIC) is for wage earners and those who are self-employed. This form helps the IRS calculate what it believes is an appropriate offer based on your income, expenses, and earning potential. Keep in mind, if you’re married, but living separately, your spouse will also have to file the same form. 

Form 433-B (OIC) is necessary to fill out if you own a business or corporation, or you’re a single-member LLC, taxed as a corporation. 

Step 3: Attach Supporting Documents

You’re not limited to only the information on the form, you can also attach additional documentation that shows your financial circumstances. Each form has a list of the specific documents you need to attach for support. 

For example, with Form 433-A (OIC) some of the supporting documents you need to attach are copies of:

• Current pay stubs or earning statements;

• Individual bank statements from the last three months; and

• Statements for each investment or retirement account you have 

Step 4: Complete Form 656, Offer in Compromise

In IRS Form 656, you’ll decide which tax years, and the type of tax, you’re going to offer a compromise for. You’ll also need to state the amount and how you’ll make payments. 

Step 5: Include Payment

There are two separate payments you’ll need to make with your offer — the application fee, which is $205, and your initial payment. 

Your initial payment depends on which repayment method you’re choosing. If you’re opting for monthly payments, then you’ll need to send the first month’s amount. If you’re opting for lump sum payments, you’ll need to send 20% of the total amount. If your offer is rejected, this initial payment will be applied to your tax debt. 

You can send both payments by personal check, cashier’s check, or money order, or through the Electronic Federal Tax Payment System. You should make them payable to the “United States Treasury.” 

There’s only one scenario when you don’t have to send any funds with your application  — that’s if you qualify for Low-Income Certification. In this case, your application fee is waived and you don’t need to send your initial payment. 

Step 6: Mail Your Application

Before you drop your application in the mail, be sure to make a copy of the entire package to keep for your records. It’s a good idea to send any sensitive documents, like an Offer in Compromise, via certified mail so that you can track the offer and retain proof of delivery.

What Happens When Your Offer Is Approved

If your Offer in Compromise is approved, you’ll have to continue to file taxes and keep up with estimated payments that are due in the future. An approved Offer in Compromise doesn’t give you any tax immunity on future earnings, it simply helps you resolve tax debt from past earnings. 

After receiving written confirmation that your offer is approved, you’ll need to review the Offer Terms, which will be listed in Section 7 of Form 656. Then, you can start making payments. 

If you opted for a lump-sum payment, you’ll have already submitted 20% of your total payment with your initial offer. After that offer is approved, you’ll need to pay the remaining balance in a maximum of five payments. 

What to Do If Your Offer Is Denied

Not every Offer in Compromise is accepted by the IRS. If yours is denied, you still have options. 

Here’s what to try next:

• You have 30 days to appeal your rejection, which you can do using Form 13711.

• Set up an installment agreement with the IRS that allows you to make monthly payments throughout a set term. This can stop any collection activity against you by the IRS. 

• Apply for a payment extension using Form 1127.

• Request “Currently Not Collectible” status, which could temporarily defer your tax bill until your finances improve.   

In addition to these strategies, you can also work to improve your finances to make it easier to repay your tax debt. If you don’t already have a budget, create one that includes debt payments. 

Once you’ve cut expenses and directed those funds toward repaying your tax debt, consider also increasing your income to help you tackle your debt faster. 

Even though paying your total tax bill might seem daunting, remember that it’s possible to fix financial problems — you won’t stay stuck forever. The key is determining the right plan for you and then staying consistent as you work toward your goals. 

The post 6 Steps to Submit an Offer in Compromise for Tax Debt appeared first on Good Financial Cents®.