Win a free 2006 TaxCut Premium with e-file by sharing your tax filing experience

Our dear readers:

Thank you for visiting our blog. Yannick and I shared our tax filing experience on various topics such as filing as a non-resident alien or resident alien, claiming tax treaty benefits after becoming a resident alien for international students, an unpleasant experience with encrypted pdf tax forms, contributing to a 2006 Roth IRA and most recently how to deal with incomes from two states as a double-income couple.

Now here is the fun part. Someone from TaxCut came across my last post and thought my sharing was good. He has kindly given me a free coupon code to download a copy of TaxCut Premium (Federal + State + efile) , retail value of $64.99. I have no use of it and will give it away to one lucky reader through a lottery.

Here is how to enter the lottery:
You can either
1. Comment on this post and leave your email and nickname to enter the lottery for one chance to win,
or better yet, 2. share your tax filing method (manual, TaxCut, Turbo Tax, Turbo Tax+Quicken, or TaxCut+MS Money like us) to double your chance to win,
or the best, 3. share with us your experience briefly on how well the approach works for three times your chance to win.
You can enter the lottery before Noon Sunday (03/25) PT and the winner will be announced by Sunday night.

How to decide the winner:
Each entry will be assigned to 1, 2 or 3 unique numbers sequentially starting from 0. I will use a random number generator to generate a winner from the above numbers.

We were really satisfied with the TaxCut interview process and how seamless it generated 1040, Schedule A, B, Ds after pulling data out of MS Money. We are curious about how well the other approaches work.

Questions and comments? Good luck!!!

Free 2006 TaxCut Premium with e-file at latestartersblog.com!

Please enter a lottery before Noon Sunday (03/25) PT, for a free download of TaxCut Premium (Federal + State + efile) , retail value of $64.99. at my other web site: http://www.latestartersblog.com. I have only one copy to give away, thus, it’s only hosted there.

Good luck!

Tax returns with incomes from two states, file jointly or separately?

NOTE: Enter a lottery before Noon Sunday (03/25) PT, for a free download of TaxCut Premium (Federal + State + efile) , retail value of $64.99. at my other web site: http://www.latestartersblog.com!

I finished our tax return last weekend, which was much more time-consuming than I had expected. For 2006, Jacqui and I need to file income taxes with two states because both us graduated and moved. Jacqui had income from her job in the current state, while my full year income was from the previous state.

Starting from Federal tax return, we needed 1040 because we had over $1,500.00 in interest and capital gains respectively, and a tax treaty benefit to claim. I used TaxCut to extract our financial transactions and categorized spending from our Microsoft Money account. It filled in 1040, lacking the tax treaty benefit; automatically produced Schedule B, D and schedule D-1 with short term capital gain and long term CG separated, which was very slick. I downloaded 1040 etc. and fill in the forms electronically in Acrobat Reader to claim a treaty benefit which TaxCut does not include. So the 1040 in TaxCut was not usable directly, but the Schedule B and D were. I knew what change I need to make on 1040, thus, I was able to reference the TaxCut 1040 often to make sure I wasn’t missing any deductions. We did not have a mortgage to pay, therefore Schedule A was empty.

Getting into State tax returns, I was first surprised to see the states claim tax on both in-state income and out-of-state income for state residents; and in-state income for non-residents. To be concrete, the first state is a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin) which claims all my income derived in the state and half of Jacqui’s income as taxable as long as we were the residents of that state. The 2nd state is better in the sense that it will claim Jacqui’s 100% income as taxable while my income as taxable only if I am a resident of the state.

Generally speaking, married filing jointly shows less Federal tax compared to filing separately. On the other hand, filing separately would allow us to claim resident status in two states separately, which minimizes our state taxes. However, you cannot mix and match. You need to have the same state filing status as the Federal filing status. Filing separately disqualifies us as a couple from Roth IRA contributions (AGI > 10000), which we already made in early 2006. We could withdraw our IRA contributions and pay taxes on capital gains before this April 16th; however that will be quite a hassle. For the reasons I stated before, I do not want to lose this tax benefit.

As the state income taxes do not amount that much compared to federal taxes, my strategy is to file tax return jointly, but try to minimize state taxes. The solution is to establish the domicile for both of us (permanent legal address) in the new state with lower income tax rates as soon as possible (since Jacqui moved there), so that Jacqui’s job income (higher than my PhD student stipend) will be taxed only in the new state. Of course, as I moved to the current state, my income in the 2nd half of the year become taxable in the current state as well. However, I found a schedule to claim a tax credit for the tax rate paid and the previous state. Most states have similar schedules for you to claim credits on taxes paid to other state governments, however, usually the lower-rate states give credits only up to an allowance computed using lower-rates. So you could avoid being double-taxed, but will still be taxed at higher rate if unlucky.