I finally got our income tax return done! Yippee! Thankfully this year we are getting about a $4,200 refund, as opposed to paying about $5,000 last year. Here are a few highlights of the return:
- We were able to substantially reduce our taxes this year by bunching deductions in before year-end for items we normally would have paid out during 2008. We paid our property taxes in December (normally due January 31) so we could deduct them this year. We also paid what we expect that we would have tithed to our church in late December and made several hauls to Goodwill so we could take the deductions this year. See more behind the reasoning for bunching deductions in this post from July.
- Phase-outs suck! Many tax credits and deductions are affected by phase-outs, where the amount of your credit or deduction is reduced as you exceed a certain threshold. For us, this reared its ugly head on our child tax credits. The credit is normally $1,000 per child, but because our AGI was over $120,000 the credit was reduced by $50 for every $1,000 in AGI over that threshold. For that reason our child tax credit was only $800 per child instead of $1.000, and with two children cost us $400. Essentially this ended up being a 10% surtax on the that incremental $4,000 in AGI ($400/$4000).
- We thankfully we able to dodge the AMT again this year. I was a bit worried about this since living in Texas we do end up taking pretty big deductions for property taxes. That along with an increase in our income this year and the arrival of two dependents in November made me uncertain where we would end up. That is also the reason we didn’t try to adjust our withholdings during the year to avoid having such a huge overpayment.
Even though I am a CPA, I used TurboTax Deluxe to prepare my taxes. Although many in my profession scoff at tax preparation software, most of it is well designed and easily meets the needs of the average taxpayer. Unless you have a complicated situation like rental property, you can do your taxes yourself if you have at least half a brain. Overall I was impressed with this year’s TurboTax Deluxe product, especially the It’s Deductible program embedded in the software. The program had values for many more items that the DeductionPro software H&R Block put out and was much easier to use. However there were two quirks to the Turbotax program that annoyed me:
- In the initial interview about significant events, one of the questions is where you had a baby during the year. Apparently the good folks over at TurboTax are unaware that there is a such thing as multiple births (I’ll have to send them a TV Guide so they can see when that “John & Kate Plus Eight” show comes on), or that it is possible to have two single births within the same year. We had twins this year, so I was able to enter my daughter in without issue but didn’t have the option to add my son. I ended up having to find the dependents page on the checklist screen and add him from there.
- The program did a crappy job of handling whether a state tax refund was considered taxable. We live in Texas but did some work in 2006 in Louisiana, enough so that we had to file a nonresident Louisiana state income tax return. We ended up getting a $121.00 refund from Louisiana, for which they sent us a 1099-G form. Because we live in Texas we don’t have a state income tax here we elected to deduct sales tax instead of state and local income tax on our 2006 return, making the refund nontaxable. The interview questions couldn’t figure out whether this was taxable or not, and we had to go into the tax worksheets at the end and manually enter information to confirm the nontaxable status of the refund.
Proud of myself for completing my return, I happily e-filed the return so we can get our refund. Of course a few days later we found additional deduction documentation we initially missed, so unfortunately I’ll have to go back and file an amended return to claim the additional refund.