Today, we take a look at three leading tax software programs—TurboTax, H&R Block at Home, and TaxAct—to help you better decide how to file.

TurboTax, H&R Block at Home and TaxCut Compared

Explaining the Differences

Over the years, I’ve used each of these programs to file my taxes. (This year I hired a CPA to help with the increasing complexity of running a business.) But in years past these tax software programs handled made preparing my tax returns relatively easy if not entirely painless; after all they’re still taxes.

In comparing the best tax software programs, all three guarantee the accuracy of their calculations. The big differences among tax software programs lie in their:

• Intuitiveness/usability
• Pricing
• Support options

INTUITIVENESS

For the most part, all three programs are easy to use and provide intuitive navigation. I think TurboTax stands out in a bit when it comes to entering W-2s and walking you through questions for complicated credits and deductions. TaxAct, by contrast, does a fine job for simple returns but begins to get cumbersome when tackling advanced topics.

PRICING

Tax software prices can be misleading. TurboTax and TaxAct advertise that you can file your simple, federal tax return for free. And in many cases this is true. But with TurboTax, if you want to access certain features (detailed questions to guide you through deductions, for example), you’ll have to upgrade. And in every case, you will have to pay to file your state tax return with the software or if you tax situation ends up being more complex than you imagined. That’s why it’s a good idea to figure out exactly what you’ll need and how much you’ll pay before starting your return.

In most situations, TurboTax ends up being the priciest of the three packages. But after combing over 250+ online user reviews, most think that the quality of the software and the online help (user forums etc.) make the price worth it, especially for more involved returns. TaxAct, by contrast, is much less expensive: you can file a basic federal return and a state return for only $14.95…the least expensive way to file everything. But if you want phone support, it’s an extra $7.95 (phone support is included with TaxAct Federal Deluxe, so you can file federal, state, and get phone support for $17.95).

H&R Block at Home’s pricing falls in between. They don’t offer free filing of your basic federal return. If you purchase their Deluxe, Premium, or Business package, one state return is included (meaning you can prepare it, print it, and file by mail) but they’ll charge you $19.95 to e-file the state return.

Note: With the links in this article, you can save 15% off the listed prices of H&R Block at Home. *H&R Block, TurboTax, and TaxAct are affiliates, meaning if you decide to use them we get a little bit in our online tip jar. If you choose to support us in this way, thanks!

SUPPORT

I’m a figure-it-out-myself kind of guy, so I turn to online FAQs and forums before calling an 800 number; I can say both TurboTax’s and H&R Block’s knowledge bases are very good. From the 250+ online user reviews I read, most agree that their phone support is good, too. Reviews note that TaxAct’s phone support falls short with limited phone hours and less-helpful-than-desired responses. Again, TaxAct is a good choice for straightforward returns, but spending a bit more might be warranted for anything more complex.

H&R Block has the advantage of local offices around the country and offers a “best of both” program. For $79.95 you can begin your return online and have a professional sign your return as a professional preparer.

Both TurboTax and H&R Block include audit support in the event your return they prepared is audited. This support includes a professional to communicate with the IRS for you and explain the audit process, but may fall short of everything you might need to handle the audit (such as legal advice in some situations).

Recap

Due to the way different companies bundle and price their software, the best value for my return may not be the best for yours. TurboTax and H&R Block at Home both offer complete solutions, usable software, and full-featured support, but come at a cost. TaxAct provides an affordable option for simple returns.

What about you? Had good/bad experiences with these or other tax software programs? Let us know in a comment.

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• You can go old school and break out the pencil and paper.
• You can buy tax software to handle the heavy math for you.
• Or you can pay a professional to do it all.

It’s time to ask yourself a couple of important questions:

• Do you know a bit about tax laws?
• Is your tax situation fairly simple?
• Are you detail oriented and good at simple math?

If so, you can probably save some money and file by hand. Otherwise, tax prep software may help you avoid the math and researching tax laws.

• Do you have a new or complicated tax situation (like inheritance, capital gains, a new business, etc.)?
• Does the possibility of getting something wrong on your taxes keep you up at night?

If you answer “yes” to these questions, it might be a good idea to get in line at a local tax return preparation office—preferably sooner rather than waiting until April when every accountant in town is swamped.

Let’s take a closer look and compare your tax prep options:

FILING YOUR TAXES BY HAND

Advantages:

• It’s FREE.
• You learn about the tax code.

Disadvantages:

• May take more time.
• Higher chance of errors/miscalculations/typos.
• Longer wait for a refund.

I’ve been preparing my taxes by hand for more than 10 years. I think I’m in the minority with all the new tax prep software out there, but I much prefer this method over anything else. I tried to use tax software a couple of times and was always frustrated that I wasn’t in total control of my tax return. I like having it all out in front of me so I can see the whole picture.

Ten years ago, my taxes were simple. I was working one part-time job, so I just had one W-2 to worry about and could file the 1040 EZ form. If your taxes are simple—for example, you have one or two W-2 forms, claim the standard deduction instead of itemizing, and claim zero or few adjustments or credits—you, too, could probably file your taxes by hand.

Like I mentioned last week, each form walks you through the process step-by-step. If your tax return will be simple, start with the 1040 form that fits your situation and follow the directions from there. Simple forms can be completed in under an hour once you get the hang of it.

Of course, some tax returns are too complicated to do by yourself…and some of you may simply think that filing a return by hand is bananas. I get that. Fortunately, you have some other options.

TAX SOFTWARE

Advantages:

• It’s relatively inexpensive ($50 or less).
• It does a lot of the work for you.
• You can deduct the cost if you itemize.

Disadvantages:

• It takes time to learn how to use.
• You don’t get the “big picture” and you may still miss out on deductions or credits if you don’t understand the software’s questions.

Tax software’s popularity continues to grow. The biggest advantage is that it’s inexpensive when compared to hiring a tax professional and it still involves you in the tax process without all the stress and confusion of doing it on your own.

In years past Money Under 30 has recommended TurboTax, but in a couple of weeks, we’ll break down the pros and cons of the most popular tax programs. Although they’re similar, some may be better suited for certain individual needs and price ranges.

HIRING A TAX PROFESSIONAL

Advantages:

• You don’t do any work.
• It takes the stress out of tax return preparation.
• You can deduct the fees if you itemize.

Disadvantages:

• It’s the most expensive option.
• You (probably) won’t understand your tax return or how taxes work.

The biggest disadvantage with hiring a tax professional is that you’ll have to pay them to do your taxes for you and you’re not very involved in the process (of course, some of you may prefer this).

With some large tax prep companies, you could get away with paying $100 or less (some companies are even advertising free tax return preparation for very simple taxes); however, if your finances are more complicated or if you have a lot of investments, property, and/or business information to include in your tax formula, you’ll be looking at paying several hundred dollars or more.

Still, choosing a respected Certified Public Accountant (CPA) is worth the peace of mind even if you have to shell out a bit more cash. You’ll know that an expert is working to find all the tax breaks for you they can and that your return is probably error-free.

Tax preparation may be stressful, but if you’re prepared and understand your particular situation, you can make the best decision on how to prepare your tax return. Just remember that if you want to enlist the help of a professional, don’t wait until April!

What about you? How will you prepare your taxes this year? What do you like about your chosen method? Let us know in a comment!

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So whether taxes simply fail to excite you or flat out freak you out, we’re going to try to make this tax season a bit more bearable. With the help of our staff CPA/tax superwoman, Amber, we will be publishing Money Under 30′s “No-Stress Guide to Filing Your Taxes”, a six-article series, over the next month or so. We’ll cover:

1. Your tax document checklist: A guide to get you started
2. Choosing the best method to file your return
3. Tax software: When to use and how to choose
4. Advanced forms (itemizing, capital gains, business income, etc.)
5. Don’t miss…a credit and deduction checklist
6. Special situations (audit avoidance, extentions, payment plans, and estimated payments)

I hope the series is helpful. To kick it all off, here’s Amber with a checklist of how to get organized before you begin your return—perfect to grab in late January as documents like W2s start filling your mailbox. (You can download the PDF version of the checklist shown above to print out and place with your documents.

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Taxes seem scary.

But for those of us who are just starting out, filing your taxes is usually a pretty simple task.

Shelling out a couple hundred dollars (or more) each year to get your taxes done by someone else may seem like an easy choice, but it’s not always necessary. If you’re young, single, and not yet a homeowner, doing your taxes on your own is easy. And for almost everybody else, tax software like TurboTax can walk you through your taxes step by step. And, if your taxes are simple, filing a federal return with TurboTax is even free.

We’ll help you decide how to file your taxes next time. Today we’re going to look at what forms you’ll need to collect. Before we get started, let me share a couple basics tips to get you started (and, hopefully, ease your mind):

1. Each form and every single line on every form comes with step-by-step instructions.
2. These instructions are in one of two places: on the form itself or in a separate document called “XX Form Instructions”.
3. Learn to love the IRS website. It contains answer to every question you could ever have, so you’re never alone.  They also have hotline numbers, online chat, and e-mail available. They even have a tool called the Interactive Tax Assistant that learns about your tax situation and helps you find answers to your questions.

TAX FORM CHECKLIST

Every tax situation requires different forms. But if you’re just starting out (e.g. you’re working your first job, don’t own a home, and have minimal investments), the number of forms you need is minimal.

Here’s a quick guide to which IRS forms and/or personal documentation you’ll need for the most common income situations:

If you have one or more employers…

If you work for someone else—meaning, employment and income taxes are deducted from your paychecks—you will need at least these two forms:

• W-2. Your employer(s) will mail these forms to your house no later than January 31st.
• 1040*. Depending on the complexity of your taxes, there are three 1040 forms to choose from: 1040-EZ, 1040A, or the original 1040. The different types of 1040 forms are explained below.

If you earn any money on your own (from freelancing/self-employment)…

If you worked for yourself at all (full-time or on the side), you will need a few more forms to fill out:

• 1099. You should receive one 1099 from every company or person you earned income from during the year, if it’s greater than $600.  (Even if it’s not greater than $600, you still have to report the income.) Generally, this will be a 1099-MISC. These will be included as income earned on your Schedule C form.
• Schedule C*. This is the form where you’ll determine whether you and/or your business earned a profit or suffered a loss during the year. No matter if you earned a profit or suffered a loss, this will be added or subtracted from your overall income on your 1040 form. If you earned a profit, you’ll need to pay employment taxes (like FICA, MediCare, Social Security, etc.) because an employer was not deducting those taxes from your paychecks…you were your own employer.
• Schedule SE*. If you earned a profit, this form will determine the amount of self-employment taxes you’ll need to pay. In general, you can deduct half of this amount from your total income (line 27 on your 1040 form).
• 1040 Form*.

If you were unemployed …

• 1099G.  Unemployment compensation is included in your taxable income, so you must include it in your tax return. You’ll generally receive a 1099G form from the state that paid you unemployment compensation.
• 1040 Form*.

If you paid student loan or mortgage interest …

• 1098. Your student loan or mortgage lender(s) will mail you 1098 forms showing how much interest you paid on your loans in the tax year. This interest could potentially be tax deductible.

If you earned interest from bank accounts or investments …

• 1099-INT. Your bank or investment company will send you these forms for any interest paid to you in cash. Interest income must be reported on your return.

*You only need these forms if you plan on doing your own taxes without software. Other documents you need either way.

EXPLANATION OF THE DIFFERENT 1040 FORMS

Now that you know how to report the income you earned throughout the year, you’ll need to decide which 1040 form to use. Remember, there are three to choose from, the most simple being the 1040EZ (catchy name, huh?) and the most complex being the original 1040 form. The 1040A is right in between both in terms of complexity.

Here’s how to decide which form to use:

1040EZ Form

I was able to file this form during all the years I was in school (through college) because the only income I needed to report to the IRS was simple income I received from various part-time employers. If you’re just starting out, try to use this form if you can. It makes filing your taxes very simple. Here are the requirements:

• Taxable income less than $100,000
• No dependants
• Less than 65 years of age
• Single or Married Filing Jointly status
• Interest income less than $1,500

1040A Form

This becomes a popular form for many recent college graduates because this form allows you to deduct student loan interest. If your taxes are still fairly simple but you need to deduct student loan interest (or education expenses, IRA contributions, or higher education expenses), you might be able to use this form.

Additionally, if you own a home, you probably will not be able to use this form since you cannot itemize (e.g. deduct mortgage interest expenses) when using this form.

• Taxable income less than $100,000
• You take the standard deduction (do not itemize)
• Only certain tax credits are allowed

1040 Form

If all else fails, you’ll need to file a 1040 Form. The older you get, the more likely you are to file a 1040 Form instead of the A or EZ versions.

Even if you qualify for the A or EZ versions of the form, you can still use the regular 1040 if that’s what you feel comfortable with.

Remember, no matter which 1040 form you decide to use, every taxpayer must submit a 1040 form to file their tax return. It is the head honcho of tax return documents, so make sure you get familiar with how it works.

Questions? What questions do you have about which forms you’ll need to file your tax return? Let us know in a comment!

(Disclaimer: The tax situations here are all explained at a high level. If your situation is more complex, you may need to file additional forms or seek professional guidance to begin. Tax software like TurboTax and their available help lines may be a place to start for less than hiring an accountant. )

Want to print it? Download the PDF checklist here.

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• I’m not a tax expert. (I leave that for Amber!)
• I find doing taxes about as titillating as most people…somewhere between Latin verb conjugation and flossing.

That said, I’ve learned a few things about paying (and filing) my federal income taxes over the past few years, and as a financial blogger I feel compelled to share them. I’ll make this short and sweet. Promise.

1. START YOUR TAXES EARLY

I have filed my taxes around 11:52 p.m. on April 15th more than once. Two years ago, I even filed an extension. Yet all I did by waiting so long was prolong the stress. (I’ve found that actually filing taxes isn’t so bad—it’s the anxiety leading up preparing the return. Will you owe Uncle Sam? Will you make a mistake and get audited?)

So last year, I got my shit together and had all my documentation ready to hand over to a bookkeeper in early February. I filed on my own using TurboTax, but paid her to double check everything…especially my business records. It was a huge relief.

So I stand by this: the sooner you start thinking about taxes, getting organized, and filing, the better off you’ll be. (And, of course, if you’re owed a refund, you can collect it sooner.)

2. ORGANIZE, ORGANIZE

Until a couple of years ago, the only documents I needed to do my taxes were the W-2s my employers mailed me in January. As you get older, however, your taxes get increasingly more complicated and that means there’s a lot more to keep track of. Things like:

• 1099s from contract employers, savings accounts, and investments.
• Business expense receipts.
• Student loan and/or mortgage interest statements.

Some things that have made my taxes infinitely easier:

• Opening a separate business checking account.
• Using the online bookkeeping program Outright for my business’ books.
• Starting a folder last January for this year’s taxes and filing everything I might need in it.
• Using the same tax software year after year (in my case, TurboTax, so last year’s return information is automatically loaded).

3. PAY UP

Whatever your political stance on paying taxes, however badly you need a big refund, and however else you decide to rebel against the establishment, I recommend paying your taxes. All of them.

• That means reporting cash tips.
• That means reporting all of your freelance income.
• That means not taking the home office deduction when, really, you use that corner of your bedroom for work about 10 percent of the time.

Last year, I received a CP-2000 letter, a.k.a. a correspondence audit, for a couple of errors on my 2008 return. I owed a little more money, which I paid, and it wasn’t a big deal, but there is nothing fun about a surprise letter from the IRS saying you owe more taxes. Take every deduction to which you’re entitled, but if you’re in doubt—you know, the kind of doubt where a little devil and angel appear on your shoulder (and, perhaps a prison cell briefly flashes through your mind)—I recommend listening to the angel every time.

Got taxes on your brain? Take my first tip and get started on your return today with TurboTax—it’s free to start and even to file your federal return.

Chime in: What’s your favorite tax filing tip?

But how do these tax cuts REALLY affect you?

Since many of the tax cuts are extensions (not new tax breaks), you may not experience anything new. However, here is a rundown of the tax cuts that were extended for the next two years:

Individual Income Tax Rates. Perhaps the most anticipated extension was for individual income tax bracket rates. With this extension, tax brackets will not change for 2011 and 2012. They’ll stay at the current (but possibly temporary) rates of 10%, 15%, 25%, 28%, 33%, and 35% as opposed to the 15% (for the lowest two brackets), 28%, 31%, 35%, and 39.6% that would have been re-instated had the cuts not been extended.

Federal Estate Tax. Towards the end of the compromise, Congress debated the estate tax issue heavily. In fact, there were rumors that the estate tax would bring the entire extension bill to a halt. In the end, Congress agreed that estates less than $5 million will not be taxed at all for 2011 and 2012. For estates greater than that amount, the tax rate is 35%. This exemption is one of the largest exemptions for estates in history. However, the exemption is only temporary and things could very well change after 2012.

Capital Gains and Dividends Tax Rates. Long-term capital gains (gains on investments, sale of property) and dividends are taxed at rates lower than individual income tax rates (short-term gains are taxed at individual income tax rates). Economists argue that lower capital gains tax helps to stimulate the economy. For 2011 and 2012, individuals in the 10% and 15% tax brackets will not be taxed on capital gains while all other taxpayers will pay 15% on capital gains and dividends. If you are in a low tax bracket, the next two years are prime time to cash in well-performing investments and sell property.

Payroll Tax Holiday. Employees are well aware that many taxes are deducted from their regular paychecks. Employees pay 6.2% in various social security taxes, and, for 2011, that amount will be lowered by 2% to 4.2% (employers will still pay the full 6.2%). Some experts have warned that this short-lived tax cut will cause administration nightmares for tax preparers and employers similar to the problems that the Making Work Pay credit created in 2009.

Alternative Minimum Tax (AMT). Before the tax cut extension bill was signed, many worried that the AMT would begin to affect more and more middle-class taxpayers. While regular income tax brackets are indexed for inflation, the AMT exemptions are not. However, since the exemption amounts were increased in the bill, many middle-class taxpayers will not be affected by the AMT for 2011.

Earned Income Tax Credit. This tax credit is helpful for many low income taxpayers. The extension bill expanded qualifications for the credit so that more families will be eligible for the credit in 2011 and 2012.

Education Credits. Several education tax cuts were extended included the Hope education credit, employer-provided educational assistance exemptions, and an increased income phase-out for the student loan interest deduction. In addition, benefits for the Coverdell savings accounts were improved: Through 2012, you can contribute up to $2,000 per year and use the money for some costs associated with schooling before college, as well as college expenses.

Many of these tax breaks will prove to be very helpful for Americans through 2012. Many hope that the tax cuts will even help to stimulate our economy a bit. Still, these extensions are temporary and only scheduled to last through 2012, so things could change drastically after two years.

What is the Section 179 deduction?

The Section 179 deduction allows you to deduct purchases for equipment that is used in your business in full (as expenses) instead of depreciating them slowly over time.

To make things more clear: Without the deduction, you would have to deduct portions of, say, a computer that you purchased for your business over a time period of several years. The technical term for deducting portions of equipment purchases over several years is called depreciation. With the Section 179 deduction, you don’t depreciate equipment purchases, you deduct them in full.

What are the limitations on the deduction?

There are a few limitations on the deduction:

• First, you cannot deduct more than $500,000 for you business during 2010 and 2011. If you have more than $500,000 in expenses, consult your tax preparer, because you could qualify for bonus depreciation on the excess expenses.
• Second, the deduction will start to phase out dollar for dollar on all expenses over $2,000,000. For example, if you have $2,100,000 in qualifying expenses, you would only be eligible to deduct $400,000 in expenses ($500,000 less the $100,000 excess over the $2,000,000 threshold).

What expenses qualify?

Luckily, most depreciable property qualifies for the deduction. Almost everything you use in your business is considered depreciable property: the computer you type on, the desk your computer is on, the chair you sit in, the cabinets you store your files in, etc. Here’s a list of common qualifying equipment:

• Machines purchased for business use
• Computers
• Computer software (including off-the-shelf packages)
• Office furniture
• Office equipment
• Certain vehicles (limitations apply)

Let’s say that you bought 10 computers, 10 software packages for those computers, 15 desks, 15 chairs, and five file cabinets for your office this year. You can deduct the entire amount of all of these purchases—as long as the total amount is less than $500,000. As I’m sure you’ve figured out by now, the Section 179 tax deduction is great for small businesses.

What expenses don’t qualify?

Even though most business equipment expenses are deductible, there are still those expenses that don’t qualify. The major expenses that do not qualify for the deduction are:

• Real property (buildings, land, or anything attached to the land, like parking lots)
• Air conditioners and heaters
• Furnishings used in hotels, motels, and other places used for lodging
• Property outside of the United States

How do you claim the deduction?

Claiming the Section 179 deduction is relatively simple. First, you’ll need to fill out Form 4562. The Section 179 deduction is completed in Part 1 of the form, so if this is the only depreciation deduction you plan to claim, you’ll only need to fill out Part 1.

The amount that you calculate in Part 1 of Form 4562 is then carried over to your Part 2 on your Schedule C: Profit and Loss from a Business form.

Overall, the deduction is beneficial to small and medium sized businesses. It’s a really great deduction to take advantage of over the next few years while the thresholds are so high and it should prove to be a great stimulant for our economy.

Have you or are you planning to claim the Section 179 deduction for your business? Do you think the deduction has helped your business if you’ve previously claimed it?

Shannon’s a talented artist, and a few people approach her about buying her paintings. Then, they tell some friends, and one day Shannon actually starts to make money selling her art. In the beginning, it’s just enough to cover her supplies, but after several months, she starts to earn a decent profit. Although she never intended it to, Shannon’s hobby has turned into everybody’s dream: a fabulous source of side income.

But here’s the question: Now that she’s making money, is Shannon operating a business or practicing a hobby?

You might think the answer is obvious. She made a profit, so she must be in businesses, right? Actually, you’d be wrong. From the point of view of the Internal Revenue Service, if Shannon isn’t painting with the intent to make money, she’s practicing a hobby.

The IRS defines a hobby as an activity that an individual pursues without intent to generate a profit. Almost everyone partakes in some sort of hobby without worrying about whether it will generate income. However, as soon as you take steps to attempt to generate a profit you’ve got a business on your hands. Of course, that’s not necessarily a bad thing.

Tax Limitations for Hobbies

The biggest tax limitation for a hobby is that you cannot deduct a loss from its activities. Most hobbies come with some sort of expense, be it equipment, supplies, or educational fees. But the IRS says you cannot deduct those expenses beyond the amount of income you generate from your hobby.

For example, in the case of Shannon, her painting supplies (paint, brushes, canvas, paper, etc.) obviously cost money. Before she starts to make money from her paintings, she cannot deduct any of painting expenses on her tax return. When she starts to make money, she can deduct painting expenses—but only up to the amount of income she generates from the art, meaning that she could create a net taxable impact of zero from her hobby. Until Shannon starts to treat her hobby as a business, she won’t be able to claim a loss on her taxes.

How to Convince the IRS It’s a Business

Let’s say Shannon decides that she’s making enough of a profit that she wants to take her art to the next level and turn it into a business. How does she make the change from hobby to business?

Here are nine questions the IRS has provided to determine whether your activity is engaged in for a profit (e.g. a business):

• Does the time and effort put into the activity indicate an intention to make a profit?
• Do you depend on income from the activity?
• If there are losses, are they due to circumstances beyond your control or did they occur in the start-up phase of the business?
• Have you changed methods of operation to improve profitability?
• Do you have the knowledge needed to carry on the activity as a successful business?
• Have you made a profit in similar activities in the past?
• Does the activity make a profit in some years?
• Do you expect to make a profit in the future from the appreciation of assets used in the activity?

If your answers to these questions imply that your activity is a business, you can treat it as a business for tax purposes. As I mentioned earlier, the biggest advantage of running a business instead of participating in a hobby is that you can deduct losses against your income for your business.

If your activity does qualify for a business, than you would use Schedule C to claim all income and expenses from your that activity.

If You Don’t Qualify As a Business

If your activity does not pass the test to be treated as a business, then you won’t be able to deduct a loss (if you have one) on your tax return. But that doesn’t mean you don’t have to keep detailed records of all your transactions that result from your hobby.

If you generate income from your hobby, you’ll still have to report that income to the IRS because it’s against the law not to report all income that you earn. It’s important to maintain records of your hobby expenses since you are allowed to deduct expenses up to the amount of income that you generate. There is one catch: You must itemize to claim any expenses for your hobby.

Don’t Let Taxes Deter Your Interests

If you don’t want to mix taxes and pleasure, then simply avoid generating any income from your hobbies. If you don’t receive income from your hobby activities, you won’t be affected by tax laws. Don’t let complicated tax code scare you off from doing what you love.

Do you participate in hobbies and make a profit?

See, if your salary is $50,000, you don’t earn just $50,000. The actual value of your pay is comprised of both salary and benefits, which is generally much much than your base salary. As an added bonus, the value of many fringe benefits (insurance or vacation, for example) is not included in your taxable income.

So the next time you’re job-searching for a job or bemoaning your meager hourly wage, don’t forget to consider the value of fringe benefits. Companies that offer fabulous fringe benefits could be the best company to work for in the long run. Here are 15 common fringe benefits that won’t raise your taxable income:

1. Education Assistance. If your employer pays for your tuition and textbooks, you won’t be taxed on that benefit up to $5,250. Basically, you can go to school on your employer’s dime and improve your job skills. It’s a win for both you and your employer.

2. Health/Life/Accident Insurance. The most well-known fringe benefit, but arguably the most important. Both you and your employer pay premiums on your health insurance plan (usually your employer pays a higher premium than you). The premiums that both you and your employer pay are not included in your taxable income.

3. Length of Service Awards. If you receive small awards recognizing the amount of time you’ve worked for your employer, you won’t be taxed on these awards. The awards must be small property awards and cannot be cash or cash equivalents to qualify for the exclusion.

4. Adoption Assistance. Although subject to limitations, if your employer assists you in the adoption of a child, this benefit could be excluded from your income. Employer-provided adoption assistance is usually in the form of financial assistance, informational resources, or parental leave policies.

5. Athletic Facilities. Some companies provide workout facilities for their employees and their families. The facility must be on company premises and must be owned and operated by the employer. Off-site gyms that your company pays for do not qualify.

6. Employee Discounts. This is a popular perk at retail stores and dining establishments. Many people look for part-time jobs at companies like this just to receive an employee discount. If you do receive a company discount, the benefit you receive won’t be taxed.

7. Employee Stock Options. Certain stock options are not taxed upon exercise. Stock options are non-cash compensation in the form of shares of the employer’s stock. When the options are exercised, there is no taxable event; however, when the shares are sold, the owner may be subject to capital gains tax.

8. De Minimis Benefits. De minimis benefits are benefits so small that they cannot be valued per employee. Some common de minimis benefits include small holiday gifts, donuts/treats/bagels, occasional parties or events, among other small but regular benefits. De minimis benefits are very common among workplaces, but luckily do not affect taxable income.

9. Health Savings Accounts (HSA). If available, employees and employers can contribute to an HSA. The amounts that the employer contributes are not included in the employee’s income. The distributions from the account are not subject to taxes and can be used to purchase qualified medical items.

10. Meals. Meals provided by an employer are not taxable. Meals can sometimes overlap with the de minimis benefits explained above. Some employers provide regular meals on their premises for employees. If your employer provides meals as a convenience for them, then the meals are not included in your income.

11. Moving Expense Reimbursements. When you relocate for a job, you’ll likely incur moving expenses. If these expenses are reimbursed by your employer, you will not include the reimbursement in your income. If, however, your employer doesn’t reimburse you for moving expenses, you could deduct them as an above the line deduction.

12. Retirement Plan Matching. Many employers match employee contributions to a retirement plan up to a certain amount. The amounts are not included in your taxable income today. However, when you retire and begin to withdraw money from your retirement account, you will be taxed on that money – including the amount your employer contributed.

13. Time Off Awards. Time off awards can be given instead of cash or cash equivalent awards for superior performance or other achievements. Since time-off awards have no cash value, they cannot be taxed. However, the salary that you earn on the days that you take the time off will be included in your taxable income. Although these awards aren’t technically a fringe benefit, it’s important to note that they aren’t included in taxable income.

14. Paid Vacation. This is an extremely common fringe benefit and arguably the most lucrative. Paid vacation is just that – getting paid to take time off from work. Paid vacation is similar to time off awards, but is more automatic. You’ll know how much paid vacation you’ll receive at a job, while a time off award is often a surprise.

15. Sick Leave. This is another well-known benefit of employment. Sick leave is usually necessary when you’re working a full-time job. Although rules differ between companies, employees can usually take paid time off for illnesses, doctor’s appointments, or funerals.
As you can see, salary isn’t the only perk of having a great job. Fringe benefits can often make a lesser-paying job much more attractive. The biggest benefit is that many fringe benefits will never affect your taxable income – meaning that you can enjoy them free of charge.

Have I left anything out? What fringe benefits do you enjoy?

Not so fast.

The term tax “write-off” is thrown around too much. And, unfortunately, it’s deceiving. Many so-called “write-offs” are not dollar-for-dollar reductions of your tax bill. The term tax write-off may refer to tax credits, deductions, or adjustments…and they’re all different.

Here are the simple facts about the differences among tax deductions, adjustments, and credits and how they’ll affect your next tax return.

Adjustments

Adjustments (sometimes called “deductions to arrive at Adjusted Gross Income (AGI)” or “above the line deductions”) are certain expenses that directly reduce your income. After your total income is calculated, expenses that qualify as adjustments will be taken from that amount to arrive at AGI.

For taxpayers under 30, the most common adjustment is for student loan interest. For self-employed individuals, there are adjustments for self-employment health insurance and half of your self-employment tax. Other adjustments include alimony paid, IRA deductions, moving expenses, and educator expenses.

The amount of federal taxes that you pay—your tax bill—is calculated on your taxable income, not your AGI.

The lower your AGI, and, subsequently, your taxable income, the lower your tax bill will be. A common misunderstanding about adjustments is that they directly affect your federal tax bill; they do not. Adjustments do, however, reduce your AGI which can, in turn, lead to a smaller amount of tax.

Deductions

The term deduction is usually short for itemized deductions (sometimes called “below the line deductions”).

Only those taxpayers that qualify for itemized deductions that are greater than the standard deduction should itemize. If you cannot itemize, you would instead claim the standard deduction, which is available to every individual taxpayer.

For individuals, that “write-off” term is most often used when people are referring to itemized deductions. Although it’s true that these deductions are write-offs, they are usually the least financially rewarding deduction of them all. As I mentioned earlier, itemized deductions should only be taken when the total deductions are greater than the standard deduction. From that, it’s easy to see that the only benefit you’re receiving from your itemized deductions are on those that exceed the amount of the standard deduction.

The most common itemized deduction is interest on a home mortgage loan. If you’re using this tax write-off to sway your decision to buy a home, you might think twice. The amount of money you spend on home mortgage interest will not lower your tax bill dollar for dollar. Instead, it will merely lower your taxable income.

The total amount of qualifying itemized deductions—which include expenses like local taxes, interest expense, charitable contributions, and medical expenses—are subtracted from your AGI. After you account for your personal exemptions, you’ll arrive at your taxable income, which is the amount that your tax bill is calculated on. Like adjustments, the most common misunderstanding about deductions is that they do not directly affect your federal tax bill.

Tax Credits

Credits are arguably the most advantageous tax benefit available. Tax credits directly reduce your tax bill. For example, if you normally pay $6,000 in federal taxes every year, a credit for $2,000 would lower your bill to $4,000. It’s helpful to think of credits as an instant rebate on your tax bill.

Some of the more popular tax credits are the Credit for Child and Dependent Care expenses, the Child Credit, and education credits (like the Lifetime Learning Credit and the Hope Credit). Because most credits come with limitations, you may not be able to claim the entire amount of your expenses, but whatever you can claim will directly reduce your tax bill.

Every little bit helps…

In short, adjustments and deductions decrease our income (whether it’s AGI or taxable income) which indirectly decreases our tax bill. Tax credits directly reduce our tax bill. All of the above tax benefits are helpful in cutting our federal tax bill, they just accomplish the reduction in different ways.

The assets that we begin to acquire are referred to by the IRS as capital assets. Capital assets come with a complex tax code, but it’s important to decipher the basics because the tax laws on these assets will start to affect us as we grow older.

How Capital Assets Work

When you own capital assets, they will not be affected by taxes or by the IRS. But, as soon as you start to sell or trade your assets, the IRS will catch on and start to care. When you sell your assets, you may be affected by capital gains and losses. It’s important to distinguish whether the gain or loss is long-term (more than one year) or short-term (less than one year), because both will come with different tax rates.

Capital gains are taxable in a way similar to the way your income is taxed. However, long-term capital gains are taxed at much lower rates than your income. In fact, if you’re in the 10-15% income tax level for 2010, you won’t be taxed on long-term capital gains at all. Score!

On the other hand, when you take a loss, there is a possibility you could claim this loss on your taxes. And, of course, as with all tax laws, certain limitations will apply.

Below are some common capital gain and/or loss situations and how they could affect your tax return…

The Sale of Your Home

You home is probably the most valuable capital asset you will ever own. Does this mean that when you sell your home that you’ll be taxed on this sale?

The good news is that – for most of us – we will not be taxed on any gains on the sale of our home.

If, during the 5-year period ending on the sale date, you owned and lived in the residence as your main residence for at least 2 years, you can exclude up to $250,000 from the gain on the sale. If you are married and file jointly, you can exclude up to $500,000 on the gain – as long as you meet the same rules listed above for single filers.

And since the housing market has been tanking lately, this question is probably on many homeowner’s minds: Can you claim a loss on the sale of your home?

The quick and dirty answer is this: No, you cannot claim a loss on the sale of your home. This qualifies as a personal loss and personal losses are never deductible.

The Sale of Stock

The capital gain and loss rules for the sale of stock (or most other investment assets) is a little more clear-cut: You can both claim a loss on the sale of investment property and you will be taxed on any gains from the sale of investment property.

Now, before you get too excited about claiming all the losses on the free-falling values of any stock you own, remember this: You must sell the stock or investment property before you can claim a loss. So, if you have stock in your portfolio that you bought for $50.00 a share that is now worth $10.00 a share, you can’t just claim that loss. You’ll have to dump the stock before you can claim the loss. You can claim up to $3,000 in losses on your tax return. If your losses exceed $3,000, you can carry the losses forward to the next tax year.

There is one confusing, but important, rule on the sale of investment property, which has been coined the “wash sale rule”. This rule prohibits you from claiming a loss on the sale of stock if you buy the same stock within the 30 days before or after the sale. As I already mentioned, this rule is confusing and can be interpreted in different ways (for example, what exactly is “the same stock?”), so if you do have gains or losses from a wash sale, consult a professional for further information.

The Sale of Any Personal Asset

The category of “personal” capital assets is an all-encompassing category and includes almost everything you own. It includes items like your car to your television to your clothing to your vintage eight-track player.

When you sell an item, the selling price minus your basis in the item (usually the amount you paid for the item) will equal your gain or loss. Anytime you sell one of these items and the sale results in a gain, you will be taxed on this item.

However, the IRS prohibits taxpayers from claiming any personal losses on their tax return. So, if you sold your car and incurred a $3,000 loss, unfortunately, you won’t be able to claim that loss on your taxes. This is also the reason that you cannot claim a loss on your home, since your home is also considered a personal capital asset.

If You’re Unsure…

If you’re unsure about what you can claim as a loss or what will be taxed as a gain, it’s best to consult a tax professional. Capital gains and losses are a tricky subject that can confuse even the most tax-savvy person. If you keep detailed documents from all your financial transactions, your tax preparer should be able to make sense of your documentation and prepare the most accurate tax return for you.