Ask Tax Dad: How Do I E-File? What’s A Deduction, Anyway?

TAXDADSEZHistorically, our staff Certified Tax Cat has handled readers’ questions about taxes, but he took feline early retirement and hung up his oversized eyeglasses. Filling in for him is Laura’s dad, a retired accountant and real live independent tax preparer. Exclusively on Consumerist, Tax Dad answers your questions.

Our question today comes from a reader named Laura who does not work here:

I won $2400 in the Florida state lottery this year, and I also have $2400 in losing scratch offs that I want to use to help possibly offset the taxes. Can I use Turbotax, or do I need to head to H&R Block?

Congratulations on your win. The good news is that there is no Florida state tax on your winnings, since Florida has no personal income tax. And “no comment” on H&R Block.

Of course, the IRS does consider your $2,400 to be taxable income, and you will or should receive a tax statement on that. As far as deducting your gambling losses up to $2,400, the qualifier would depend on whether you can itemize your deductions on Schedule A. If so, the gambling losses would qualify as a miscellaneous deduction.

What is Schedule A? You often hear people refer to things as “tax-deductible.” This means that you can enter it on your tax form, and it will reduce the amount of your income that you have to pay taxes on by the same amount. Common expenses that people deduct include mortgage interest, student loan interest, and charitable donations.

Whether you need to document all of these items (called “deductions” in tax land) separately depends on the total of items that you would deduct. To make life simpler, the IRS has a standard deduction that applies to most people of modest means with relatively simple taxes. For tax year 2013, the standard deduction for an individual is $6,100. If you’re married or have dependents, that amount goes up.

If you have other qualifying deductions, such as mortgage interest, property taxes, or donations, the gambling losses could put you over the standard limit. The section of the your tax return that you use to list all of these deductions is called Schedule A.

And yes, TurboTax would help you with this. Access TurboTax through the IRS FreeFIle website and you can use the program and file for no cost if you earn less than $58,000. Downloadable forms that you can fill out on your computer are available for people who earn $58,000 or more, but you have to know how to file a tax return in order to use those forms.

A NOTE ABOUT E-FILING

Those of you over 30 may recall the “Good ol’ Days” of filing income tax returns, which involved sitting at the kitchen table on April 15, armed with a sharp pencil, good eraser, all the prior year’s “Important Tax Documents Enclosed” and hammering out a reasonable tax return in time to beat the midnight mailing deadline. Then came the rush to the nearest Post Office to stand in line for a pre-midnight postmark. Lower income filers had it much easier, copying their W-2 onto a short form 1040A and mailing it in. For a while, one could even call the IRS and file by phone.

All this is ending now with modern technology. IRS and many taxing states are heading toward having everyone file their returns electronically, resulting in fewer errors, faster refunds, and more consistency. With few exceptions, paid preparers must file all returns electronically, and the IRS encourages most individuals to do the same.

For the do-it-yourself filer, there are now a number of tax programs out there to choose from, ranging in price from $20 to $100, sometimes with additional fees for state returns and for electronic filing.

The IRS, however, to encourage electronic filing, now makes many of these programs available thru its E-File website, for those with income of less than $58,000. They also make available fillable forms online for people with higher incomes than that.

Many of these programs are very user-friendly: simply fill your information in the correct blanks and your federal and state taxes are electronically filed, and you can print copies for your records. You will be notified immediately of errors like wrong social security numbers, and math errors are mostly eliminated. Most state sites (those with state taxes) also allow free filing through them.

Proceed with caution, though. If you enter one of these programs through their own website instead of starting with the IRS, there may be charges involved. Some let you complete your returns for free, but charge a fee for electronic filing. Some will complete your Federal return and file it for free, but charge you for filing your state return. To avoid this, start on your state taxation department’s site: for example, here’s where you would start here in New York.

You can shop around, but also some of them do not reveal fees until after you have completed the process.

Disclaimer: The nature of free advice is that you often pretty much get what you pay for. Questions answered in the “Ask Tax Dad” column should not serve as a substitute for consulting a tax preparer, accountant, tax attorney, or certified tax cat of your very own. Tax Dad regrets that he cannot offer advice privately over e-mail.

Have a question for Tax Dad about your federal or state tax returns? Send it to us at tips@consumerist.com with “ASK TAX DAD” in the subject line. We’ll run the answers as soon as we can get him to stop Photoshopping pictures of wild grouse.