US Taxes For Families: How To DIY, Save Big & Pay Less Tax

In this lecture I will give you a 'bird's eye' look at a tax preparation process. You will learn what document is referred to as tax return, and what variants of it you might encounter.

This lecture is an explanation of what a Federal (not state) Tax Return is. I also show you what document is called US Federal Tax Return, address in short all the parts of that document. *Beginning with 2018, everyone who files a US Federal Tax Return, will use the same document, called Form 1040*.

The process of US Tax preparation always falls into the following steps:

1. List all income you made for the year from all sources (your job, side business, gigs, lottery winnings, etc).

2. Subtract all expenses you can claim as deductions.

3. Federal Income Tax will be calculated as % of the amount above (percentage depends on the amount of money you make - there are several tax brackets).

4. Subtract all expenses you can claim as credits from the amount of that tax.

5. Subtract amount of tax you already paid throughout the year (paycheck withholding or estimated tax paid).

6. Add any self employment tax (if you had gigs on the side).

7. Subtract expenses you can claim as refundable credits toward the tax above.

8. Your result will be either refund (if you overpaid tax) or balance due (if you underpaid tax during the year).

Your goal to be as close to ZERO as possible because IRS is not after ALL of you money, they only want the amount that you are liable for as tax.

Every tax preparation software will calculate your tax liability exactly the same way no matter if you go to a tax office or do it yourself on your own computer. There is no need to pay someone to do your taxes if you can take this course and learn how to do it correctly yourself.

Every tax preparation software will generate your tax document depending on the amount of information you need to enter. It will be form called 1040 by itself, if your tax return is very simple, or software will generate schedules 1, 2, 3, 4, 5, 6 or schedules A, B, C, C-EZ, D, E, EIC, F, H, J, R, SE, 8812. Complexity of your US Federal tax return depends on your life situation.

This is only general information on what we refer to as 'US Federal Income Tax Return' and 'doing taxes'.

Please watch the rest of the course for in depth information on all 8 steps of tax preparation.

You might be wondering who must and who should file a US Federal Tax Return.

Here are a number of simple criteria for you to check and see if any of them apply to you:

There are 5 groups of people who either live in the USA or Puerto Rico who must file depending on age and income, of course:

1. Individuals in general

2. dependents with certain income

3. Full time students or children under age 19

4. Self employed, or

5. Aliens.

If you belong to any of these groups, the next question is what are the rules for you?

It depends on the 3 factors below

• Your filing status

• Your gross income,

• Your age.

The first thing you need to do is determine your filing status. Your filing status depends on if you are single or married on December 31 of tax year and on your family situation.

Remember, that

If more than one filing status applies to you, choose the one that will give you the lowest tax. Tax preparation software will provide a prompt for you to do that.

Here's a chart with all 5 statuses and income thresholds

1. Single has to file if income is above $12,000 (younger than 65 yo) or above $13,600 (older than 65 yo)

2. Married Filing Jointly have to file is income is above:

• $24,000 (both spouses younger than 65 yo)

• $25,300 (one spouse is older than 65 yo)

• $26,600 (both spouses older than 65 yo)

3. Married Filing Separately if income is above $5 at any age

4. Head of Household if income is above $18,000 (younger than 65 yo) or above $19,600 (older than 65 yo)

5. Qualifying widow(er) with dependent child if income is above $24,000 (younger than 65 yo) or above $25,300 (older than 65 yo)

If your income is below the numbers mentioned above, for your filing status, you do not have to do taxes, unless you paid tax and want to get it refunded to you. Even if you don’t have to do taxes according to this table, you should if you are eligible for any of the following credits.

Earned income credit.

Additional child tax credit.

American opportunity credit.

Credit for federal tax on fuels.

        Premium tax credit.       

Health coverage tax credit.

And the last but not least note on this lecture:

Do only 1 federal tax return for each household!

It does not matter if you lived in several states or had several jobs and gigs on the side, only one federal income tax return per household is required.

If on December 31 you were married, there are special rules for Married Filing Separately filing status.

Because of these special rules, you usually pay more tax on a separate return than if you use another filing status you qualify for.

1. Your tax rate generally is higher than on a joint return.

2. You cannot take the credit for child and dependent care expenses in most cases, and the amount you can exclude from income under an employer's dependent care assistance program is limited to $2,500 (instead of $5,000). If you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit.

3. You cannot take the earned income credit.

4. You cannot take the exclusion or credit for adoption expenses in most cases.

5. You cannot take the education credits (the American opportunity credit and lifetime

learning credit), the deduction for student loan interest, or the tuition and fees deduction.

6. You cannot exclude any interest income from qualified U.S. savings bonds you used for higher education expenses.

7. If you lived with your spouse at any time during the tax year:

a. You cannot claim the credit for the elderly or the disabled, and

b. You must include in income a greater percentage (up to 85%) of any social security or equivalent railroad retirement benefits you received.

8. The following credits and deductions are reduced at income levels half those for a joint return:

a. The child tax credit,

b. The retirement savings contributions credit,

c.  Itemized deductions.

9. Your capital loss deduction limit is $1,500 (instead of $3,000 on a joint return).

10. If your spouse itemizes deductions, you cannot claim the standard deduction. If you can claim the standard deduction, your basic standard deduction is half the amount allowed on a joint return.

All of this means that practically any and all tax benefits reducing your taxable income or your tax which are available for married people filing a joint return (one tax return for a couple) are NOT available to you if each of you - your spouse and you each file your own tax return.

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In the resources section I will attach images of the form 1040, Schedule 1, Schedule 3 and Schedule A with all disallowed benefits highlighted. Please take a look and decide for yourself if you really want to use Married Filing Separately status and let go off so many tax benefits.

In addition to personal exemptions you can take either itemized deductions or one standard deduction on your return, which reduces your income and your tax bill even more. What's the best way to reach the smallest possible taxable income - with a standard or itemized deduction? It depends on your personal circumstances.

IRS Publication 17 clearly states that you cannot take both, but take either itemized or standard deduction – whichever gives you SMALLER TAX BILL.

How much is your standard deduction?

That depends on your filing status.

In 2018 it is

$12,000 for single filers or married couples filing separately.

$18,000 for head of household filers.

$24,000 for married couples filing jointly or a widow(er) with qualifying child

The standard tax deduction is a flat amount that the tax system lets you deduct, no questions asked.

Which begs a question – what expenses are covered by a standard deduction? The answer is in the form called Schedule A or Itemized deductions.

Let’s take a look at it.

If all of the expenditures that you can list on Schedule A total higher than the standard deduction, you will save on your taxes by itemizing them on Schedule A. If not, claim the standard deduction.

So the answer to the question about what expenses are covered by the standard deduction is in this list:

Medical Expenses

        Mortgage Interest

        Real Estate Taxes

Charitable Donations

However, if you don’t spend more than 7.5% of your income on medical expenses, do not pay real estate tax and mortgage interest (like both couples in the case studies, who rents their apartments), do not contribute a lot of money to charity, most likely your state and local taxes withheld from your paycheck will not be more than the standard deduction.

In this case go ahead, claim the standard deduction, you do not need to fill out Schedule A, and you don’t need to keep receipts for your housing.

This lecture includes details you need to understand the terms used in the software so you can answer the questions regarding Obamacare (Affordable Coverage Act) as it relates to you, your family and if possible, avoid paying a penalty.

As you've probably heard, the ACA, which some people refer to as "Obamacare", requires most Americans to have health insurance. If you already have insurance - or even if you don't - we'll walk you through what this means for your taxes.

You're considered covered for 2014 if you had minimum essential coverage for at least one day of each month during 2014. Special rules apply if someone was adopted, born, or died during 2014.

If you have received a form 1095-A (Health Insurance Marketplace Statement), you might want to know how to read it.

Here is line by line explanations for your 1095-A form:

• Line 1 contains the name of the state where you enrolled in health insurance coverage.
• Line 2 is the number the Marketplace uses to identify the policy in which you are enrolled.
• Line 3 contains the name of the company that holds your policy.
• Line 4 contains your name or the name of someone in your household with health insurance coverage from the Marketplace.
• Line 5 may show only the last 4 digits of the social security number (yours or one of your household members with health insurance coverage from the Marketplace.
• Line 6 will be filled out if there is no Social Security number.
• Line 7 only contains information if advanced payments are made (if the insured person is married).
• Lines 10-11 - check start and end dates for accuracy. If you were enrolled for the whole year, you will see December 31st 2014 on this line and you must re-enroll for annual coverage each year.
• Lines 12-15 are self explanatory.

• Part II details information for each individual covered under the health insurance policy. If more than 5 individuals covered, you will receive additional 1095-A forms. If you enrolled into Marketplace coverage with one or more people who you don't list on your tax return (for example your children under age 26), then make sure they got a copy of this form. If during enrollment you specified that you would not list them on your tax return, then you will not see their info on this form and they will get their own form from the Marketplace.
• Part III information is there for you to use it when completing form 8962 (Premium Tax Credit) when doing your taxes.
• Part IIIA is the total cost of the monthly health insurance coverage premium. If you received advance tax credit payments, you may only be responsible for a portion of this total cost.
• Part IIIB - this amount is calculated by the Marketplace. It is used to determine your monthly advanced tax credit payments and premium tax credit you get on your tax return. Keep the Marketplace informed about all change to your coverage during the year so these numbers are accurate.
• Part IIIC - this is the amount of advanced credit payments that were made to your insurance company for all or part of your premiums. If no payments were made, this section will be blank.

You need Forms W-2 from all of your employers.

Form W-2 is a statement showing wages and other compensation paid to you and taxes withheld from your pay.

Your employer uses this form to report your earnings to you and IRS.

You should have a Form W-2 from each employer no later than January 31, 2015

Form 1099.

If you worked as an independent contractor, or

- received interest on your savings or dividends from your bank or

- unemployment benefits from Department of Labor or

- state tax refund or

- retirement distributions or

- had cancelled debt

Then you should receive forms 1099 with corresponding letters next to the number 1099.

The payer is required to provide or send Form 1099 to you no later than January 31, 2018 (or by February 18, 2018, if furnished by a broker). If it is mailed, you should allow adequate time to receive it before contacting the payer.

The List Of Documents On Earned & Unearned Income

You Need To Start Your Tax Return

1. A copy of last year's tax return

2. Last year's (2017) Adjusted Gross Income (AGI)* or last year's Personal Identification Number to verify your identity. Don’t guess, an incorrect AGI or PIN can cause your return to reject. Get an online Electronic Filing PIN, a five digit PIN from the IRS or call the IRS toll-free line at 1-866-704-7388.

3. Valid Social Security Numbers for yourself and your spouse if applicable

4. Valid Social Security Numbers for your dependents if applicable

5. Forms W-2 from all of your employers

6. Forms 1099-MISC if applicable

7. Forms 1099-INT showing interest paid to you throughout the year if applicable

8. Form 1099-G showing any refund, credit or offset of state and local taxes

9. All receipts pertaining to your small business if applicable

10. Forms 1099-DIV and Forms 1099-R if applicable

Other Paperwork Showing Income

1. Income receipts from rental, real estate, royalties, partnerships, S corporation, trusts if applicable

2. Unemployment compensation if applicable

3. Social Security benefits if applicable

4. Other income if applicable

5. *AGI:

   On Form 1040 – page 2, line 7

If you run a business on the side, you can use expenses on your car or truck, parking, travel for business expenses, meals, office supplies, postage, etc.)

If you, your spouse or your dependent who you claim on your taxes had tuition and book expenses because of attending college, you can use these expenses to claim one of education credits.

If you a Member of Armed Forces and had to move away from your previous home, you can use moving expenses to reduce your taxable income.

If you paid interest on a student loan, you can use the form 1098-E on which the interest paid is reported to you and the IRS to reduce your taxable income.

If you paid alimony (not child support), you can use this expense to reduce your taxable income.

If you made contributions to Individual Retirement Arrangement (IRA) you can use this expense to reduce your taxable income.

If you had medical and dental expenses which exceed 10% of your income, and you itemize deductions, you can use those expenses to reduce your taxable income.

If you own a home and pay mortgage interest and real estate tax, you can use those expenses to reduce your taxable income.

If you bought a car or a boat and you itemize deductions, you can use sales tax on that purchase to reduce your taxable income.

If you donated big sums of money to charity, and you itemize deductions, you can use that expense to reduce your taxable income.

If you paid premiums for health insurance coverage, you can use that to reduce your tax.

If you had childcare or dependent parent care expenses you can use those to reduce your tax.

If you adopted a child and incurred expenses for that reason, you can use those to reduce your tax.

If you contributed to a pension plan, you can use those amounts to reduce your tax (income limitations apply).

Here is the list of common expenses that qualify as itemized deductions – if you had them, you can itemize your deductions if these expenses exceed your standard deduction to get higher reduction of your taxable income:

• Home mortgage interest (form 1098 or statement)

• State and local income taxes

• Real estate and personal property taxes

• Sales taxes on big purchases

• Charitable donations

• Medical and dental expenses

• Health insurance premiums

Deductions and credits serve the same purpose - they reduce your tax bill.

To put it in very short terms, deductions reduce your taxable income.

For example, if you are single and no one else lives with you and you don't support anyone else financially, your income from all sources like your job, your side business, interest your savings have generated, etc. equals $75,000.

You rent an apartment which means that a standard deduction you are entitled to is $12,000 (in 2018). This amount is deducted from your income to reduce it before income tax is calculated. Which brings your taxable income down to $63,000.

You paid $4,000 in student loans interest, you will qualify for a $2,500 (this is maximum) student loan interest deduction from your income, which will bring your taxable income down to $60,500. According to the income tax table before this deduction was applied, your tax would be $12,445 but after the deduction was applied the tax would be $9,255. There is definitely a reduction in tax. That's how student loan interest deduction helped you to lower your tax bill.

Now it's time to apply credits toward that tax amount. In 2018 you listed your 10 year old daughter on your Federal Income Tax Return, and are eligible to claim Child Tax Credit of $2,000 . This credit reduces your tax from $9,255 down to $7,255 because the credit amount is subtracted directly from the amount of your tax bill. This is not the end of the calculation, of course, because most likely you've already paid some of this tax (or even higher amount of tax) through your pay check withholding, but this statement goes beyond our example the purpose of which is to compare how deductions are different from credits.

Deductions and credits help to lower your tax bill, both of them are without a doubt tax benefits.

Some Credits are refundable, some credits are not refundable.

What that means is

If refundable credits are higher than tax amount, the difference becomes a part of your refund

If non refundable credits are higher than tax amount, the difference does not become a part of your refund.

List of Refundable Credits:

Child Tax Credit

Earned Income Credit

American Opportunity Credit

Credit for Federal Tax on Fuels

List of Non Refundable Credits:

Foreign Tax Credit

Lifetime Learning Credit

Retirement Savings Contribution Credit

What happens on the second page of your final tax document called US Federal Tax Return (form 1040) is all calculated by tax preparation software - no matter who prepares your tax return: you or someone you pay to do it. There are tax tables built into the software and they will take into consideration you filing status, amount of your income, apply personal exemptions, other deductions your are entitled for, and either standard or itemized deductions. After that you will see amount of tax you are liable for listed.

But then any credits you are entitled for will be applied to the calculated tax, and they will reduce it. Next section of the document will list any other taxes you might be liable for - like self employment tax (if you had any gigs on the side).

Then comes the section with taxes you've already paid through withholding from your pay check, and any refundable credits (if you qualify for any) will be counted as tax payments you've made as well. Now all these payments will be subtracted from the amount of tax listed in the previous section of the second page of your 1040 and you will see either refund which will be sent to you by the IRS, or amount of tax still due.

Whichever the case it, remember - both of these amounts need to be as close to zero as possible. IRS clearly states in all the paperwork that they expect you to pay only what you are liable for. If you pay too much, pay really close attention to Withholding section, because I will be talking about how to make sure you stay as close to zero as possible and keep more money in your pocket every month.

When you about to start preparing your tax return, you will need some very basic information handy, just like I provided for your in this case study.

You will need the following information to start your tax preparation:

1. Names of all people who you plan to claim on your tax return, the way they are recorded on their social security cards. In this course we are talking about married people without any dependents, so it will be only your name and your spouse's name.
2. You will need social security numbers for you and your spouse - because that's how IRS and the department of revenue in your state keep records of all tax paid.
3. You will also need the dates of birth (death) for yourself and your spouse.
4. You will need all income documents.
5. You will need all documents showing expenses which you can claim on your tax return to get tax benefits.
6. Beginning in 2014 you will need health insurance coverage information for you and your spouse for each month of the year.

This is exactly what I have provided you with in this lecture, so you can go ahead and use it as a practice to test the software and see how the tax interview flow goes. Very likely, while reading all the questions for Gary & Nancy, you will realize that you need to go and look for more paperwork for yourself as you go through your practice return.

That is exactly why I give you this opportunity to do a case study with me - so when it's time for your to do your own tax return, you can do it with confidence after practicing with this mock up document in the free software online.

Now - go and practice, because practice makes perfect!

Larissa

Let's go on the Internet now and find Tax Hawk website. I prefer this website to others for a couple of reasons - the software is full of Help topics and anyone can use it to file their federal tax return for free, regardless of income level. To file a state tax return is extremely affordable too.

So, click 'Start Free Return' button and you will see new account screen with 'Create New Account' button. Once you click on it, the software will open up a template where you can provide your e-mail address which will become your user name, create password, create security questions, and click 'Create New Account'.

The next screen will give you an overview of what kind of support you can expect from this company - tax help, technical support for the website, etc. They give you a promise to take you all the way through tax preparation process.

You are done with this step and now you are ready to start filling out your tax return.

You might be wondering if you should include your spouse into your tax return if they did not work during the year and did not pay any taxes. The answer to that question - is yes, absolutely. I will tell you why.

For every person you list on your tax return you get a tax break called 'personal exemption' - which means that your taxable income gets reduced by $3,950.00 (in 2014). Any reduction in personal income means lower tax bill.

You should definitely include your spouse on your tax return so you can get this tax break when filing jointly. I have covered the benefits of filing jointly for vast majority of married couples in the previous section of my course.

Make sure to have their social security number handy and, of course their date of birth - you will need this information at the very beginning of your tax preparation.

Now it's time in your tax preparation to report income. Only Gary had a job and a W2 form, Nancy did not work. This actually simplifies the work you have to do. We will enter his W2 information on wages and taxes he has already paid to the federal government and the state of Georgia (they happen to live in Georgia), including medicare and social security tax, exactly like you see it on his W2 - box for box into the form that software will open for us and save our work. When the software asks us if we want to enter a W2 for Nancy, we will just say 'No'.

We are done with this initial part of the tax preparation, and the software will immediately calculate either refund or balance due - you will see it in the top right hand corner.

In this lecture I will show you how the screen with questions regarding Affordable Care Act (otherwise known as "Obamacare") looks like, you will see what questions you need to answer on that screen and understand what information you need to provide in your particular case, because every family's situation is different.

I know you have expenses for all sort of things in your life. Some of them can be actually beneficial during your tax preparation. Many different expenses can be reported on your tax return and you will get a deduction (which reduces your taxable income) or a credit (which reduces your tax dollar for dollar!).

I am sure you want to know where and how to report qualified expenses on your tax return, that is why you need to watch this video and learn from me.

Deductions and credits are a great way to ensure that you do not pay more tax than you have to.

In the tax preparation software I use there is a section right after you finish working on your deductions and credits, which allows you to double check if you missed any opportunities to take advantage of tax benefits you are eligible for. I strongly suggest you don't skip this lecture, watch the whole thing, and see what you can discover in your tax preparation process that can help you save even more money and get a bigger refund. I am a big believer that you should not overpay taxes during the year to begin with, but if there is a chance you missed any options available to you - go ahead and check if you qualify for more tax benefits. Legally, of course.

If you think that now that you've finished entering your income and expenses information into the federal tax form and will have to do the same for your state tax form, you are in for a nice surprise.

The software will transfer everything you have entered into the software so far into your state tax return. All you will have to do is make sure you read and accurately answer all the questions in the state tax interview so you don't miss any additional income you need to report nor any expenses you can use to lower you state tax bill.

I will show you on Georgia state return, just for example how the interview flow goes. There will be no long list of states and demonstrations how to do all state returns for those states which do tax income, because it will be beyond the scope of this course.

You will see how you provide information for your refund (if you are entitled to receive one) to be direct deposited into your bank account.

Now all you will have to do is submit your tax return electronically.

When you about to start preparing your tax return, you will need some very basic information handy, just like I provided for your in this case study.

You will need the following information to start your tax preparation:

1. Names of all people who you plan to claim on your tax return, the way they are recorded on their social security cards. In this course we are talking about married people without any dependents, so it will be only your name and your spouse's name.
2. You will need social security numbers for you and your spouse - because that's how IRS and the department of revenue in your state keep records of all tax paid.
3. You will also need the dates of birth (death) for yourself and your spouse.
4. You will need all income documents.
5. You will need all documents showing expenses which you can claim on your tax return to get tax benefits.
6. Beginning in 2014 you will need health insurance coverage information for you and your spouse for each month of the year.

This is exactly what I have provided you with in this lecture, so you can go ahead and use it as a practice to test the software and see how the tax interview flow goes. Very likely, while reading all the questions for Tom & Jane, you will realize that you need to go and look for more paperwork for yourself as you go through your practice return.

That is exactly why I give you this opportunity to do a case study with me - so when it's time for your to do your own tax return, you can do it with confidence after practicing with this mock up document in the free software online.

Now - go and practice, because when it's time to work on your own tax preparation, you will feel very confident if you practice on a mock up tax return first.

Larissa

Right after you create an account on the website, you will be asked to choose your filing status. It depends on if you were married or single on December 31 of a particular tax year.

It is very important to use the same person as 'taxpayer' as you did last year if you filed with the same person and used married filing jointly status, even if the person who is actually doing tax preparation is the other spouse.

Go ahead and record the first and last name, social security number, occupation, date of birth, and street address. Once you've finished with this screen, click 'Save and Continue'.

Now that all the information for Tom is recorded and saved, pay close attention to the 4 questions at the end of this screen because it is very important to answer them correctly. Once you answer those questions, press 'Save and Continue' again.

The next screen will ask you for the same information for the spouse. I have put all Jane's information in.

Once personal information for both spouses is in, click 'Save and Continue' again and you will see a summary screen of that. This is your opportunity to check everything for accuracy. Make sure to do just that.

After you finish with personal information entry, the software will give you an opportunity to enter your and your spouse's information about wages. This information can be found on your forms W2.

Click to do it for Tom first. In supplemental materials in the first lecture of this section I have provided a copy of Tom's W2, which, of course is not real, it's a mock up so you can practice. None of the numbers nor information on that form is real.

Tom's name and address will be filled out already, all you have to do it enter numbers into the same boxes in the online software as you see on the paper (all the boxes numbered, as you remember from the lecture about the structure (anatomy) of a W2 form, I am sure).

Just like I did, go ahead and enter information about Tom's employer, wages and tips, tax he already paid to the federal government, to social security administration, medicare, as well as his income taxable to the state and tax he has paid to the state where he lives. In our example it's Georgia.

Make sure to answer the 2 questions at the bottom of this screen: if this is a standard or non-standard W2 and if this is a corrected W2 form. Non standard would be either handwritten or hand typed.

The next screen will display alerts if any information you just entered is not in the software database. That's the case with our example, because every single number on it is fake, for the purposes of this exercise only. If you receive any alerts doing your own tax preparation, please pay close attention to such alerts and read everything they say, because this is your opportunity to make needed corrections.

After you save Tom's information, you will be offered to enter Jane's W2. At this point you will already see the amount of the refund that the couple will be entitled to at the top of the screen on the right. Of course, this is not a final number, because you just started entering all their details.

Now you can click 'yes for Jane' and proceed entering all her data into the online template of a W2 just like you see it on her paper form. The process and the order of entering Jane's W2 information is exactly the same as that for Tom - her name and address will be already in the template, you will have to enter her employer name and address, their federal tax ID, and Jane's wages and tax paid to all institutions listed on her W2 form.

Don't forget to answer the same 2 questions regarding Jane's W2 at the bottom of the screen. You will see alerts on the next screen because this was not real information, it is definitely not in the software database. I cannot stress enough that if when preparing your own taxes you will see an alert like that, please pay close attention and correct any errors you might have made doing data entry.

The next screen will offer you summaries of the two W2 forms. If the couple had more W2 forms from other jobs, you would enter those into the software just the same way as you did the first two.

The next screen will have a list of other sources (paperwork) of income. If when doing your own taxes you will have to enter any of the forms, go ahead and click the corresponding 'Start' button, if you don't have any of the listed documents, do not click those buttons otherwise you will be confused by the template which software will open for you and you will not know what to do with it. Just click 'Save and Continue'.

The next screen will show you a summary of the couple's income. Notice how all the items listed on the left are hyperlinks - you can always go back and enter the documents you might have forgotten you still have to enter. You will also see that the amount of refund has changes.

To explain how the software came up with that amount, let's take a look at the first page of the final tax document which the software will generate when you are done working on your taxes. This is form 1040, In 'Filing Status' section you will have 'Married Filing Jointly' checked and two exemptions - one for you and one for your spouse checked in 'Exemptions' section.

What is calculated based on those choices is the amount of personal exemption is multiplied by 2:

$3,950 x 2 = $7,900.

then standard deduction of $12,400 for married filing jointly status is added to $7,900 and the resulting amount of $20,300 is taken out of the couple's total income and it reduces their taxable income significantly.

The option to report if you and you spouse had health insurance coverage for the whole year will appear right after the software will give you the choice between standard deduction and itemized deductions, and by default, you will get the one which gives you smaller amount of taxable income, and as a result, smaller tax liability.

Then the screen with questions about health insurance coverage will open up. There will be 2 questions:

1. Was everyone in the household insured the whole year?

2. Was health insurance coverage purchased through the Marketplace?

Because Jane lost her job in November, I answered 'no' to the first question. The next screen will ask if Jane had health insurance at least part of the year. Tom had health insurance coverage for the whole year.

The next screen will offer an opportunity to enter details on Jane's health insurance coverage. I clicked on 'Start' button and the next screen had a list of months with check boxes next to them and I checked all boxes but the one for December.

Then next screen informed me that Jane is qualified for Short Coverage Gap exemption from the penalty for not having health insurance. I clicked on the link on the screen and saw details about this exemption. If a person did not have health insurance for less than 3 months in a row, they will not be penalized by a fee.

The next screen is a summary of health insurance coverage determination. There is a message that a special worksheet with calculations of the penalty will be included into the final print out of the tax return. There is also a note that new form called 1095-B and 1095-C are for information purposes only, in case the couple has received any of those in the mail. This couple did not purchased their insurance coverage from the Marketplace, therefore they are not qualified for Premium Tax Credit (PTC).

Let's take a look at the final document (form 1040) to see where the info about healthcare coverage is recorded on that form. It will be line 61 in the section called Other Taxes. For Tom and Jane the box will be checked and no amount of fee will be recorded.

This step of tax preparation gives you an opportunity to list all allowable expenses which qualify for a deduction (reduction of taxable income).

The first one is IRA contributions. Tom and Jane don't have any Individual Retirement Arrangements, that is why line 32 on their first page of form 1040 will be blank (see the first page of this form).

They do not pay for college in 2014, so there is no for 1098-T and no benefits for education expenses will be recorded that's why line 50 of their form 1040 will be blank (no credit).

The couple did not pay any interest on a student loan, but if they did, up to $2,500 deduction (reduction of taxable income) would have been recorded on line 33.

None of them is a teacher, so Educator expenses deduction will not apply to them.

Their income is higher than the threshold for Earned Income Credit (ENC) so line 66a on the second page of their form 1040 is blank, because they are not qualified for this credit.

The couple does not own a home, so Home Energy Credit is not going to be on line 53 of their form 1040.

The screen showing a list of Other Deductions and Credits is not going to help them either. If none of the items on that screen applies to you, don't click on 'Start' buttons, so you don't get confused by the forms that would open up if you clicked.

The next screen is showing a summary of all deductions and credits. For Tom and Jane the only two deductions are personal exemptions and their standard deduction totaling in $20,300.

The last step before printing and filing Tom and Jane's return (and yours too) is checking if you can minimize your income to maximize your refund even more.

Before you can do that you will see one more screen offering you to check if any Miscellaneous Forms and Topics in the tax preparation flow pertain to you. These items are uncommon, most people don't need to enter anything into those forms, but make sure you pay attention to these items, so you don't miss any expenses you can claim to reduce your taxable income. If none of the items apply, just click 'Save and 'Continue'.

Refund maximizer will take you through some questions based on the info you've entered already to make sure that you did not miss anything that can give you more tax benefits.

You will get a question regarding dependents to see if you need to enter any information. Make sure to read all the questions and answer them correctly.

The next screen will offer you to minimize your income - there is a link on that screen to a list of income which is not taxable.

Then the software will offer you to check your deductions and credits. There will be some repeated questions, but also two new ones, make sure to read all the questions and answer them correctly.

After you are done with the refund maximizer you will see a summary of your federal tax return.

Depending on how much information you had to enter, the software will generate 3 different modifications of form 1040 - 1040A or 1040EZ. For Tom and Jane it is 1040EZ because they no other documents to record besides their W2 forms, and they don't have dependents either.

If you decide to read IRS Publication 17, you might be surprised to discover what I am about to tell you in this lecture: IRS is actually not interested in you paying more tax than you are liable for. This publication clearly directs you to regularly check if your withholding equals your tax liability. If not, then you need to fill out an new form W4, make adjustments to your allowances and submit it to your payroll department.

You might be also surprised that you can do it as often as you wish. There is no limit on how many W4 forms you can submit.

W4 as you know determines how much money will be taken out of each paycheck you receive, which means that if you want to keep more money in your pocket, you definitely need to watch all videos in this section to learn how you can avoid big refunds, and have more money in your pocket each pay check.

According to tax law, in the United States of America income tax is to be paid on pay as you go basis – consistently throughout the year. To comply with the tax law, if you are an employee, when you get a new job, Human Resource department will ask you to fill out form W4, so payroll department can set up automatic withholding of income tax each pay period. In this section we will take a close look at that form.

Based on number of working people you have in your household form W4 gives you an option to enter numbers 0, 1 or 2 on line 5, but your total number of exemptions can be as high as 14 if you plan to itemize deductions on your tax return or claim credits which you are entitled to. Form W4 offers a worksheet which you, a taxpayer can fill out to find out correct number of exemptions for your income. It is important to keep in mind that the number can be as high as 14 if you plan to claim a lot of credits and itemize deductions. Proper number of exemptions will guarantee that payroll department will not withhold too much or too little income tax from your paycheck. The truth is – if your refund is consistently very high when you file your federal income tax return, your money is making interest for IRS, not you. You will get the refund after you file your income tax return, but you will not get interest made by your refund, IRS will keep it.

I also will teach you to track how close you are with your tax withholdings to your actual tax liability using your paycheck stubs so you can use your W4 as a tool to keep extra money in your savings account, not in IRS account.

When you get your paycheck stub, use the section where your current tax withholding is listed. You will see federal tax, social security tax, medicare tax and your state of residency tax withheld.

Depending on how many times a year you get paid, do some math. For instance I get paid 24 times a year (twice a month), so I would multiply those numbers by 24 and write them down.

Then go to a tax preparation software (either online or on your computer) and create a mock up tax return using those numbers. If you will come up with a very high amount of tax refund, you need to fill out a new W4 form and increase the number of exemptions on line 5 of that form (see the previous lecture for directions).

If you will end up with a large balance due, you need to fill out a new W4 form as well - but in this case you need to decrease the number of exemptions on line 5.

In both cases submit your new W4 to your payroll department and when you get your next paycheck stub, do these calculations again, this time make sure you use add your year to date withholding to the amount of current withholding multiplied by the number of paychecks left in the year. If you still need to make changes to your withholding, go ahead and do it, so your refund or balance due on your mock up tax return is as close to zero as possible.

In this lecture I give you a guide on filling out all pertinent information on your W4 form.

This form should serve you as an instruction to your payroll department to either increase or decrease you tax withholding.

This form is asking for your name, address, your social security number, and the number of exemptions you want to use to determine the amount of tax your payroll department will withhold from each of your paychecks.

Take a close look at this video and make sure you always pay only what you actually owe to the federal government. IRS does not want any extra money, if you overpay your taxes year after year - it is your own choice, IRS refunds it to you every time, don't they?

So make sure you pay close attention to this section and keep a close look at your withholding from now on.