You’ve probably heard that 51% of Americans don’t pay federal income tax, and many end up getting paid by the IRS. But if you are an EB2/EB3 immigrant waiting for green card, you most likely belong to the other 49%. Oops!
I don’t remember how much taxes I paid over the years, but I do recall the pain every year before April 15. So today when I saw a hot deal on Amazon’s tax software, I jumped on it. Now, I may still find other excuses to procrastinate, but at least shopping for a tax program can’t be one.
I have been using tax software and e-filing for nearly 10 years, mostly TaxCut (now called H&R Block at Home – quite intuitive, huh?) but for a couple years I did try TurboTax. I never had an accountant do my taxes before, although some friends strongly recommend it. Maybe some day I’ll give it a shot. I only know one person that still fills out paper forms and does calculations by hand, so he is my hero.
There are two major commercial tax programs on the market: TurboTax and TaxCut (H&R Block at Home), with TaxAct being a third option. They are priced pretty much in that order, from high to low. They can all import last year’s tax returns, as well as financial data from certain institutions. They are somewhat cross-compatible. There are many articles on the Internet to compare the three, but my personal experience is that they all get the job done. You may prefer one’s user interface, or certain features, more than the others. For me I started with TaxCut and found no reason to switch.
Tax software usually comes with four editions: Basic, Deluxe, Premium, and Business. The basic version handles simple returns (1040EZ, e.g.) and is often free. Deluxe is the most popular, which covers common tax situations including regular 1040, investment, home mortgage interests, donations, other itemized deductions and tax credits. Premium adds income/expenses from rental properties, self-employment and more complicated investment. The business version is useful for small business owners.
If you live in a state that collects state income tax, you will need to select the combo pack while purchasing the tax software. Although you can add the state option later on, it will certainly cost you more money. As to e-filing, the software you purchase usually comes with one free federal efile (or even five), but will charge you somewhere around $20 for electronically filing your state tax return. A smart marketing move, because at that point most people will probably just pay up to get the thing done. Note that if you have the simplest return to file, or your income is below certain level, you can use many free programs online to prepare and e-file your return.
All three tax programs mentioned above have desktop and online versions. You can buy the desktop version either in a retail package that includes a physical CD, or by downloading it directly from an online store. While preparing your tax return, you save the data locally on your own computer. You only submit them to the IRS and/or state board when you are done. The online version, on the other hand, stores your personal, financial and tax information in the Cloud – the software company’s web server. Your data will be encrypted, and you can access them anywhere. Online security is indeed a concern for many people, but your own computer may be hacked too. So neither method is risk-free.
A few tips for new immigrants and non-immigrant visitors:
- You may have to file a tax return even if you don’t owe any tax. This may be a new concept to many who are not familiar with the U.S. tax system. So double and triple check if you think you can legally skip it. The IRS has many helpful documents.
- Some tax software programs may not include all necessary forms for non-resident aliens.
- Non-resident alien and resident alien for tax purposes is different from your immigration status. You may be an H-1B worker without a green card, but must file tax as a resident alien, for example.
- Most F-1 and J-1 students can file tax as nonresidents during their first five calendar years, while J-1 scholars are considered nonresidents for taxation purposes during their first two calendar years of presence in the U.S. Your filing status is very important because your tax return should be prepared differently due treaties, social security taxes, etc.