TurboTax: Maximum deductions

chrisontario · Post by **chrisontario** » Thu Mar 22, 2007 7:31 pm

Hi again

I am tackling TurboTax for the first time in the US. I have used QuickTax; UFile, etc. and Netfiled all my previous Canadian tax returns.

TurboTax seems to maximize deductions and came up with, for example, an extra deduction, a general sales tax amount, when I itemized deductions. I looked in the IRS guide to no avail, so I checked the website. Lo and behold was a General Sales Tax Calculator that the IRS provides. So I entered information in their calculator, and it came up with the same amount that TurboTax stated.

On the website, it's written: "Enter the general sales tax deduction on Schedule A, line 5, and enter "ST" next to line 5.". I would never have known about this if I had not used TurboTax.

I wonder if there are other hidden deductions that I will have to rely on TurboTax to find for us.

nelsona · Post by **nelsona** » Thu Mar 22, 2007 9:30 pm

Thec sales tax deduction is well known. It generally is for people who live in states with no state income tax, or in years when one made a large consumer purchase. Otherwise state income taxusually trumps over sales tax.

nelsona · Post by **nelsona** » Thu Mar 22, 2007 9:33 pm

But yes, in general it is always better to use software to do one's taxes, and go thru every question on the interview.

chrisontario · Post by **chrisontario** » Fri Mar 23, 2007 9:00 am

Thanks nelsona

I do prefer using the tax software. It seems my (naive) calculations of the complicated Foreign Tax Credit (1116) has generated a different (more favourable) credit than what TurboTax has calculated.

Further, I checked 2 other IRS efile software, which support 1116, and each gave me different foreign tax credit amounts.

So, do I save the $20-$30 for the tax software and just submit the handwritten (and pray that it's right). Will the IRS come down hard on us (me) if the credit is way off?

If the foreign tax credit calculations were just a few dollars off, no problem, but each (including mine) has generated a $100 to $300 difference. That's too much of a variance. Maybe I should just stick with TurboTax, since it's the most reliable/popular?

nelsona · Post by **nelsona** » Fri Mar 23, 2007 9:05 am

I would NOT rely on your pencil 1116. They are so many limitations on 1116, that it is impossible to account for them all.

Any differences you are getting are probably due to (a) how you entered the information from the beginning, and (b) how each package treats the definition of GROSS income (that is what I've seen).

Stick with one. I use the one that matches my Financila program (Money - taxcut; Quicken -Turbotax). I would not suggest you use the on-line versions for your US taxes. They are NOT as relieable as Ufile.ca for example.

Besides, you time is worth something too, no? How many times do you want to do your taxes?

chrisontario · Post by **chrisontario** » Fri Mar 23, 2007 9:24 am

Re the limitations of 1116: I agree, there are too many "hair pulling" frustrations with the 1116. I've called the IRS on help with the Deductions on Part I, and everytime, I get a diffrent response. Sigh!

These days I have plenty of time to test the many tax software packages out there. I want the best for our money; and I realize the cheapest isn't the way to go. Even with TurboTax (it's not linked to our Quicken accounts yet), it can only respond to what I enter. In other words, Garbage In Garbage Out and I hope that I'm entering the right information. I'll say a prayer just before I send our first joint return. :) I don't want to cause the IRS any more work on our return than they have to.

Thanks for your help, nelson

nelsona · Post by **nelsona** » Fri Mar 23, 2007 9:34 am

Please do not waste your time calling the IRS telephlunkies. They are notoriously incorrect, and inconsistently incorrect.

chrisontario · Post by **chrisontario** » Fri Mar 23, 2007 12:03 pm

Believe me, nelson, I ain't gonna call the IRS people again as I don't understand why I don't the same information. That's why I am checking and asking questions at this forum.

The questions I had asked BEFORE finding this website was where do I record my Canadian foreign income on the 1040. One lady, after putting me on hold, returned to say, "put it on LIne 21, for other income". Then, later, I called again, to get a man, who also put me on hold, and said that, "foreign income, if it's wages, goes into Line 7; if it's foreign interest, goes into 8a, etc."

I was going to flip a coin to decide whose answer to go by. :) Does it matter which line I enter the foreign income, since I won't be submitting Canadian receipts, or would that cause more harm than good for the IRS folks?

nelsona · Post by **nelsona** » Fri Mar 23, 2007 12:46 pm

The overriding proncipal you should remamber is that US persons report income from all over the world. So they are not constrained to reporting 'this box goes on this form and on this line' like we do in Canada.

Therefore ALL wages go on line 7, ALL interest goes on 8, ALL pensions go on 16,etc. Regardless of source, regardless of whether a W-2 or a 1099 was issued. Since line 8 has to match schedule B, I would be making sure these match

Line 21 has its own instructions. I don't see the word foreign there.

chrisontario · Post by **chrisontario** » Fri Mar 23, 2007 11:19 pm

Thanks nelson. One more question: where do I enter maternity benefits on the 1040? I have a small amount to add. I remember the IRS lady told me to add it to Line 21, because it seems she had no idea where to add it.

This forum is very helpful. Many thanks

chrisontario · Post by **chrisontario** » Fri Mar 23, 2007 11:22 pm

One more question: Should I add the foreign income, interest, etc. on the same places in our state 1040 form as well?

nelsona · Post by **nelsona** » Sat Mar 24, 2007 4:57 am

Once you do your fed return, the state one will populate itself.

Interst is interest. Mat is UI line 19

chrisontario · Post by **chrisontario** » Sat Mar 24, 2007 11:35 am

Hi nelson, thank you again.

I have been reading our state IRS guide, and I read, with cautious glee, that unemployment compensation is "tax exempt", so I will take that to mean from any source (foreign or local).

Turbo Tax charges an extra $30 to complete the state return and our state offers free web filing for tax returns. Hence, I am planning on using that service, as long as I know where to enter the foreign amounts. I only have Cdn. wages and interest, so it would seem fairly straightforward.

The only thing that concerns me is not providing Canadian tax slips for amounts entered. How does the IRS and/or state verify the Canadian information from so many returns being submitted?

nelsona · Post by **nelsona** » Sat Mar 24, 2007 10:07 pm

They don't/ Get used to it. IRS doen't even send an assessment like we are used to telling you everything is OK or not. You file and that is it. They cash your check or send you one -- with no other info. See you next year.

flames9 · Post by **flames9** » Sun Mar 25, 2007 7:39 am

Ya, my father found that strange yrs back. He (Cdn) worked down in the USA for awhile. he owed IRS $$, so he paid. Time went on, so he was getting a bit concerned, so he phoned IRS inquiring if they had received the $$$, they stated yep. he asked don't you mail out a receipt or something, and they replied no!!
Dealing with IRS on the phone can be an experience. I have phoned a few times and have only once got a response I was confident to use. One delaing with RRSP was a disaster, but they were nice enought to take down my info, and were to call me back--within 15 days!! On the otherhand, when I have called revenue canada, they have been most excellent.