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I'm preparing my taxes using TurboTax's basic free tier. Last year I had $26.62 in realized long term capital gains. To report this using TurboTax, I need Premier, which is a $54 add on.

Even in a fairly low tax bracket, I'm assuming the IRS cares about every cent. Is it possible to file that single form aside from the rest of my return? Do I have to fill out my whole return by hand to avoid this surcharge?

How do I keep this trade profitable despite tax season?

An annoying conflating factor that applies to me and probably not most people trying to do this: I already sunk $30 or so into the "we retain your filings for you securely" add-on, and I'd like to get some utility out of that money I spent.

  • 3
    I would argue to not get your taxes prepared by any place that charges you by the form like this... I call this "nickel and diming to death" – Michael Feb 14 '17 at 18:03
  • @jamesqf - my tax situation isn't all that complicated (the only unusual thing being that I rent out my former home), yet last year's tax return was over 30 pages including all of the worksheets needed to determine my tax liability. The tax code is way more complicated than it should be. – Johnny Feb 14 '17 at 23:30
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    Most folks don't need tax software, just as most folks don't need paid tax preparers (another service offered in the US). But when you figure the value of the time saved, and the reduction in annoyance,. Either option starts to look more attractive. And remember, most of the complexities in US taxes come from opportunities to reduce the amount of tax you pay; if you are willing to give up your deductions and tax breaks --which you can mostly do -- the process becomes much simpler but you pay for that with an increased tax bill. – keshlam Feb 15 '17 at 4:12
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    @stanri: It's stayed this way because Intuit has lobbied hard to make sure the tax code remains complicated so that they can keep selling their software. (No, I'm not joking. Look it up.) The government has been trying to fix it but these companies have a different agenda. – Mehrdad Feb 15 '17 at 4:34
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    Maybe just file your normal return. Then, after it's accepted, manually file an amended return that reports that added $26.62. But I have to agree with others saying "Switch service!" I've been happy with TaxAct for a number of years, filing Schedule D with at least dozens of line items, self-employment income and numerous additional schedules, and I don't think it's ever gone up as high as $15. Convenience alone has been worth it. – user2338816 Feb 15 '17 at 11:24
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You are not the only one with this problem. When Intuit changed their pricing and services structure in 2015 a lot of people got angry, facing larger fees and having to go through an annoying upgrade just to get the same functionality (such as Schedule D, capital gains).

You have several options:

(1) Forget Turbo Tax and just use paper forms. That is what I do. Paper is reliable.

(2) Use forms mode in Turbo Tax. Of course, that may be even more complicated than simply filing out paper forms.

(3) Use a different service. If your income is below $64,000 the IRS has a free electronic filing service. Other online vendors have full taxes services for less than Turbo Tax.

(4) Add the amount to ordinary income. Technically, as long as you report the income, you cannot be penalized, so if you add the capital gain to your ordinary income, then you have paid taxes on the income. Even if they send you a letter, you can send an answer that you added it to ordinary income and that will satisfy them. Of course you pay a higher rate on your $26 if you do that.

(5) If you are in the 15% or below income bracket you are exempt from capital gains, and you can omit it. Don't believe the nervous Nellies who say the IRS will burn your house down if you don't report $26 in capital gains. Penalties are assessed on the percentage of TAXES you did not pay (0.5% penalty per month). Since 0.5% of $0 is $0 your penalty is $0. The IRS knows this. The IRS does not send out assessment letters for $0.

(6) Even if you are above the 15% bracket, there is likelihood it is still a no-tax situation (see 5 above).

(7) Worst case scenario: you are making a million dollars per year and you omit your $26 capital gains from your return. The IRS will send you an assessment letter for about $10. You can then send them a separate check or money order to pay it.

In all honesty I have omitted documented tax items, like taxable interest, that the IRS knows about many times and never gotten an assessment letter. Once I made a serious math error on my return and they sent me an assessment letter, which I just paid, end of story. And that was for a lot more than $26.

The technical verbiage for something like this in IRS lingo is CP-2000, underreported income. As you can see from this official IRS web page, basically what they do is guess how much they think you owe and send you a bill. Then you pay it. If you do so in time, you don't even get a 0.5% interest penalty on your $6.75 owed or whatever it is.

(8) Go hog wild. As long as you are risking an assessment on your $26, why not go hog wild and just let the IRS compute all your taxes for you? Make a copy of your income statements, then mail them to the IRS with a letter that says, "Hi, I am Mr. Odinson, my SSN is XXX-XX-XXXX. My address is XYZ. I am unable to compute my taxes due to a confused state of mind. I am hereby requesting a tax assessment for the 2016 tax year." Make sure you sign and date the letter. In all probability they will compute the full assessment and send you a bill (or refund).

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    RE: #3 freefilefillableforms for the win! This also applies if your marital income is less than some amount (not sure what the amount is, probably double ~ 128,000) – Peter Turner Feb 14 '17 at 15:57
  • Funny you mention it, the price changes actually caused me to start using a CPA now for my taxes – quid Feb 14 '17 at 18:00
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    Does #8 open up the taxpayer to adjudication for mental fitness or having a fiduciary appointed? – Freiheit Feb 14 '17 at 21:48
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    If it wasn't for regulatory capture and lobbying (way too much money in the tax prep industry for congress to be willing legislate most of it out of existence); #8 done automatically by the IRS using all the data already submitted to them is how it should be done for everyone whose situation isn't complicated by a need to self report addtional income/expenses. – Dan Neely Feb 14 '17 at 22:24
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    Don't do #8. CP-2000 is just a courtesy process; the IRS is not obligated to calculate your taxes for you and you could well go to jail instead of getting a CP-2000 notice. The CP-2000 process only exists because it is cheaper for the gov't to calculate your taxes for you than jail you, but from time to time they will make an example of someone. – DepressedDaniel Feb 15 '17 at 3:45
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is it possible to file that single form aside from the rest of my return?

Turbotax will generate all the forms necessary to file your return. I recommend you access these forms and file them manually. According to the IRS in order to report capital gains and losses you need to fill out Form 8949 and summarize them on Form 1040 D. Add these two forms to the stack that turbotax generates. Add the total capital gains to line 13 of the Form 1040 which turbotax generated, and adjust the totals on the form accordingly.

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    Exactly. TT is a great product, and a victim of its marketing folk trying to differentiate the 3 (main) levels of product variation. – JoeTaxpayer Feb 14 '17 at 13:06
  • Does this sort of approach require printing and mailing your entire return, or can you still efile the >90% that turbotax can do and then just mail the two additional forms in? (As an updated/corrected/whatever the IRS calls it return?) – Dan Neely Feb 14 '17 at 14:56
  • @DanNeely you can do either one. For the latter you would want to file an amended tax return. – Nosrac Feb 14 '17 at 15:07
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    Does this apply to TT online or only desktop version? – stannius Feb 14 '17 at 19:27
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Are you sure that TurboTax Deluxe won't be able to handle your capital gains?

When TurboTax removed this functionality from their Deluxe product in 2015 (for tax year 2014), sales plummeted, and they realized that the enormous effective price increase was a colossal mistake. The following year, I understand that they put back all the functionality back into Deluxe, and as far as I know it is still there today.

Deluxe should be able to handle capital gains and Schedule D. Premier offers additional guidance, but if you already know what you want to do, Deluxe should be able to handle everything.

Full disclosure: I was one of the people angered by the TurboTax money grab. I returned my copy of TurboTax that year and purchased H&R Block software instead, which did everything that TurboTax used to do at a lower cost. I still use H&R Block software, and have no desire to go back to TurboTax. It wasn't simply "marketing folk trying to differentiate the 3 (main) levels of product" as @JoeTaxpayer said in a comment, it was the management trying to take advantage of their high market share by steeply raising the prices. They underestimated their customers.

You mention not wanting to lose the value of the $30 you spent on a feature with TurboTax. I'm not sure which feature/add-on you are talking about, but does it make sense to overpay for something annually just to avoid losing $30 in the past?

  • Could you pls share your thoughts on why you don't plan to go back to TurboTax (after they restore the pricing scheme)? – xiaomy Feb 14 '17 at 15:36
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    @max8126 Price. H&R Block Deluxe is $30, TurboTax Deluxe is $40. I also distrust TurboTax now. I was satisfied with TurboTax before this incident, and had no reason to try something new. TurboTax then gave me a reason, and I found that, for me, the H&R Block software was just as good. Now I have no reason to switch back. – Ben Miller Feb 14 '17 at 15:44
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    FYI these companies routinely discount their products during the late fall/early winter period (several years in a row, at least). Look into buying them early for additional savings. – JBC Feb 14 '17 at 18:53
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You could also switch to CreditKarma to file taxes, it's 100% free and just launched. I'm not affiliated with them, just bringing up an alternative.

  • I used them for the first time this year, they worked fairly well. Typically I use my dad's H&R block software since he pays for some premium package and ends out with like 4 more free federal files, but didn't have any problems filing with CreditKarma. – Wayne Werner Feb 16 '17 at 13:41
4

Fill out the form manually, using last year's return as an example of how to report these gains.

Or experiment with one of the low-priced tax programs; I've been told that they are available for as little as $17, and if your alternative is doing it manually, spending a bit of time checking their results isn't a huge problem.

Or run the basic TTax, and tell it to add the appropriate forms manually. It supports them, it just doesn't have the interview sections to handle them. (@DanielCarson's answer has more details about that.)

Or...

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