During my (almost) decade of living in poverty in grad school, I dutifully filed my taxes via TurboTax’s poorly advertised “Freedom” edition, which includes free federal & state to those with low income. It is generally available in mid-January here (link). I would recommend it to anyone who qualifies.
Since my income has risen since grad school, I no longer qualify for that free version of TurboTax. I contemplated paying for the real version of TurboTax, but soon realized that there are better alternatives out there. Last year I used FreeTaxUSA (link), which sounds & looks like a scam, but I was really pleased with them. They offer free federal taxes & $12.95 state taxes, which I avoid by filing on my own at my state’s efile website. The site is great. The free federal filing includes self employment income (i.e. Schedule C), which was helpful for the declaration of my $0.38 of blog income last year.
I learned this week that the 2018 version of FreeTaxUSA is live. I was pleased to see that FreeTaxUSA carried over my parameters from last year (family members, employers, brokerages, etc). I’ve already inputted in all of my estimated parameters (including projected bank interest and dividends in my taxable accounts by using resources like this). Even though I don’t have my W2’s, I can easily extrapolate what my annual income will be as well as annual withholdings. I inputted in all of my parameters, and it matches perfectly with my tax calculator.
However, one thing did catch me off guard this year. Last year was the first year of my life in which I itemized (and likely the last given the massive changes to the tax code this year). Last year I also received a state tax refund. Since I itemized last year, this state tax refund counts as taxable income for 2018 (explanation here). As a result of this increase in taxable income, I’ve increased my withholdings accordingly for the remaining paychecks I have (November + December). This shouldn’t come as a surprise to people who have been itemizing for years, but since I’m a rookie in this regard I wasn’t quite expecting it.
Unless I’ve forgotten any other sources of income, my tax refund should be around zero. I suggest you change your withholdings to do the same.
Lastly, as far as last-minute tax optimization strategies, the only one that stands out to me (other than the obvious of last-minute stuffing of tax-advantaged accounts like 401ks, HSAs, IRAs (through April of 2019), etc) is to tax loss harvest. The market has been down 10% from its peak over the past few months and tax loss harvesting could serve to reduce your taxable income by up to $3k/year (with unused losses carrying forward to future years). Those contemplating this strategy should realize it’s not a panacea – you are simply lowering your cost basis now (and thus saving taxes today), but this comes at the cost of higher taxes at a future date when you sell the stocks (since the cost basis is lower leading to a higher capital gain). However, an astute reader will correctly counter that these higher capital gains could indeed be harvested in the 0% region at a future date a-la-Go-Curry-Cracker. Helpful reads here and here.