The Only Reasons You Should Ever Upgrade A Tax Service To Premium Status

Everyone seems to have an opinion on premium services — from thinking they're too pricey to feeling like they just aren't necessary. Whether it's something as simple as a car subscription service or something less clear-cut like extended warranties, knowing when it's worth it to upgrade can be tricky. Case in point, knowing when it might be a good idea to upgrade your tax service to premium. While premium tax services can provide advice and support from certified tax pros or even a special software trained to understand your financial situation, not everyone might need it. 

Premium tax services keep an eye on ever-changing tax laws, finding ways to cut down on what you owe. However, this doesn't necessarily come cheap, with some paid tax software costing as much as $90 for federal filing (plus additional costs for state filing). For additional services, like hiring a tax professional, the cost for a basic individual tax return averages $323, according to a 2021 report from the National Society of Accountants. For more complex personal tax issues, like self-employment income or capital gains, you could pay upwards of $515. Businesses can face even higher costs, starting from $733 for partnership returns (Form 1065), $903 for S Corporations (Form 1120-S), and $913 for C Corporations (Form 1120) not included the hourly rate a tax prepare might charge. So, before you consider a premium tax service, make sure your situation actually calls for it.

If you are self-employed, a freelancer, or contractor, you already have your own set of tax challenges. In this case, a premium tax software can help keep any scheduled tax payments running smoothly as well as help to reduce your overall tax burden by claiming costs for things like office supplies, setting up a home office, travel, or even buying equipment. With that in mind, remember that keeping detailed records will help you prove what deductions you can claim. It's all about accurately matching your expenses to your business activities and keeping up with IRS rules, which can change. If you don't claim your deductions correctly, you could miss out on saving some serious cash. 

Premium tax services can make your tax tasks a lot easier by mixing tech and expert advice. Automation tools help keep track of your money – both in and out — making sure everything is recorded right. These services can also figure out any quarterly tax payments you might need to make, which cuts down the risk of mistakes and the potential for late fees. This is a solid way to handle your tax duties as a self-employed person.

Managing investment income means juggling multiple types of earnings, each with unique tax rules and paperwork. For instance, with stocks you need to keep track of dividends – and whether you've made or lost money when/if you sold any. Bonds bring in interest that must be carefully recorded. If you own rental properties, you not only have income to report but also expenses like maintenance, insurance, and depreciation to factor in. Each type of investment needs specific forms and calculations, which increases the chance of making a mistake or leaving something out during your filing.

A premium tax service can take the hassle out of managing each individual type of investment. These services can also streamline how you handle deductions linked to your investments, like the costs for repairs and management fees on rental properties. By matching these expenses against your income, they can help you get the most out of deductions — which reduces your tax burden. These services can be especially valuable when figuring out the difference between short-term and long-term capital gains in addition to helping you fill out the necessary forms, like Schedule D for capital gains and losses or Schedule E for rental income, which takes a lot of paperwork off your plate.

Premium tax software shines when it comes to nailing the accuracy of itemized deductions like charitable donations, medical expenses, or even mortgage interest. You can log each donation automatically and match it with the right receipts and bank statements. This setup reduces the chance of missing a donation that could lower your tax burden. When paired with expert help, you can even make sure each donation sticks to IRS guidelines, thereby helping you potentially avoid ever getting audited by the IRS. You might also need premium services for tracking medical expenses, especially if you face hefty healthcare costs. You can also automate how you monitor receipts, insurance reimbursements, and out-of-pocket payments throughout the year to figure out which expenses go beyond the limit for tax deductions.

Mortgage interest can similarly gets complicated fast, especially if you own multiple properties or if you refinanced your loans during the year. A premium tax software can use data from your bank and loan statements to make sure any interest you can deduct on your taxes is correct. This helps avoid mistakes that could cause you to report too little and/or face other issues when filing your taxes.

Real estate transactions are no walk in the park, especially when it comes to taxes. When you sell a property, you must figure out if you made or lost money. To know for sure, you can subtract your adjusted cost — the original purchase price plus any money you spent on improvements — from the selling price minus any value you've written off over time (depreciation). Depending on what you did with the property — like living in it, renting it out, or using it for business — you may have to fill out different tax forms, such as Form 1099-S, Schedule D, or Form 8949. If the property was used for business or as a rental, you might also need to tackle Form 4797.

You can use premium tax service to keep track of your property sales. They automate and pull together data from your property records, financial accounts, and past tax filings, which is a lifesaver when it comes to crunching numbers for capital gains or losses — it can be particularly important to understand the difference between these and, say, unrealized capital gains. If you made a profit from selling a property, a premium tax service can do the leg work of calculating your gain while also considering any deductions or adjustments you may be able to make. If you take a loss, they can similarly help you document it correctly so you can balance out any other gains.

There are other less well-known complex tax situations that might mean you should consider a premium tax service. For example, if you receive an inheritance, handle income from overseas, or if you file taxes in several states. An inheritance, for example, especially one from another country, can seriously complicate your tax situation with extra steps needed like filling out Form 3520. This form is specifically for reporting certain dealings with foreign trusts and big gifts or inheritances that come from outside the U.S. Using a premium service can guarantee you meet all the specific requirements for reporting without a hitch.

Earning money outside the U.S. can come with not just different rules for taxes but can also require claiming credits to prevent additional government wallet dipping for the same earnings. Similarly, if your income or your home base ties you to more than one state, where your money should be reported and what deductions apply can be complicated. A premium tax service can ensure every bit of income is reported and that you get any credits or deductions you're due. Also, a qualified tax professional can keep your tax obligations straight, no matter where your cash is coming from.