Do you know if FreeTaxUSA handles student loan interest deductions well? I heard some of the free services don't guide you through all the deductions you might be eligible for.

FreeTaxUSA definitely handles student loan interest deductions well. They have a specific section for education expenses and loan interest where you can enter your 1098-E information. The software will walk you through exactly what qualifies and how much you can deduct. Most tax software, including FreeTaxUSA, is actually pretty good about guiding you through common deductions. Where the paid versions sometimes have an advantage is with more complex situations like self-employment, rental properties, or unusual investments. For standard deductions like student loan interest, education credits, and basic itemized deductions, the free version works great.

I actually did this last year! I ran my info through both FreeTaxUSA and TurboTax just to compare. The federal refund amount came out exactly the same on both. The only difference was that TurboTax wanted to charge me $89 for exactly the same result I got for free with FreeTaxUSA.

Thanks for this explanation! This really helps clarify things. Since you're a tax preparer, do you know if TaxAct has a specific place to enter these "Other taxes" if they turn out to be partially deductible? I'm still not sure where to put them in the software.

In TaxAct, when you get to the itemized deductions section, you'll see a part specifically for real estate taxes. Enter only the true property taxes there. If some of your "Other taxes" qualify as deductible personal property taxes, there's a separate entry for those. For any special assessments that aren't deductible, you simply don't include them anywhere on your return. If you're unsure about specific items, TaxAct has a "help" feature that explains the criteria for each type of deduction. You might also want to save documentation showing how you determined which portions were deductible in case of questions later.

I don't think that's right. Special assessments for fire or flood protection usually aren't deductible at all unless they're based on the value of your property rather than being flat fees for services. My accountant explained this to me last year.

Can you get these transcripts if you haven't filed for several years? I thought your online access gets restricted if you're not in compliance?

You're right that online access might be restricted for non-filers. In that case, you can still get them by mail using Form 4506-T. It takes a few weeks but gives you exactly what income the IRS has on record. Even if your friend can't access his own transcripts directly, a tax professional with proper authorization (Form 2848 Power of Attorney) can access these transcripts on his behalf through the tax pro's account. This is another reason working with a professional is valuable in catch-up situations.

Did you get hit with huge penalties? I'm in a similar situation and I'm terrified of what I might owe with all the added penalties and interest.

This is so true. I work in payroll and we've had employees try to claim exempt when they clearly don't qualify. We're actually required to report suspicious W-4 forms to the IRS. The system has multiple layers of checks and balances!

That's actually a very risky approach. If you intentionally underwithhold throughout the year planning to "catch up" later, you may still face underpayment penalties even if you pay the full amount by tax day. The IRS requires quarterly estimated payments precisely to prevent this strategy. The legal minimum withholding typically requires you to pay either 90% of your current year tax or 100% of your prior year tax (110% if your income is over $150,000) through withholding or quarterly estimated payments throughout the year. Anything less can trigger penalties regardless of whether you eventually pay in full.

That's a really practical approach I hadn't considered. Did you face any penalties when you amended the return later? And roughly how different were your estimates from the final numbers?

I didn't face any penalties with the amendment. I think the key factors were: my estimates were reasonable (within about 12% of final numbers), I had documented all my attempts to get the correct information before filing, and I filed the amendment promptly after receiving the final statements. The biggest differences were in some specialized income categories and asset valuations, but the core income and major expense categories were pretty close. I included a detailed reconciliation with the amended return showing exactly how and why each number changed. I think that level of transparency and documentation is what prevented any penalties or further questions.

This is such an important point that people miss. Also, remember that currency translation needs to be handled consistently - you can't mix and match methodologies between schedules on Form 5471. The IRS looks for these inconsistencies.