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Direct File is still in its pilot phase for 2025 filings. The IRS is planning to expand it to include state returns in future years, but they started with just federal to work out the kinks. This is actually pretty clearly stated during the signup process, but a lot of people miss it. You're definitely not alone in being confused! Several of my friends had the same issue. For what it's worth, I think the IRS should make this limitation MUCH more obvious during the filing process.
Do we know which states will be included when they eventually expand? I'm in Texas so we don't have state income tax anyway, but curious about the rollout plans.
The IRS hasn't announced specific states that will be included in future Direct File expansions. The rollout will likely depend on which states are willing to partner with the federal system, so it will vary. For Texas residents like yourself, you're actually in a good position since you don't have state income tax to worry about. Direct File is already a complete solution for you. The taxpayers who have to deal with this two-step process are those in the 41 states plus DC that have income tax filing requirements.
Check your state's tax website! Most states (like 22 of them I think) have their own free filing portal separate from the IRS. I used Direct File for federal and then my state's portal for state taxes and paid $0 total. Took a little longer having to enter info twice but saved me like $50 compared to TurboTax.
Would it make sense to increase 401k contributions from your W2 job to potentially drop your combined income into a lower tax bracket? That might help reduce the tax hit on some of that self-employment income. Just a thought...
Something else to consider - if your self-employment income is consistent month-to-month, you might be better off making monthly estimated payments instead of quarterly. I started doing this and it's easier to manage cash flow and avoid setting aside large chunks for quarterly payments. The IRS doesn't care as long as you've paid in at least the minimum by each quarterly due date.
That's interesting! I hadn't thought about doing more frequent payments. My SE income does tend to be somewhat consistent monthly, so this could help with budgeting. Is there any downside to making monthly payments instead of quarterly?
No real downside to making monthly payments. The IRS will credit you for whatever you've paid by each quarterly due date. The only minor inconvenience is having to make more payment transactions, but that's easy with EFTPS (Electronic Federal Tax Payment System). The biggest advantage is psychological - setting aside smaller amounts more frequently is easier than coming up with a big payment every three months. Just make sure you keep good records of all payments. I use a simple spreadsheet to track payment dates, confirmation numbers, and running totals for the year.
Have you guys considered just alternating years? That's what my brother and his girlfriend do with their kid. One year he claims the kid, next year she does. Keeps things fair and they don't have to fight about it every tax season.
We actually hadn't thought about that! That's a really interesting idea that might avoid the annual argument. Do you know if they both take turns with Head of Household too, or just the dependent claim?
They both take turns with everything - dependent claim, child tax credit, and head of household. They actually put it in writing too, like a simple agreement they both signed, so there's no confusion each year. My brother did say they had to adjust it one year when his girlfriend wasn't working much because it made way more sense financially for him to claim that year. But having the agreement as a baseline helped them discuss it without it turning into a fight.
Hate to be that person, but you might want to run the numbers using different tax software options too. I found TaxAct gave me a much better result for my head of household situation than TurboTax did last year. Same info entered, $600 difference in refund!
I've noticed this too! I ran mine through three different programs last year just to check, and FreeTaxUSA actually gave me the highest refund. I think different software calculates certain credits slightly differently or asks questions in ways that lead to different inputs.
Exactly! I think it's because they ask the qualifying questions in different ways. Some make certain deductions or credits more obvious than others. I always tell people to at least try a free calculator from 2-3 different places before filing. You don't have to actually file through all of them, but at least see if there's a big difference in the results. It's worth the extra hour of your time if you find hundreds in additional refund money.
Just to add another perspective - I've been in this exact situation (claiming my partner's child from previous relationship). Make sure you also look into filing as Head of Household if you qualify, since that gives you better tax rates than filing as Single. For your partner to claim HOH status, they need to: 1) Be unmarried (domestic partnerships generally qualify as unmarried for IRS purposes) 2) Pay more than half the cost of keeping up the home 3) Have a qualifying person (the child) live with them for more than half the year This made a huge difference for us - almost $2,000 in additional tax savings beyond just the child tax credit!
Thank you for mentioning the Head of Household status! We hadn't considered that. Do you know if my partner would need any specific documentation to prove he's been supporting my oldest? We don't have formal custody arrangements since the biological father isn't in the picture at all.
You don't need formal custody arrangements in this case since there's no other person claiming the child. The key is being able to show that your partner maintained the household and supported the child if ever questioned. It's good practice to keep records showing your partner paid household expenses (rent/mortgage receipts, utility bills in their name) and child-specific expenses (school records, medical bills, childcare receipts). Also helpful are any documents showing the child's address matches yours (school records, medical records). The IRS doesn't require you to submit these with your return, but they're good to have if you're ever audited or questioned.
Has anyone mentioned the EITC (Earned Income Tax Credit)? This can be significant $ depending on your partner's income if they qualify. For 2025 with two qualifying children, the max EITC is around $6,600 if income falls in the sweet spot. Not professional advice but worth looking into.
Connor O'Brien
4 This happens frequently with tax software, unfortunately. Make sure to also check if the extension was actually accepted by the IRS or just transmitted by TaxAct. There's an important difference - transmission doesn't guarantee acceptance. If TaxAct tries to tell you "we transmitted it" without confirmation of acceptance, that's not good enough. When you speak with the IRS, ask them to check if there's any record of an extension being filed for your EIN, even if it was later rejected. Sometimes extensions get rejected for technical reasons but still show up in their system. Also, act quickly! The longer you wait to address this, the harder it can be to get penalties removed.
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Connor O'Brien
β’11 Would it be better to call the IRS first before dealing with TaxAct? I feel like TaxAct might just try to cover for themselves.
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Connor O'Brien
β’4 I'd actually recommend contacting both, but start with TaxAct since they can provide documentation faster. The IRS will want to know what happened on TaxAct's end anyway, so having that information first will make your IRS conversation more productive. You make a good point about TaxAct potentially being defensive, so be direct with them - ask specifically for confirmation records showing what happened with your extension transmission. Request a formal statement from them about whether the extension was actually received and accepted by the IRS, not just whether it was transmitted from their system. Most tax software companies keep detailed logs of all transmission attempts and IRS acknowledgments.
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Connor O'Brien
19 Has anyone else had other issues with TaxAct this year? I've used them for years but this filing season they seemed to have way more glitches than usual. My personal return had to be resubmitted twice because of some weird transmission error.
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Connor O'Brien
β’17 Yes! I had a similar issue where my state return showed as "transmitted" but when I checked the status a week later, it showed no record of filing. Had to resubmit and ended up with a late filing penalty for my state taxes. Their customer service wait times were insane too.
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