I love a New Year. It’s a great time to evaluate your current situation and make changes as necessary. Here’s what I’ve been up to recently:
1. We adjusted the tax withholding for our Social Security payments. Current withholding options are 0%, 7%, 10%, 12% and 22%. We reduced our withholding from 15% to 7% since our income is lower than when we were working and refunds were getting too large.
2. We opened a new checking account with a $500 sign-up bonus and couldn’t be happier with the improved service. It was a big job to make this change as our direct debits and deposits had to be moved to the new account and, since we pay all of our bills electronically, I needed to set that up as well.
For a couple months, we had both accounts open as we couldn’t close our old checking account until everything had properly changed over. Social Security took around two months to make the switch. Luckily, everything went seamlessly.
3. I decided on new tax software for this year. Thanks to Marjorie, Dan and Andrew for their endorsement of FreeTaxUSA. I did a little research of my own and couldn’t find a bad word about it.
4. I did my usual review of our 2025 year-end account balances and everything did well. I might change the asset allocation a bit in our IRA’s. For those who take RMD’s, it’s great to use those to rebalance your retirement accounts.
5. Jonathan wrote a great article last January called “Spending It”. I chose the Fixed Withdrawal Rate option with the goal of withdrawing up to 5% annually for living expenses. Last year, we used 4.8% which is almost exactly the same as the year before.
6. I read a non-financial resolution in a recent Kiplinger article that I’d like to share. It says to “Let go of old habits, relationships and commitments that no longer serve you.” That resonated with me.
Francine Duke
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My rating for FreeTaxUSA is A+. Excellent software. I didn’t bother uploading anything. Federal and state returns complete in no time!!!
Quick survey- Did anyone upload their 1099’s etc into FreeTaxUSA or did you enter the data yourself?
Thanks for the recommendation for FreeRaxUsa. I’ll check it out this year. Im using Turbo tax desktop at least one more time this year because it’s been around so long. I have a feeling they are trying to phase it out because they are pushing hard to use the online version. First I noticed the online version is free through CreditKarma and second, after I bought Desktop, they offered to let me try the online version for no additional charge. They also have some kind of deal with ADP.
Thank you, Brian. It seems like Turbo Tax is making lots of changes. I’ll post my thoughts as to FreeTaxUSA once I give it a try!
It’s not FreeRaxUsa. It is FreetaxUSA. I have been using TaxHawk for over 10 years. Both are web-based tax services owned by the same company.
For 2025 it got easier. I downloaded the PDFs for all 1099s from Schwab and uploaded them to TaxHawk. It was smart enough to fill in everything.
We don’t need to call anyone out for making a typo. Interesting info about uploading your forms.
We don’t need to call anyone out for making a typo.
Agreed.
Thanks for the input – I have used TurboTax for years, but will take a look at FreeTaxUSA as well. I must admit I had a good giggle thinking that for seemingly a good portion of those on the thread, like me, have already completed at least 90% of their taxes and are just waiting for the filing day and an item or two to finish it off. I am pretty sure I have calculated mine to within $100 of my final tax bill for 2025.
I still need one last 1099 before I can file our taxes but I also have a good idea as to the results. One interesting thing that I did recently was try the calculator on the Social Security website where you input your income etc (which I was able to do without the missing 1099) and they tell you how much of your Social Security income will be taxable. I can’t wait to do our taxes to see how correct their number is!
Francine, thanks for your article and hope you post more.
I did use FreeTaxUSA for the first time last spring and it was great. I’ll use it again this year for 2025 taxes.
I took my first RMD in 2025 and made several QCDs. There’s a new Code Y for Box 7 of the 1099 to indicate QCDs, but it’s optional for 2025. Schwab, who has my retirement account, won’t implement it till 2026. So fingers crossed FreeTaxUSA can deal easily with that.
Andrew, On FreeTaxUSA after you input the 1099-R information that you received from Schwab there is a following screen which reads as follows –
Did you donate this IRA directly to charity?
A Qualified Charitable Distribution (QCD) is when you have part or all of an IRA distribution transferred directly to a charitable organization or a split-interest entity.
Yes
No
Is part or all of this distribution a QCD?
While I did not making a QCD for 2025 I expect responding appropriately to these questions will get your QCD properly reported on your 2025 1040.
Best, Bill
Bill P.,
I have been given check writing privileges on my Fidelity tIRA which I will be using to make my QCDs when eligible >4/27/27. They also can be used for RMDs when I turn 73, but I will not likely use them for that purpose.
My concern is that Fidelity will have no idea when they clear the check whether it is for a QCD, or whether it is a normal taxable distribution. So the question arises for me…. If Fidelity sends me a 1099-R with no code Y, but I tell FreeTaxUSA that it does have a Y code, will I run into trouble with the IRS?
Bill M.
You will not. QCDs are nothing new, and all tax software handles the reporting in a way that is approved by the IRS.
Having said that, I can’t imagine why it has taken so long for the IRS to add a code (Y) for QCDs.
There is a potential issue with you sending a check. The check must clear your IRA before the end of the year that you intend. If you let Fidelity mail a check, you will not have this issue.
Last thing, Fidelity is not using Code Y this year; don’t ask me ‘why’.
I agree with Dan’s reply.
The why answer to the question of a broker not using code Y for a 2025 QCD for tax year 2025 is likely because the new code is optional for 2025 and they may not have a tracking system in place for such QCDs made by writing a check. IRA owners should still carefully track their QCDs and ensure their tax preparer knows to exclude them from income, if you are using a preparer, even if the 1099-R does not show a “Y” code.
I suspect we will see additional 1099-R coding guidance from the IRS for QCD’s made in 2026 and later years and also from brokers for them to put a QCD code on a 1099-R.
The simple solution of the Y is actually more complex. My understanding is the brokers are (and will be uncomfortable) using the Y.
Unfortunately, a broker doesn’t know how many other IRAs you may have that distributed QCDs. Therefore, you could make multiple QCDs from different custodians that all get a Y code, yet the sum could exceed the annual QCD limit. In that case, somewhere the Y on your 1099R is technically incorrect, yet the broker would have no way to know.
Page 70 of the 2025 IRS Pub 590-B has a QCD limitation worksheet titled –
Appendix D—Qualified Charitable Deduction (QCD)
Adjustment Worksheet. This worksheet makes the ad-
justment needed to figure the current year’s allowable
qualified charitable deduction.
For the very few taxpayers who exceed the annual QCD limitation ($108K in 2025) the maximum 2025 QCD limitation applies at the individual level and the broker coding a 1099-R with code Y or not should not matter.
Interesting to me is the IRS comment that follows the appendix –
To help us develop a more useful index, please let us know if you have ideas for index entries.
See “Comments and Suggestions” in the “Introduction” for the ways you can reach us.
My guess is the IRS is struggling with the additional complexity as well as taxpayers to assure that those who follow the QCD rules will be able to exclude from taxable income the appropriate IRA distributions to a qualified charity. I expect any “Y” code on a 1099-R just reduces those taxpayers who IRS selects for additional inquiry to assure this part of the QCD rules related to eligibility of the charity are met.
After 2025 I expect that taxpayers who make a QCD will want to structure their QCDs so a code “Y” appears on their 1099-R to reduce the likely hood of additional correspondence from the IRS on the eligibility to exclude the distribution from taxable income.
Bill, thanks very much for this info. It greatly eases my mind.
Andrew
Hi Andrew, I’m very much looking forward to trying this new software. It’s great that I found out about it on this site. Hope it can handle your QCD’s!
3. I decided on new tax software for this year…FreeTaxUSA.
I would try FreeTaxUSA if it could do the local (school district) tax return along with the state tax return. Sadly, online info says it generally does not. Nor does H&R Block.
TurboTax, the online version of which I’ve been using since 2015, does handle the local return nearly seamlessly with the state return. Thanks to other HD comments about TurboTax Desktop version and its “what-if” feature, I decided to try it this year. When I looked yesterday, Amazon happened to have the downloadable Federal+State Premier version on sale, which I figured bodes well. While I can’t say I’m ever exactly eager to do my tax returns, I am looking forward to seeing what this can do. 🤞
Unfortunately the What-If worksheet hasn’t yet been updated for the 2026 standard deduction, and it seems the 2026 tax brackets are stale as well.
FreeTaxUSA calculates school district taxes in Ohio. You have to be sure to plug in the SD number, which IDs if the district has a tax, and whether it is based on earned income or total income.
It will not calculate city income taxes, of which Ohio has many.
Thanks, Dan. That’s different from what I saw in an online search, but I hadn’t found a way to ask FreeTaxUSA directly. If it also e-files the returns, maybe I’ll try it next year…
Hey, whatever you are comfortable with. I used to use Turbo Tax, it’s great software.
If you care to respond, my question is where do you live that you have to file a school district tax return? I’ve never have heard about such a return. 🤔
Local (school district) income taxes are one of the joys of living in some parts of Ohio.
Fancine, Your professional background brings a lot to the table. I agree with David, and would love to hear more from you.
I also use the New Year to analyze all things money. For example, I have checked my IRA balances at the end of the year, and calculated my RMD to be sure my monthly distributions are great enough to satisfy it. I use the tax withholding from that distribution to meet our total tax liability; my goal is a zero balance due/refund.
On a personal note, you mention Marjorie Kondrack. She has not been posting for a while. I know she is dealing with health issues. I miss her articles and comments.
Dan, I’m sorry to hear about Marjorie. I do plan to post more this year. Thanks.
Just curious Dan. Doesn’t your IRA record keeper automatically calculate RMD after the first of the year? Fidelity does it automatically and tracks what you take throughout the year plus QCDs as well.
RQ,
You may have mentioned in previous articles/comments on HD, so I apologize if I missed it, but am curious do you do your own taxes and what software do you use? Also, curious if you e-file or not. I’m a longtime user of TurboTax and haven’t taken the plunge on e-filing (an embedded mistrust I can’t seem to shake 🤷♂️).
I use TurboTax and have for many years and I have always e-filed as well. Never had an issue.
Neither have any of the over 10,000 returns I have E-filed.
Ok, coming from you is reassuring. Thanks.
Thanks Dan for that stat. I think I’m ready to start e-filing 🙂
(btw, why in the world would I have a down arrow down arrow on my comment above 🤔 … not directed at you, Dan, just a general question ;))
I do returns through the IRS sponsored VITA program for low income and seniors at Goodwill. We’re required to e file all returns.
Thanks for your reply, Marilyn.
Don’t sweat the down votes, Andy. I see those often when people ask questions. We’re all here to help each other, questions are good.
Either someone enjoys giving do votes or there is a bot at work. I’ve stopped paying attention to them.
Yes, but I have IRAs in two places. I just get the numbers off Fidelity’s Full View and plug them into the RMD calculator. Easybreezy.
Great post Francine
I’d like to see more from you.
As to number 5:
I received or last tax form yesterday so of course I had to immediately go to TurboTax to do a preliminary look at our income. Some may remember a while back I wrote a post regarding the maximum income while maximizing the 12% tax bracket. I was trying to determine the maximum amount I could convert.. Well somehow I messed up with those calculations and ended up 7K below the maximum, and boy am I kicking myself as that additional income could have been converted.
One other thing I noticed is how little we spent last year despite 3 vacations (4 weeks worth, but only one involved flights). Prior to doing these calculations I was investigating getting out of NH in February (we just received 18 inches of snow), but had decided it was too expensive. I also noticed yesterday that our portfolio had hit an all time high. The result? We booked a week in Barbados the first of February and staying in a really nice hotel (we have never taken a trip to a warm local in the winter). It’s time to spend more of our hard earned savings on memories. 🏝️ 🌞
BTW I have gotten in the habit of when watching TV and they mention a local asking my wife, “have you ever been there?” We have been blessed to do a lot of traveling.
Thanks, David. I have some ideas in mind for future articles. Your trip sounds wonderful! You deserve to spend the money. Enjoy!