I just finished my taxes for the year. I screwed up big time this year on my tax planning, and will get back about $12K. It wasn’t all my fault. 2/3rds of the way through the year my employer decided it actually was going to let me “self-match” my 401K (after telling me last year I couldn’t), allowing me to shelter a lot more income. I also found lots of great write-offs this year I haven’t been able to take before, thanks to this website and my rental property. I’ve been using Turbotax the last couple of years to do my taxes. This post explains why. But before we go on, you need to be aware that I get a buck or two from Turbotax (as well as the other tax services whose ads are seen on this page) if you buy its products from links on this page.
1) Easy to re-do forms
I used to do my taxes by hand. That was a wonderful way to learn the tax code and become familiar with the 1040 and the various schedules and forms. But every time I remembered something new I could deduct, I had to go back and re-do at least one form. That was getting to be a serious pain. With Turbotax, I just log-in, change one number, and the program changes a half-dozen other forms instantaneously. Very cool. In fact, this simple feature allowed my state tax return to be done in something like 2 minutes. Too bad they couldn’t do that with my very complicated federal tax return.
2) Imports last year’s tax return
This year was the first time I used Turbotax two years in a row. I was surprised how much stuff you get to skip the second time. Addresses, sources of income, deductions, bank account numbers…anything that remains the same year to year is imported directly in.
3) The “Pro” Option
Turbotax allows you two options as you go through their “Income” section and their “Deductions” section. You can either have them lead you by the hand and ask you dozens of questions about each item, or you can “explore on your own.” If you already understand the basics of the tax code, that’s a real shortcut. I don’t use Turbotax because I don’t know what’s deductible. I use it to speed up the process and make it more accurate. But either way, Turbotax has an option for you.
4) Computers add better than I do
It’s not that I’m bad at math. I always received good grades in math, at least until college calculus. But when you have dozens of calculations, all dependent on one another, one little error screws up everything else. It shouldn’t surprise you that Turbotax makes fewer math errors than I do (none that I’ve noticed so far.) Aside from having an inaccurate return, possibly losing me money or even triggering an audit, miscalculations also mean I have to do re-do more forms, which can be immensely time-consuming.
5) Automatic e-filing
It’s no secret that the IRS and your state tax commission wants you to e-file. It’s easier for them, easier for you, more accurate, and you get your refund faster. That process is literally a click of the mouse with Turbotax. You don’t have to deal with your state website, or fill out any new online forms. No printing, stamping, addressing, walking out to the mailbox etc. If for some reason you WANT to paper file, you still can. Perhaps if you owe money you might be able to delay their withdrawing it from your bank account by a few days by doing so. Turbotax even has an option where you can do your tax return now, and have Turbotax file it automatically in April without you ever thinking about it again (which I recommend if you owe money.)
6) You probably only need the basic version
Turbotax makes a lot of money off up-selling. They have a Deluxe edition they recommend for those who itemize their deductions (Schedule A.) They have a Premier edition for those with rental property or investments. They even have a Home & Business edition for small business owners. Guess what? I have rental property, investments, and a small business and I could still use just their basic version. There’s even a cheaper option- free. It won’t import last year’s data (and it still charges you about the same for a state return), and if you need to file Schedules C (small business), D (Capital gains and losses), or E (Rental Property) you can’t use it. But it’s a great option for most filers. Unlike with the federal “e-file” program, there is no income limit to using it either. So what does Turbotax cost? Here are the online prices:
- Free Version – $0 Federal, $28 State
- Basic Version – $20 Federal, $40 State
- Deluxe Version – $40 Federal, $40 State
- Premier Version -$50 Federal, $40 State
- Home and Business – $75 Federal, $40 State
The software version you either buy at the store or download is a few bucks more expensive than the online version, which I prefer for ease of use. Although I’d love for you to buy Turbotax from links on this page (so I get a small commission), you should know that if you invest at Vanguard (which you probably should) you can get a little bit more of a discount by going to Turbotax from their site. Flagship clients ($1 Million or more invested at Vanguard), get both Basic and Deluxe for free and Premier is only $10. The rest of us get the Basic Version for $15 Federal $28 State, saving you about $17. They charge a little more for the desktop version, of course. You can also buy it at a local store, or at Amazon. They only sell the download version though, and the price isn’t as good as you get through Vanguard. In fact, it’s barely better than what you can get directly at the Turbotax site. Either way, you’ll save hundreds compared to hiring a CPA to do it.
7) You get a free CPA
Turbotax offers free support and advice both for using their software and calculating your tax bill. There are two things I don’t like about online software. The first is that you learn more about the tax code by doing your taxes by hand. You lose some, but not all of that, by using software. But the main issue I have is that when you can’t figure out how to do something on the paper forms, you can go to an IRS publication easily with Google and figure it out. Tax software, in trying to make things easier for those who have no clue how the tax code works, sometimes makes it hard to figure out where to input data that I know where to put in on the paper forms. A good example is explained by The Finance Buff where he explains How To Do A Backdoor Roth using Turbotax. I had an issue this year with doing an ESA to 529 conversion. It wasn’t that I didn’t understand the tax code, it was that I didn’t understand where to put the information into Turbotax so it would put it on the forms correctly.
So I decided to try out the free support. I started out 120th in line, but within about 20 minutes (which I killed working on another part of my return), I had a CPA chatting online with me who answered my question clearly after just a couple of minutes of research. He had the same problem I did – he understood the code, but not necessarily the software. He even sent me an email a few minutes later with a more detailed explanation.
Overall, I was again very pleased with Turbotax. They’ve been around the longest and frankly are the number one seller for a reason. Other tax prep software options include:
- Free – $0 Federal, $28 State (doesn’t support Schedules C, D, and E just like Turbotax)
- Basic – $20 Federal, $35 State
- Deluxe (homeowners, investors) – $45 Federal, $20 State (yes, you read that right, deluxe is cheaper.)
- Premium (self-employed, rental property) – $65 Federal, $20 State
- Premium & Business (small business owner) $80 Federal, $20 State
I haven’t used H&R Block, but I suspect that like Turbotax, you can do any return with Basic, but you pay more for more hand-holding (more questions.) Reviews suggest both Turbotax and H&R block are good. I’d pick one or the other and stick with it for familiarity purposes as well as the previous year return import feature, although H&R block has a new feature where it will import your data from Turbotax or TaxAct as well, so if you want to try something new, give it a go. The link to the right should give you a 15% discount. Post about your experience in the comments section.
- Basic – $10 Federal, $30 State
- Deluxe – $30 Federal, $30 State
- Premium – $40 Federal, $30 State
I haven’t used CompleteTax, but it looks like if you actually want to use Schedule A or C, you’ll need to pony up for the more expensive versions. The Basic is standard deduction only, and it won’t import last year’s return.
- Free – $0 Federal, $15 State
- Deluxe – $10 Federal, $8 State
The cheapest option. They’re practically giving it away this year, apparently in an effort to build market share. I used these guys once a few years ago. Turbotax definitely seemed to be a slicker product. If you’re looking for the absolutely cheapest way to do your taxes, do paper returns. Otherwise, I don’t know that you should really make a decision based on just a few dollars. If you’ve used these guys recently, please post about your experience in the comments. Online reviews I’ve seen seem to indicate you get what you pay for here.