TurboTax Reviewed From an Accountant’s View

When it comes time to file a tax return, many people turn to do-it-yourself services. The most popular of these services is Intuit’s TurboTax. And it’s not just regular people who use the service to prepare their tax return, but many of my fellow bloggers swear by it when it comes to doing their own taxes. A lot of the TurboTax reviews you may find online are glowing endorsements. I don’t exactly see it that way. It’s not that I have an issue with people opting to use this service as opposed to hiring a tax professional such as myself, because that’s not the case. While I do feel it’s way off base to think that anyone can learn to prepare any kind of tax return because they have a piece of software. I don’t feel that some people need to pay the fees some preparers will charge for simple returns. 

 

There are reasons why I feel that a service like TurboTax isn’t for everyone, but at the same time is great for some. Heck, I even use it to file some returns for friends and family when they qualify for free filing so I don’t have to charge them anything (and I also use their ProSeries product line for my real returns that I charge for).

 

Where TurboTax Falls Short

For starters, it’s an after-the-fact service. There are no calls during the year to check in and see if estimates are being made, or how things are progressing, particularly in the case of those who have business income from a Schedule C or a K-1. It only works as an aggregator of existing data, unable to assist in any kind of mid-year or year-end tax planning. There’s no one to call throughout the year to ask for advice before making an investment or purchase decision. It can’t sit with you at any time during the year and tell you that you should be adjusting your tax withholding in order avoid owing underpayment penalties or prevent you from leaving too much paid in until you file and claim your refund (especially with the rise in tax fraud).

Separate from any tax/accounting perspective is the emphasis it puts on refunds. Intuit works “maximum refund guarantee” into almost all of the marketing behind the product. The thing that bothers me is that the focus should be on accuracy of the returns that get filed using the product, not the refund. Since, as you will see in the next section, the wrong data can be used in calculating the refund, the company should place more emphasis on guiding people toward filing the “right” return and get only what they deserve refunded to them. Piece of mind, not the refund should be the main sales pitch.  Besides, not all people get refunds.

It also gives people too much credit in many instances and makes them feel more capable than they ought to feel. When it comes to taxes, a false sense of knowledge or ability isn’t a good thing.  In fact, the major failing is trusting that people without experience or education will know what is and isn’t supposed to go on a tax return. A few of the most commonly misunderstood instances include: 

 

Health insurance deductions

If it’s already taken out pretax, it’s not permitted to be taken on schedule A. The same goes for any kind of cafeteria plans. When money is deferred pre-tax to a plan that reimburses medical expenses, those funds are essentially  already “deducted” from income and taking it twice is wrongly double-dipping. 

 

Employee mileage deductions

Any travel between a person’s home and their main place of employment is non-deductible. Only travel from the main location to secondary locations are deductible. And, if the person is temporarily at a secondary location without going to the main location, only the difference in mileage is considered a deduction (home to main secondary location mileage minus home to primary location mileage). That is assuming the  secondary location is further, otherwise nothing is deductible. Additionally, if a person is reimbursed for mileage, then that takes the place of any tax deduction. 

 

Charitable donation deductions

Not every donation is a tax deduction. A “charity” must be recognized and certified by the IRS for donations of any kind to be deductible. Also, only direct donations are considered as such. Giving cash or goods to someone collecting for a larger collection do not count. Neither do donations where value is received in return. People also don’t always know how to value non-cash donations for purposes of the tax break. Certain items like raffle tickets aren’t allowed as deductions at all, even if it is to benefit a charity.

 

Business expenses

Sorry to say, Sparky’s pet food and vet bills are not business deductions unless your business revolves around him the way college football teams use their mascots. Unless you have a car solely for business (and never drive it for any other purpose) use you can’t deduct 100% of the payments, gas, insurance and upkeep. Keeping your fridge stocked does not qualify under “meals and entertainment” for business purposes. The trip to Hawaii without any semblance of business being conducted doesn’t qualify as business travel.

 

Unfortunately, the way the program is configured, it cannot possibly do anything to stop someone from putting things on a return that don’t belong there. If an ethical professional were hired to prepare a tax return they certainly would never report such items. Granted, neither myself nor any other human tax accountant is perfect, and mistakes are bound to be made, but the likelihood is not as great as when an untrained or inexperienced person s doing their own return.

 

Where TurboTax excels

I’m not totally down on TurboTax. As I stated earlier, it has its benefits too, even to a season tax preparer. 

For uncomplicated returns, TurboTax is a great value, especially compared to the rates that some professional tax preparation firms charge. For simple returns, say ones that take the standard deduction and have just W-2 and interest/dividend income nothing can beat the value provided by this program.

There are two hugely successful part to the service which I tip my cap to Intuit for providing:

 

Customer Support & community

This is tremendous. Where most companies opt for the cheap, overseas outsourcing for their support staff, Intuit not only keeps their team local, but also uses real professionals. This isn’t some call center where the person on the other end of the call walks you through a series of questions in order to determine what page in the manual they should be reading from, we’re talking about experienced, knowledgeable support.  I can’t stress this point enough, especially when it comes to something as complicated and important as getting your taxes filed correctly.

 

Software interface

The tax code is a maze, and so are the forms if you aren’t careful.  The way Intuit designed the TurboTax interface is spot on.  Right from the start, you are led through a logical progression which makes the process of inputting your data much easier than it can be if you had to do it with just a stack of your inputs and a paper form in front of you.  Organization is key element in making sure that a tax return is filed accurately and completely.  And the way everything is presented is in plain English, rather than industry jargon, since we all know how frustrating it can be when we’re talked to in terms we simply can’t follow or understand.  It also helps that you are only presented with a small section at a time so it doesn’t feel so overwhelming.

 

Overall, it’s a pretty good service at any of its price points–if you only need it to serve as a guide and not as anything more.  It won’t solve all of your problems or make sure everything you report is valid and legal.  What it will do is provide a fairly priced method of tax filing to those who either need to file a simple return, or those who have a decent understanding of what they need to do but maybe need a little guidance–if any– or just a way to get their return filed without paying an arm and a leg. 

So should you use TurboTax to file your tax return this year? That’s not for me to say. You would have to look at yourself honestly and determine whether or not you trust that even with the help of the service you will be able to file a complete and accurate return–not leaving any money on the table, yet not taking deductions that you don’t belong taking. You can always do it on their site and then bring it over to an experienced preparer to look over before you file it just to make sure.

  • FrugalPortland

    Great review. This year I think it’s a little too complicated for Turbo Tax. Plus I trust a professional more than myself to help me categorize “ordinary and necessary” expenses.

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      Thanks K! Sometimes the best thing you can do is recognize when something is above your paygrade and look to an outside source to do it. It’s the same reason I won’t bother to spend time researching legal code or go to a legalzoom or other website if I have a situation but instead will call a lawyer so I know that it’s taken care of the right way.

  • http://www.joetaxpayer.com JoeTaxpayer

    On the flip side, there are good tax guys, great tax guys, and those who are not providing value added. Years ago, my Mother and Father in Law mentioned they were working on their taxes. This meant they were gathering up information for their tax guy to fill out their return. In February, he sent a sheet, a checklist, either they would fill in some blanks or bring things like their W2s 1099s, etc.

    They showed me the prior year’s folder.

    I saw the questionnaire pretty much reflected the final return. In other words, the guy wasn’t adding any value at all, in fact, he had a clerk just copy over the numbers.

    I’ll admit as well, there are times a pro is needed, but when a couple’s finances can be narrowed down to a dozen fields that need entering, I’ll suggest the software any day.

    On a lighter note, TurboTax will sign in to your payroll dept’s computer to suck down the W2 info, and into your broker’s system to pull all stock transactions. Amazingly cool to watch. I’m left with mortgage info, a few 1099s, and donations. My taxes are done in less time than it would take to drive into town where the pro was located.

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      Believe me Joe, I know what you mean. I am that “clerk” so to speak–my employers charge their rate (an outrageous amount) for a tax return that I prepare.

      On the other hand, in my personal business I charge much more reasonable rates and provide things such as a personalized cd containing not only a pdf of the tax return itself, but another pdf file containing the clients’ source documents separated out by section and bookmarked as such. This way, they not only have a record of all of their annual information, but it is also easily searchable should they need to submit information for a loan or financial aid for their kids, etc.

  • http://clubthrifty.com/ Greg@ClubThrifty

    Nice review! I prefer the H&R Block version, but it takes me several hours to complete our taxes. They are a bit complicated, but not so much that I can’t do them myself. Having one of these programs really helps. However, if I was running a complex business, I would definitely be using an accountant.

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      Thanks Greg. I have had issues with H&R Block for the longest time, ever since I had a client come back from using their retail service only to find that not only did the tax returns get prepared without taking any prior year information into account (she had massive capital loss carryovers which were ignored) but it appeared that there was no supervisory review either considering how many “inexperienced” preparers they employ. Anyone with real experience would have seen that she had current losses and should immediately have asked if there were prior year losses as well. Not only that, but there was no info on the Block 2-year comparison so I was left asking if they even looked at her history at all.

      Granted, the software may be set up differently than the way some of the retail locations are run, but my preference if I had to choose would be TurboTax over any other, and to avoid the chains unless you can be sure the person doing the return is experienced and that the return will be reviewed by someone experienced if that isn’t the case. (sorry for the tangential rant!)

      • http://clubthrifty.com/ Greg@ClubThrifty

        Ha! No need to apologize for the rant:) The first year we had our rentals, I used an H&R Block tax preparer. From then, I just decided to buy the software and do it myself. Like I said, though, our taxes aren’t that complicated…although they do become a bit more complex each year. This is our first year with an LLC, so that may change my thinking in the future.

  • http://www.moneyspruce.com/ Jeffrey Trull

    I’ve been using Tax Slayer the past couple of years and was always happy with it while my taxes were simple. It costs about half that of Turbo Tax and yielded the same results for me (I filled in all my info last year just to compare).

    This year, I started working with a (reasonably-priced) accountant that I’m happy with. But if it weren’t for being self-employed, I’d probably still be using online tax software.

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      Self-employment really makes things a bit more difficult. I saw a couple ads for Tax Slayer here and there, and noticed that they sponsored some racing car, but was leery of the company for some reason. You’re actually the first person I know who ever used that service

  • http://twitter.com/moneybeagle Money Beagle

    That’s a great review. We have a family friend who is a CPA and has done our taxes since I was born (he’s a friend of my dads) so thankfully I have never had to deal with any of this, but I know he’ll retire one of these days and I’ll have to probably turn to something like this if I don’t feel the need to transition to a different professional. Thanks.

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      It’s always hard to make that switch, especially after such a long time. Finding someone with the same rapport takes a bit of time, if it ever happens.

  • http://twitter.com/Eyesonthedollar Kim

    My tax return is uber complicated, at least in my novice eyes, so I’d never go that route. The last time I did my own taxes was when I was a resident. I did them online, then I had some questions about a moonlighting job I had taken and went to talk with an accountant. She asked to see my prior year’s taxes was able to file an amended return and get me $500 back, even though I wasn’t concerned with the prior year. I was sold from that point on.

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      I always have new clients bring in the past few years of returns just to give them a second look. Since there is a fairly long window to amend them, it’s worth a shot to see if there was anything that was missed or done incorrectly, especially if it was done on their own. It amazes me when people think that it’s so easy to do their own returns with the help of services like this, but I always end up going back to my views on certain DIY stuff: it’s always better to spend the money to make sure it was done right the first time since the fix can be much more expensive and annoying to deal with.

  • Funancials

    The unfortunate thing I’m finding is that the more money you make from various sources, the more complicated your taxes become. It really makes you wonder how many more entrepreneurs there would be if our tax code was simplified. This year, I don’t think I’ll be able to get away with “the free return.”

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      I don’t think it should have any effect on people becoming entrepreneurs. As I, and so many others say, people should concentrate on doing what brings in the cash and have others who are experienced in those areas handle the rest of the stuff. After all, that’s why we have lawyers, accountants, web designers, etc. The point of going into business is to do something you excel at or specialize in better than others, so that’s where the focus should be, not in worrying about wasting time with other tasks–the revenues earned by spending time in the right areas should more than make up for the cost of paying outsiders to do the things that would be a waste of time for the business owner relative to how much they could be bringing in while focusing on the business.

  • http://www.debtroundup.com/ Grayson @ Debt Roundup

    Great review. I have been using Turbo Tax for years. I find it easy, but I think this might be my last year using it. Since we now have a child, investments, and my business, I am not sure I will be able to handle the return with Turbo Tax. I have had a business for years and never had a problem with my tax returns, but with all of the other stuff, I want to make sure I have it right.

    • http://www.dollarversity.com Eric J. Nisall – DollarVersity

      Adding one thing usually doesn’t make it much more difficult, but when you pile on all that stuff at the same time, it can get a bit overwhelming to get ahead of the curve. You could always try it out, and if you find it isn’t working bring it to a tax preparer. Who knows, you might end up being able to do it on your own and save the extra cash for something fun!