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.
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.
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.