I used to say turbo tax wasn't that bad, and that free filing was easy if you just ignored their promises to save you money if you upgraded.
Last year however I got all the way to the end of the process where they revealed I made too much and had to pay. That felt extremely unethical, as the information required to come to that conclusion was available far earlier in the process.
And yet what am I going to do but use turbo tax again. The perceived risk and effort of using a non-automated system to fill them out doesn't seem worth the cost.
>And yet what am I going to do but use turbo tax again. The perceived risk and effort of using a non-automated system to fill them out doesn't seem worth the cost.
I'd suggest FreeTaxUSA.com as an alternative. Federal is always free, and state taxes are ~12/state. I don't have anything obscure about my taxes, and their forms indicate they can handle much more complicated situations than I have. I've used them for 3 years now, with no issues.
I will say their system is a bit clunky. I feel like I get in loops sometimes where I go through already filled in information and wish I could just jump to the next section. I wish they would give me more questions on each page so I can better understand how a response to one question filters through down the line.
Here in Sweden I go to the tax office website, log in, have a brief look at that all my salary has been correctly entered (I have yet to encounter that it hasn't) add if I possibly want to deduct some extra things (also very uncomplicated), go to file and click send (the whole thing can even be done on mobile) . The process typically takes 20min max, Australia was quite similar. I'm always amazed by tax systems which seem to be so complicated that you almost always need an accountant (I know my parents in Germany always had one, even though their job did not imply more complex taxes than mine)
If all your taxes are just wages then you just fill out a two page form (1040). Literally just copy a couple of numbers from your w2 and you’re good. The problem is if you have non-salary sources of income (eg stock, non-employee compensation, etc) then things can rapidly become very complicated.
You're right, but I think cycomanic has a point. Why do you even have to fill out the 1040? Why isn't there a default option where you can review tax forms that have already been filled out with the the information the IRS has already received?
That has been proposed. But has been shot down by powerful lobbying groups. One being the tax prep software companies, but another being a conservative group that objects to making paying tax easier because then it will become too easy for the government to just keep raising taxes. The idea is that if you have to file your taxes every year, you have to acknowledge how much you are paying.
You don't have to file taxes in Germany except if you and your spouse are filing together or if you are self employed. Everything else is being handled by your employer.
If you want to get some of your pre-paid taxes back, you will have to file but the tax office doesn't care if you don't.
To be honest I don't know how it is now, but I remember my parents always having an accountant because it was just so much easier to deal with this, and they were a teacher and psychologist (not self employed), without any significant additional income.
Having an accountant do it in that situation is so not worth it. I know my parents also used one for way too long. So easy with tax software and with the government software you don't even have to pay for the software any longer.
Fun fact, they called the government provided tax software ELSTER which in German is also the name of a bird (Eurasian magpie) which is also known as the "thieving magpie". Who said the government didn't have a sense of humor!
What makes you say that? You know they are intentionally difficult in the US?
For instance, there's been legislation where the IRS would simply tell you how much you owe and you pay it or dispute it. The IRS already know this amount, because this is what eventually happens.
Turbotax successfully lobbied for its defeat. It explicitly spends large amounts of money to complicate and convolute the system and structure it like a classroom quiz.
One of the major challenges with the US system is that the central authorities do not have much of the individual tax information all submitted and processed in advance of the individual taxes. The individual then has to to incorporate this information and file it. Sometimes individuals get amended taxTax information from their income sources and then have to re-file. The central authorities cross check on the backend (in theory).
It is incredibly arcane, and in some cases individuals holding publicly traded assets are legally required to file income tax in all 50 states.
California piloted a pre-filled tax return system (similar to Sweden and Australias, that the OP was talking about) called ReadyReturn in 2005 with 51,000 people.
Intuit then spent $3 million to smash it. They lobbied and then sued the state to stop the program. They are also profoundly incompetent technologists. There's an entire subreddit dedicated to how broken their stuff is (https://www.reddit.com/r/TurboTax/top/?t=all)
What did the participants of ReadyReturn, the pre-fille forms, think of the government program that Intuit killed?
"99% stated they were satisfied with ReadyReturn, 97% stated this is the type of service government should provide, 96% stated it was more convenient than how they filed in the past, 95% stated it saved them time, and 98% stated they would use it again"
Once again private interests sabotage and destroy the public will.
The line of "the reason taxes are so difficult..." is from sheer propaganda shills. Tax simplification has happened, it worked, and Intuit killed it every time. The reason is Intuit. They are the buggy whip industry that won. Shameless grifters that intentionally disrupt people's lives for profit.
I hear what you are saying about the problems with the current system being fraught with problems, and there being a total gap in a government provided service.
That said, there are a lot of challenges to such a program.
Ready return was limited to people who were single, no-dependents, standard-deduction, only-wage-income, one-employer, with a maximum adjusted gross income of $139,917
This is great for a number of people and should exist!
That said, if you fall into this category, your 1040 should take 15 minutes to file by paper.
Where automated systems break down is handling more complex scenarios. Selection of deductions, pass through business income and losses, charitable donations, corporate investment vehicles, ect.
Many of this things require individuals to make choices at the time of filing. This is challenging to automate.
It's not challenging at all. I did taxes in NZ for a contract once. You do make a few choices if you want add some exemptions to save money, but it doesn't amount to much either way.
1040ez is quite easy. I still believe that IRS could just accept you signing that you made a certain amount and these are your deductions. They have the same information that I do, I seriously think they like auditing people.
Yes especially the ones who still had to file in the US as well.
That's one of the things I never understood, the US is only country im aware of where you have to file if you're a citizen, even if you're a resident overseas.
My understanding is that if your personal taxes are moderately complicated (income from self employment and investment/property, some possible deductions) they're a lot harder in the US though.
HMRC's website in the UK is far from perfect, but its tax form covering all UK personal taxes has the features people appear to be paying for with TurboTax (Q&A format, most sections being optional, references to industry specific deductions, guidance notes) baked in.
If your taxes are "easy" in the UK they come out of your payroll without you filing a return.
I'm using freetaxusa.com for the first time this year. I got fed up with TurboTax after being hit with a similar anti-pattern as the ones described above. Got almost to the end and was told I had to pay $80 to file. This was after spending hours on my taxes because there are some things that can't simply be updated.. no you have to completely start the process over from the beginning. This felt intentional so that I would just accept the cost to be done with it.
After learning about how TurboTax lobbies to make filing more difficult, I swore I would not use them any longer. I also take everything opportunity to let people know about TurboTax's lobbying.
So far freetaxusa.com seems better than TurboTax IMO. It's cleaner and to the point. No unnecessary animations or any of that nonsense.
Every year I internally gripe about the UI improvements I'd prefer, but fully recognize it is better than TurboTax, and is approachable to people with a wide range of computer literacy.
Let me add my recommendation for FreeTaxUSA.com. I am a newly married grad student on fellowship, which implies juggling estimated taxes, confusing withholding rules, scholarship income, a name change, and first-time joint filing. Needless to say, I am not a "simple" case. After TurboTax failed to prepare my forms correctly (!) and wanted to charge me for the displeasure, I went looking for an alternative. FreeTaxUSA.com is where I landed.
The interface is fairly minimal. The workflow mirrors the questions/boxes on the IRS forms/instructions, a very helpful feature in my situation since I could easily cross-reference the relevant IRS publications when necessary. They provide excerpts from the documents as you go, which is all I needed in many instances. Unlike TurboTax, the prepared forms were actually correct (to the best of my knowledge, I am not a tax lawyer).
Simple, cheap, reliable. Would and do recommend.
EDIT: Story is related to last year, I plan to use them again this year.
I also like their bookmark feature. I commonly realize I need a bit of information and can add a note about my questions I need to research more, or what form I'm waiting on.
Once my bookmarks are clear, I know I'm good to submit.
I tried Free File Fillable Forms last year on principal, but I ran into issues in two areas:
1. reporting scholarship income (goes on the line beside box 1 and nowhere else), and
2. state taxes are not supported, and my state does not have an equivalent service.
It's really frustrating that states have not adopted an equivalent service. I actually filed paper forms for mine because their free service is a simplified approximation of the full form and leaves out certain workflows that limit its scope of complexity.
I find it more approachable to use the question/answer format compared to reading all of the instructions on detail, determining if that particular section applies to me, and wondering if I found every form to cover every situation from the last year.
An example is figuring out whether I would owe taxes on the gain from the sale of a primary residence I owned for less than 2 years. Figuring that out manually took some googling, finding an IRS guide, reading multiple pages of regulations along with exceptions and determining where I stood.
Another is determining HSA contribution limits when my wife and I were in individual HDHP plans part of the year, and a family plan the remainder.
If your tax situation doesn't change from year to year you don't need to scour the instructions. Just work through the forms using last year's return as a guide.
And there have been a lot of tax changes recently. Although my personal situation didn't change significantly, the filing experience changed more during the past administration than in the 10 years I'd been filing taxes before that, even though those previous 10 years included multiple moves and changes of jobs, and the purchase of a house.
They did, but the line instruction verbiage is easy enough to trace where it went in the end if you search certain keywords and phrases you can hook into the right places more or less.
I did in college. If your tax situation is nontrival it can take a very long time and has lots of room for error. I made a mistake and owed a $200 penalty for it back then. Software walks you through it and automates all of the arithmetic, number copying, and prevents fat finger errors.
The IRS site gives that impression, but I believe that's not the case. There is "IRS Free File" which is income limited as you mention, but there is also "Free File Fillable Forms" which appears to not be income limited. Intentionally misleading if you ask me.
The wording is confusing (I think this is an IRS requirement having read the documentation for many years now) but what it is saying is that if you make under $72,000/year there are a ton of free options available. If you make more than $72,000 this is supposedly the only free e-file option available.
The whole thing is a mess because TurboTax and H&R Block and the like want to stay in business. If the process is too easy then the middlemen won't survive.
When my tax situation was very simple I was happy to do my taxes on paper, often using form 1040-EZ, which only took about 10 minutes. Now that they are complicated (lots of different 1099s and business income) I very much prefer to use software to guide me questions and answers style.
Does the IRS allow direct e-filing? At least as of last year, it seemed that you still had to go through someone else to file electronically (although the forms are freely available).
Yes, I’ve been using IRS free fillable forms for over 10 years, I think, with no middleman between me and the IRS. Similar with my state taxes on my state’s revenue website.
Sorry, so, just to be clear: you've been filing your forms electronically with the IRS, not printing out the filled forms and mailing them? How? I swear I've looked, and been unable to find a way to file electronically (although I agree it's easy to find the form), except if you fall into certain income categories. I've even been told that it's intentionally legally impossible, as a way for the IRS to avoid competing with private providers.
(State taxes are a different matter; I've paid Illinois and Michigan taxes recently, and they do provide an easy and obvious way to e-file directly with the state.)
https://www.freefilefillableforms.com/ is the site. It is technically not an IRS service, but one provided by the free file alliance as part of the IRS agreement not to build their own software.
There are no income exclusions or anything. It is possible you will be unable to use it if you have to use some really obscure forms, but it does have all the forms that paid Turbo Tax can file for you. You also might not be able to use it if you have one of those weird tax situations where the IRS instructs you to write a message across the top of your 1040.
Another recommendation for FreeTaxUsa. Used it last year for filing and for an amended return. I am happy to pay the small cost (about $7) for unlimited support (didn't need any). Using it again this year.
They are great! Use them every year. TurboTax is a scam in comparison. Use code FREETAXUSA10 to get 10% off that already-cheap state filing (federal is free).
No, but it’s not hard to fill in the few boxes of information from the 1099-B. I have 1099-B, Section 1256 contracts, and regulated futures statements and they’re all easy to input.
+1 for them. I live in one of the few states with no state tax, so its totally free to file. They do ask if you want to pay, its only if you want some audit protection, and live support.
Credit Karma is free. Works great, and has no discernable dark patterns. They even have import features from major payroll companies like ADP.
I had to quit turbotax because one year I was a 1099 worker and every year since, it pushes me to go with their "small business edition." Each year it got harder to avoid "upgrading."
Seriously, just do it. Quitting TT is so much easier than quitting anything else.
Having used Credit Karma in the past, you should know that it can be...dangerously confusing...for anything other than the happy path.
Things like backdoor Roth contributions (which aren't that exotic, tbh) were very confusing in credit karma, to the point where I actually did my taxes with another service just to verify that the calculations were correct, then submitted with CK. I found several mistakes in the CK results that were due to bad/confusing UI.
You likely won't hit this problem if you're just doing a 1040EZ or 1040 with standard deduction, no stock sales, etc. But if you have any complications...sometimes there's a reason to pay for software.
Yeah, I'm normally pretty cheap with this stuff, but this is painful enough that I just decided to pay for some software this year. At some point, "cheaper than an accountant" becomes the guiding principle...
(definitely not defending Intuit here, though. Tricking people into paying is not cool.)
I got an email from Credit Karma advertising for TurboTax. This plus the glitch that exposed into [1] leaves me very little confidence in CK.
[1]: https://news.ycombinator.com/item?id=20699410
I thought I remembered TurboTax purchased CreditKarma, but googled,and now I'm confused...
> Intuit Inc., owner of the popular TurboTax DIY tax preparation service, has moved forward with its $8.1 billion acquisition of Credit Karma, Inc., after satisfying the government’s requirement that Credit Karma divest its tax preparation business.
Divest their tax prep business? I just did my taxes on creditkarma, and it was the same website that was trying to market me credit cards that i prepared the taxes on.
AHA, that article has a date "January 3, 2021", so I guess still in progress?
But ok, divest their tax prep business... the WAY CK was providing free tax prep was by funding it with the rest of their portfolio, the credit card marketing and such. The tax prep got people into their system (and possibly got their data into their system, I'm not sure how much was opt-in or opt-out).
Divest their tax prep business? Into it's own business? It won't possibly be able to provide the service for free anymore right? They will probably quickly go out of business.
I don't know how the heck anti-trust regulators think this did anything positive. Intuit one way or another succesfully eliminated the competition from free creditkarma tax prep. Gah.
Credit Karma got a lot more snoopy about personal details after Intuit acquired them. They won't get anything else from me until after that merger goes through, because I see no reason to give Intuit any more data than they already have. I moved to H & R Block's Tax Cut more than a decade ago thanks to Intuit doing something horrible I no longer remember.
In several years of using it, they've never emailed me advertising anything, and while they're obviously sharing my info with credit card companies and banks, I haven't gotten any marketing from them either. If you don't care about the recommendations, as I don't, you can use it for your taxes and never think about it the rest of the year.
They use your data (income, financial situation (do you have a mortgage, etc.)) to determine what financial products (which credit cards, personal loans, mortgages, etc.) to offer you.
This would all be in addition to what they knew about your credit score or anything else you input on the other parts of their platform.
But as others pointed out, that part of CK got split off when Intuit bought them.
When I did my taxes through them, at the start they offered to transfer my data into Cash App. The wording was a bit shady as it wasn't clear what Cash App is or if it was part of the tax prep process or not. I already knew what Cash App is so I declined but I could see some people getting confused. At the end it also offered to load my refund into a Cash App account "in days instead of weeks", making it essentially a refund anticipation loan. The wording on that one was much more clear and I declined.
I got snagged in one of their dark patterns. American living abroad, start with turbotax, include foreign bank information and schedule 2555. Get all the way to then end. "we see you're filing income from abroad. You will need to upgrade to TT Deluxe for $60"
After that been using CreditKarmaTax; no shenanigans.
> And yet what am I going to do but use turbo tax again.
At least look into the options. Credit Karma Tax, FreeTaxUSA, 1040.com - there's a bunch of stuff out there made by companies that don't actively try to make the IRS less functional.
I ran into that this year. After declining all of the mid return attempts to get me to upgrade to the paid service, when I got to the very end it told me that since I had purchased health insurance on the government marketplace for part of the year that I'd have to pay extra for that form. I went with Credit Karma instead. Turns out that my taxes weren't affected at all by my health insurance situation. Between the cost of the Deluxe version and now being required to pay for state filing, they wanted $67. I know they think these "free" offerings are a way to dissuade Congress from having the IRS offer tax filing directly but these games aren't helping their cause any.
Credit Karma was free for filing both state and federal though they did make two attempts to get me to install Cash App, both of which I declined.
The fact that Turbo tax has at least 2 totally different free products, only one of which is part of FreeFile[1], and the other of which has a whole slew of exclusion criteria, mainly tied to which tax forms you will need to file is completely absurd. The IRS should really tell the FFA members that their advertised free product must be the same as or a superset of their FreeFile offering.
I always hear this, but what does "simple" mean? Do you recommend a professional if you have rental income? Stuent loan interest? Stock sales? Stock options? Convert a 401(k) to an IRA? Inherit money? Own a small business?
I've done all these things painlessly with regular tax software. I've also tried a professional CPA once, and he was useless. Just sat there asking me every question that the software normally would, and then typing my answers into his software. Nice guy, but not worth $400 compared to $50 software.
> Do you recommend a professional if you have rental income?
Unless you know exactly what your cost basis is, yes. It gets complicated with construction loans, HELOCs, refinances, having lived in a property for quite a while before renting, etc.
Even as a full-time college student, I've used a professional, and I'm glad I did. He did things as straightforward as claiming relevant education credits to more esoteric such as maximizing refunds around housing stipends for summer internships. I didn't have to do much else other than reach out to my accountant and provide a W2.
It's fully within the bounds of tax law, something which I (and my accountant) made very clear I want to stay within. Our tax code is a joke, yes, and in need of actual reform, but this itself doesn't put me in any legal grey area whatsoever.
I would hope anyone who made it through A US K-12 education would be able to do their own taxes if all they have is W-2. Even 1099/student loan interest deductions/etc is pretty easy.
I would say it only gets really complicated once you venture into dealing with equity and AMT and stuff.
It’s funny though that people will scour the web and clip coupons to save money, but they won’t research how their biggest expense (tax) is calculated.
Researching how taxes are calculated takes up valuable time and mental capacity, and you have to reeducate yourself every couple years on whatever new tweaks to the tax system happened.
> Researching how taxes are calculated takes up valuable time and mental capacity
So does deal finding and coupon clipping, which is what the parent was comparing to.
If you have just a salary, no mortgage, and no stock/equity transactions, nothing has changed in 20 years, and it takes all of 10 minutes to fill the Federal form out (and I'm being generous). Every once in a while there is some extra credit, but it's usually prominently advertised. A simple hack is to look at the previous year's tax form and compare to see if anything has changed, and look up the guide related to those entries.
If you do basic stock transactions (RSU, SPP, buy and sell), then it's a bit more pain, but still easy.
Deductions are things one can easily miss, but even then, once you figure it out, you just have to keep an eye out for changes to deductions. The recent tax changes screwed it all up (although they also made taxes overall easier for those not in high COL states), but the usual deductions to watch out for are mortgage interest, state taxes, property taxes, and charitable donations.
If you have other things going on (side business, etc), then I would suggest paying for a CPA.
Worst case, just plug the numbers into TT and see if what you get is the same. If they imply you can get more, then pay someone to do it for you.
I know people like to think it will take a lot of effort, but at least for my salary, if I count the hours it takes for me to do all this, it's always cheaper than paying a CPA.
My experience has been the opposite. Unless I'm prepared to spend literally thousands of dollars, tax preparers don't seem to be able to do any better than I can. They largely make me do the hard stuff (splitting RSUs by state, fixing incorrect 1098Ts) myself anyway.
Unless you own a small business your taxes are really simple though and it isn't money well spent. The pros try to tell you they are doing something hard, but your situation isn't unique or hard.
I've dealt with the IRS. It was a major pain. Ridiculous pain. They were contesting some education credits some years after graduation. Showed proof of payments to the university, but they responded with "Well how do we know you were paying for education - you could have been paying for things like parking?"
They kept saying "Send us this doc and you'll be good." We'd get the doc, send it to them, and they'd say it's not enough.
Called the university. They said they'd never heard the IRS contest the form that universities provide (1098 or whatever it is). I had to beg them to find my actual bill for that year, so I could show them that what I paid match what was billed. Finally the IRS relented.
Jokes on them, though. I found some unused deductions, amended my tax form, and got back an additional $400.
Having said all that, I still do all my taxes myself. Neither Turbotax nor a CPA would have spared me this headache - they would have filed it exactly as I did - just slap on the form the university provides. My wife used to use a CPA in the past - relatively cheap ($150 for both federal and state). I found issues with his work - he didn't take as many deductions as he could. I amended and got back extra money. He also messed something up which the IRS (rightly) contested. We contacted the CPA so he could fix it and he went AWOL. We had to deal with it.
If your financial situation doesn't change from year to year, I suggest paying a CPA once to do your taxes, figure out everything he/she did, and just do it yourself next year.
Also had to deal with the IRS over education credits and capital gains. It is a pain, and can be stressful, but ultimately I found that the IRS was fair, bureaucratic, and professional.
I think that the most important thing to remember when dealing with any government or financial institution is to keep paper records of everything. For our education credit dispute, we had my wife's transcript and receipt for tuition paid in the tax folder; we sent that in and the matter was closed. Same goes for capital gains: it's really handy to have detailed records of the cost basis for anything you sell. Same goes for identity theft, bank fraud, stolen credit cards, contractors that don't do what you pay them to do, etc. Know what you have agreed to pay, keep a paper trail of it, hold up your end of the bargain, and then insist anyone you do business with hold up theirs.
Well, I had a record that I had paid the university, just not the receipt that said that the payment was for tuition and not parking.
I generally do keep paper records. For this case, both the university and a tax accountant told me what I had submitted is all that is needed. There's a reason the university gives you a tax form every year. Saying I should keep more records is like the IRS coming to you and not accepting your employer's W-2 form and wanting additional proof of your wages. Did you happen to save your biweekly payslips?
For standard deductions/credits (of which education is a common one), I do think it is the responsibility of the IRS to come up with a simple system to show it, like they already do for the W-2. The tax statement the university provides should suffice - what else is it for?
As for professionalism: They were calm and courteous, but I do not think being told "If you can show X it will be sufficient", and then not accepting X when I provide it to them is professional. This happened twice for the education credit issue. X wasn't some vague general idea, but a very specific document. They literally said "If you can show a bank statement showing payments to the university that will be enough" and then refused to accept it when I provided it to them (switching to "Yes, but how do we know it wasn't for parking?"). It should have been obvious at the outset that the bank statement would not have this information.
I don't know how long ago this was, but in the past couple decades the likelihood of a regular Joe getting audited has plummeted.
IRS enforcement has pretty much been gutted by Congress. For everyone but high earners, it all comes down to automated checks that run at file time. If you don't have any obvious flags (e.g. not reporting income that was on a W2), then the IRS doesn't have time for you.
> That’s so cute how everyone is afraid of the IRS boogeyman
Its so cute how everyone is afraid of a government agency that is opaque and can charge you fines or jail time for not correctly filling out their documents :)
I have no source. Idk if it actually happens that "ordinary" people go to jail for being bad at filling out taxes. But people think it happens, people worry it happens and that's completely fair.
I'm aware that in my current state I just take the standard deduction and call it a day. But the time and chance of having to go back to it due to a mess up is more than $80 imo.
Last year however I got all the way to the end of the process where they revealed I made too much and had to pay. That felt extremely unethical, as the information required to come to that conclusion was available far earlier in the process.
And yet what am I going to do but use turbo tax again. The perceived risk and effort of using a non-automated system to fill them out doesn't seem worth the cost.