Cutting Through the Confusion of Inheritance Tax
In the simplest terms, an inheritance tax is a state tax that’s imposed on the receipt of assets from someone who passes away.
6 TurboTax Alternatives (And Other Ways to Prepare Your Taxes)
They say that the only two things that are certain in life are death and taxes. But for many, this list is missing a third: Pulling your hair out over taxes.
A lot of us reach mid-April with a little less hair. It’s such a big problem that efforts to ease the pain constitute an entire industry. DIY tax-prep products like TurboTax vow to turn filing into a cinch — just plug in a few numbers and click the button.
But scores of taxpayers find such promises emptier than a tax form on April 14th.
That’s why it’s great news that there are alternatives to this type of restrictive software. Let’s unpack why tax software might not measure up and then discuss some TurboTax alternatives.
Drawbacks of DIY Software Like TurboTax
These products are billed as simple and intuitive DIY tax-preparation solutions that save taxpayers time and money. But if you’ve ever used one for anything more than the simplest of tax returns, you’ve likely experienced another reality.
To have a smooth experience using TurboTax and end up with an accurate filing, you generally have to meet the following non-trivial conditions.
Your taxes are simple
Tax software is a good fit for the most basic tax cases — and that’s about it. For example, if you’re single, have no assets and minimal debt, and have a single source of W-2 income, then TurboTax could be your jam. But if you have assets, investments, multiple sources of income, are self-employed, own a small business, and/or qualify for lots of deductions and credits, the software’s pre-programmed model probably won’t cut it.
You can be extremely careful
Tax forms are, of course, full of numbers. Which means the quality of the tax return is only equal to the accuracy of those digits. And since you won’t have a tax professional to check things over for you, you need to make sure all your numbers are spot-on. While the software will flag obvious errors like incomplete sections or mathematical mistakes, it will assume any data you plug in is correct. Small mistakes can add up to big trouble later.
You know tax law fairly well
The way to get the best tax outcome is to apply all the appropriate legal rules to your particular situation. But unless you’ve studied tax law, you might not know that you qualify for certain deductions or credits. You’ll end up leaving money on the table – or, rather, in the government’s coffers. There’s also the possibility that you’ll file the wrong deductions or credits, which could land you in hot water. And if you miss deductions or credits you’re entitled to, you may be losing money by using this “affordable” solution.
You’re ready to do research
You may have plenty of questions as you prepare your return, and unless you’re going to pay a professional to advise you, figuring out the answers is up to you. IRS forms come with thorough instructions, but these can confuse the non-CPA as much as they clarify. Pouring over Q&A forms, message boards, and Google searches can gobble up your time, leave you tired out, lead you to incorrect or outdated information, and may not even provide the certainty you’re looking for.
You’re willing to be liable for mistakes
Tax professionals take on liability for any mistakes they make in filing their clients’ forms, but as a tax-prep software user, you’re on the hook for what you submit. Most mistakes resulting from the use of software are input errors, which means the taxpayer is responsible. The only time the software company will be accountable for errors is when the software itself has a glitch or malfunctions, which isn’t common.
While TurboTax and similar products may seem like a neat and tidy way to file taxes painlessly, it’s evident that there’s too much risk and not enough reward for the average individual to confidently use a DIY product like this.
Figuring Out Your Tax Needs
With TurboTax off the table as a one-size-fits-all tax-prep solution, you’ll need to consider your own circumstances when selecting what option to use. Begin by thinking about whether your tax situation is simple, moderately complex, or very complex.
You’re an unmarried, child-free professional with a single source of predictable income, little debt, and no side hustle. You’re taking the standard deduction. You can use any method, including TurboTax.
You’ve gotten married and had a child in the last year, and your spouse is self-employed. You also have a little side hustle that earns a bit of income. You may want to stay away from DIY software and instead consider an option that involves a professional tax-preparer.
You’re recently divorced, just bought a house, own your own business, and generate a lot of income from stocks and real estate investments. There are a lot of moving pieces in your finances. Trying to handle your own taxes will probably result in missed opportunities and unforced errors.
Not only does complexity matter, so does context. Ask yourself some important questions:
Have you been audited in a previous tax year?
Do you feel like you’re at risk of being audited in the future?
How much does it scare you to face an audit without a professional to turn to for help?
How much time do you have to devote to tax filing?
How involved do you want to be in the process?
While you may assume you won’t be audited, think about what you’d do if you were. Also think about how much time you can spare to work on your taxes — it can take far longer than you may think.
6 TurboTax Alternatives
Once you have a sense of your own needs, you’ll have a better idea what solution to choose. Here are five alternatives to tax-prep software that could be a good match for you.
1. Other DIY Software
TurboTax is not the only game in town when it comes to automated tax tools. Other options like H&R Block, TaxSlayer, and Tax Act offer their own versions of software to help transform you into your own CPA. Like TurboTax, these all have a free version and also offer more robust options at differing price points. They all come with live support and audit support, but they all still share the same problem that TurboTax presents: They’re really best suited for those with simple taxes or those who really know what they’re doing.
You may be drawn to the efficient and automated nature of TurboTax but feel that you need help from a real professional to get your taxes right. Can you possibly have both? That’s what Taxfyle is designed for. Based on your specific tax needs, the service matches customers up with the most appropriate assistance from a network of licensed and vetted tax professionals -- all CPAs and EAs -- so you get the advantages of a streamlined, digitally enabled system combined with the expertise of highly trained people who know what they’re doing. Think of it as a “done for you” rather than “do-it-yourself .”
3. Hire a pro on your own
If you prefer to personally vet the individual you hire or if you already know a great CPA, then a good option is to hire your own tax preparer to do your filing. This person may be a solo practitioner or part of a practice, but regardless of how they work, it’s a good idea to speak to some references before signing on the dotted line.
4. Use assistance programs
Some may not have the cash or the language skills to hire a tax preparer or service or to complete the return on their own. These taxpayers can turn to programs like the Volunteer Income Tax Assistance (VITA) program, which relies on trained volunteers to help taxpayers complete basic returns. To qualify you must earn less than $56,000 per year and/or have limited English-language ability. Another program, called Tax Counseling for the Elderly (TCE), helps taxpayers who are 60 and above, with emphasis on pensions and retirement-related nuances.
5. Use IRS Free File
The IRS Free File program is a partnership between the IRS and various commercial tax-preparation software companies that allows taxpayers to file their taxes using online services. Depending on your income, you may be eligible to use these services for free and to have guidance and help in filing. These services are all fairly similar to TurboTax, so those with complex situations may want to opt for a more robust solution instead.
6. Do it yourself … with a pen!
If you’ve ever visited a public library around tax time, you’ve probably seen the stacks of tax forms just waiting for luddites to grab them. You, too, can fill out your tax return by hand, whether you get the form at the library or print it off the Web.
Just be forewarned that this method has a lot of the same problems as TurboTax, such as the need to know what you’re doing and to get everything just right, and is boring and annoying to boot. Have fun!
Whichever way you choose to do your taxes, think of it as an exercise in keeping as much of your hair — and sanity — as possible.
Get the latest posts delivered right to your inbox