Best US Tax Prep - Buy Software or Hire a Preparer?

[Independent]

I think any official government software for this purpose would be just as "helpful" as the government guides presently published. The commercial companies have every incentive to make the software very user-friendly and they've done a good job. I'm cheap, but happily part with the money for TurboTax.

What I do resent is having to pay for e-filing (fees are still charged for e-filing some federal and state returns). If the government is trying to encourage e-filing, and if it's much cheaper for them to process these returns (as they claim) then why isn't it free for all taxpayers to e-file? As I understand it, the answer is that government has an agreement that they will not press for universal free e-filing (preserving a line of business for these companies) if the companies agreed to provide free e-filing for low-income taxpayers.

I agree with the comment on e-filing. It looks like a hidden income transfer scheme to me.

I wasn't suggesting that the IRS could eliminate all private tax preparation or software. But, lots of returns are simple enough that they should be doable. Just adding the obvious math and a couple simple links to the current fillable forms would probably eliminate lots of errors. It's as if some portion of the gov't refused to use telephones.

Of course, this would be moot if we took the #1 recommendation of the Taxpayer Advocate:

THE MOST SIGNIFICANT ISSUES FACING TAX PAYERS AND THE IRS TODAY
1. The Complexity of the Tax Code
Problem
The most serious problem facing taxpayers — and the IRS — is the complexity of the
Internal Revenue Code.
Analysis
A TAS analysis of IRS data shows that taxpayers and businesses spend 6.1 billion hours
a year complying with tax-filing requirements. To place this number in context, it would
require more than three million full-time employees to work 6.1 billion hours, making “tax
compliance” one of the largest industries in the United States. ...

But I'm even boring myself with that comment.

 

[MDJO]

I agree with the comment on e-filing. It looks like a hidden income transfer scheme to me.

+1

Seems like we are doing IRS a favor by e-filing.

 

[photoguy]

What I do resent is having to pay for e-filing (fees are still charged for e-filing some federal and state returns). If the government is trying to encourage e-filing, and if it's much cheaper for them to process these returns (as they claim) then why isn't it free for all taxpayers to e-file? As I understand it, the answer is that government has an agreement that they will not press for universal free e-filing (preserving a line of business for these companies) if the companies agreed to provide free e-filing for low-income taxpayers.

AFIAK it's not the government charging for e-filing but the commercial companies who produced the tax software. I guess anyone is free to write their own software for tax prep and let people e-file for free.

From the IRS website:

Q. Is there a fee for IRS e-file?
A. The IRS does not charge a fee for electronic filing. Some Authorized IRS e-file Providers (EROs) charge a fee for providing this service to their clients while others may offer it free of charge. However, this fee cannot be based on any figure from the tax return. Fees vary depending upon the tax professional you choose and the specific services you request.

 

[audreyh1]

I agree with the comment on e-filing. It looks like a hidden income transfer scheme to me.

+1

Seems like we are doing IRS a favor by e-filing.

The hidden transfer is to the tax software companies.

But many of them offer an e-file "rebate" when you buy their software.

 

[rbmrtn]

I say you have a great deal with your state and county if you can pay with a rewards credit card and with no fees, and your tax paying buddies paying by cash or check are getting the shaft. That credit card fee has to come from somewhere.

I thought so. Only thing is you have to go in person to the tax collectors office. I just paid mine so I checked the receipt again, no charge for CC. Strange thing, they have an online payment via third party processor and they charge a 3% fee... go figure

 

[Dimsumkid]

Amazon price for deluxe + state $27.95 pc/mac download or retail box shipped to you. If you wait closer to tax deadline, in past years, they put it on deal of the day or lightning deal as low as $19.

Amazon.com: H&R Block At Home Deluxe + State 2012 [Download]: Software

Price drop (as of 1/20/13) - Retail box version is 23.94 w/free super shipping, download is 27.95. Seems a little early to me, maybe a sign of more discounts to come as the deadline nears.

 

[samclem]

AFIAK it's not the government charging for e-filing but the commercial companies who produced the tax software. I guess anyone is free to write their own software for tax prep and let people e-file for free.

The Treasury has set up a system (EFTPS) that allows taxpayers, at no cost, to send them tax payments. Where's the similar system to allow me to send them my tax return? The answer is: There is none. Why not? A sweetheart deal between tax software companies and the IRS. As Jay Gatsby noted in a previous post:

Because in exchange for not starting their own e-filing program, the federal and state governments cut a deal with the companies running the e-filing program that they would offer free e-filing to low-income folks, but could charge (and keep the profits) the middle and upper class filers for the "convenience" of e-filing.

I've read more on this deal in other locations. It should make every taxpayer mad.

 

[OldGuy]

A Cautionary Tale

Have used H&R Block's product for 15+ years, having switched from TT for no real reason other than I liked their interview process a tad more.

ONE CAUTION, though, iffin you are in H&RBlock's "get-the-CD-in-the-mail-and-just-re-up-for-another-year" group. Our 2012 CD (fed & state) showed up for a price of ~$39. A week later, FIL got his solicitation mailing from H&RB, and they offered the same program for ~$24. Not for nothing, I was annoyed & called their customer svc number to voice my displeasure. They quickly offered to refund the difference between the two "versions", which they did in 2-3 days. Pays to pay attention, although the sour taste lingers...

 

[photoguy]

The Treasury has set up a system (EFTPS) that allows taxpayers, at no cost, to send them tax payments. Where's the similar system to allow me to send them my tax return? The answer is: There is none. Why not? A sweetheart deal between tax software companies and the IRS. As Jay Gatsby noted in a previous post: I've read more on this deal in other locations. It should make every taxpayer mad.

I'm guessing another reason might be that accepting money electronically is a far easier task than building, maintaining, providing user support, providing security, and accepting liability for a web app/stand alone program that can handle the US tax code.

Based on my experience with other government registration/filing systems, e.g., copyright office (and to a lesser extent trademark), I would be absolutely astounded if the government could get this done on it's own. How long did they take to do something simple like get SS statements online?

According to the IRS site they have free e-filing software if your AGI is less than 57k (which should cover 70% of taxpayers). Probably this software is limited but it doesn't seem like a bad tradeoff to me as a taxpayer.

 

[smjsl]

The Treasury has set up a system (EFTPS) that allows taxpayers, at no cost, to send them tax payments. Where's the similar system to allow me to send them my tax return? The answer is: There is none. Why not? A sweetheart deal between tax software companies and the IRS. As Jay Gatsby noted in a previous post: I've read more on this deal in other locations. It should make every taxpayer mad.

I've been efiling (using fillable forms) directly to Uncle Sam for a few years now... You have to fill out the forms online without additional help of TT / H&R Block generating the forms based on interviews, but you can then e-file just fine for free (there is no income limit and some years, my returns included more complex forms too, like K1, etc.)...

 

[samclem]

I'm guessing another reason might be that accepting money electronically is a far easier task than building, maintaining, providing user support, providing security, and accepting liability for a web app/stand alone program that can handle the US tax code.

But it's not really handling the tax code, is it? TT and the other programs do that for me. All we're talking about here is formatted data that goes to the IRS in a secure, verifiable way. Every paper form already has a number and every field on those forms would have a identification code--then the data. Done.
[/QUOTE]

Based on my experience with other government registration/filing systems, e.g., copyright office (and to a lesser extent trademark), I would be absolutely astounded if the government could get this done on it's own. How long did they take to do something simple like get SS statements online?

Agree 100%

According to the IRS site they have free e-filing software if your AGI is less than 57k (which should cover 70% of taxpayers). Probably this software is limited but it doesn't seem like a bad tradeoff to me as a taxpayer.

Right. But the IRS doesn't really provide the free efile. This is the deal they struck (at your expense) with the companies in the efile business: "If you provide free efile services to taxpayers below a certain income level, the IRS will not develop our own efile system for all taxpayers, saving that market for you". It was a win all around: The IRS avoided the trouble and expense of developing a system for doing it, the companies got a protected market. Let's see: did anybody lose out? . . .

 

[scrinch]

Same here with Excel. I have a spreadsheet that I have used for years and just update it with any tax code changes. I like being able to know at any point during the year where my fed taxes stand.

Would you mind sharing that workbook with us? I'd love to be able to run what-if scenarios with a spreadsheet like that.

 

[kaneohe]

You could try one of the tax calculators online (Google) like Taxcaster or the H&R Block. They often don't have the real version till late in the yr but if changes have been minor, they are close. Be aware that they may have some limitations.....e.g. Taxcaster doesn't take muni income.

 

[Independent]

Would you mind sharing that workbook with us? I'd love to be able to run what-if scenarios with a spreadsheet like that.

I mentioned that I use this approach. One advantage is that it is personalized, it just show the lines that apply to me. That makes it easier for me to understand, but also pretty useless for someone else.

The spreadsheet itself is a simple as they come.

I just copied the lines from my 1040 that had non-zero entries. For the lines (like 22) that are math, I put in the formula.

Then, lower on the spreadsheet, I copied the lines I use from Schedule A. I linked the top and bottom (line 40 on the 1040 section of the worksheet links to line 29 on the Schedule A section).

etc, with any other forms.

Somewhere toward the bottom, I have a block of numbers that calculate the tax based on tax brackets.

Check it by putting in the data from prior years (one column for each year), and you're ready to go. Change any input item, and all the math will work out.

 

[scrinch]

Okay, thanks. I'll try putting one together myself. For 20 years I used to do my taxes by hand and I understood them reasonably well. But for the last 15 years I've used TaxAct or had an accountant firm do them, and the return always ends up 30+ pages long, so I didn't try to figure out how it all fit together (AMT, foreign tax credits, loss carry forward, etc.). Right now I'm holding a half-inch-thick pile of paper that is my 2011 tax forms that have to be submitted by the end of the month! I'd like to get back to understanding the basics of my taxes again now.

 

[Independent]

Okay, thanks. I'll try putting one together myself. For 20 years I used to do my taxes by hand and I understood them reasonably well. But for the last 15 years I've used TaxAct or had an accountant firm do them, and the return always ends up 30+ pages long, so I didn't try to figure out how it all fit together (AMT, foreign tax credits, loss carry forward, etc.). Right now I'm holding a half-inch-thick pile of paper that is my 2011 tax forms that have to be submitted by the end of the month! I'd like to get back to understanding the basics of my taxes again now.

Good luck. 30+ pages is way beyond my single column on one page.

But, if you've done them by hand before, I'll bet you can get a feel for how things go together by taking a shot at this.

 

[audreyh1]

The spreadsheet itself is a simple as they come.

I just copied the lines from my 1040 that had non-zero entries. For the lines (like 22) that are math, I put in the formula.

Then, lower on the spreadsheet, I copied the lines I use from Schedule A. I linked the top and bottom (line 40 on the 1040 section of the worksheet links to line 29 on the Schedule A section).

etc, with any other forms.

Somewhere toward the bottom, I have a block of numbers that calculate the tax based on tax brackets.

I've done something very similar for my estimated taxes annualized income spreadsheet - even down to the IRS line numbers. This is right out of one of the pubs - pub 505, I think. It really helps when double checking things and also when reviewing changes in tax law from year to year.

 

[photoguy]

But it's not really handling the tax code, is it? TT and the other programs do that for me. All we're talking about here is formatted data that goes to the IRS in a secure, verifiable way. Every paper form already has a number and every field on those forms would have a identification code--then the data. Done.

I misunderstood what you were asking for as I thought you wanted both parts: the logic to handle the return itself and the filing. But if the filing portion only were to be free, I think one of two things would happen: (1) TurboTax and other companies would just raise the price of the software to compensate (e.g., keep the bundle price of software+efile the same). (2) The software would encrypt the output so you would be forced to use their efiling system anyway.

 

[Gumby]

The free efile that comes with the software is wasted on me. I will continue to paper file until it is no longer permitted.

 

[In-control]

Save $ on TT

I have been using TT for some time and it really has saved me $ and educated me. I download it from the Vanguard site and get a steep discount.

 

[smjsl]

I misunderstood what you were asking for as I thought you wanted both parts: the logic to handle the return itself and the filing. But if the filing portion only were to be free...

It IS free. You can e-file with fillable forms for free without any income restrictions. (www.freefilefillableforms.com)

 

[samclem]

It IS free. You can e-file with fillable forms for free without any income restrictions. (www.freefilefillableforms.com)

It IS ridiculous. The "fillable forms" do only basic computations and are not at all the same as using Turbotax, TaxCut ("At Home"), TaxAct, etc. If you use one of these real tax prep packages you'd then have to re-enter the hundreds of fields of information into the "convenient" IRS "fillable forms."

When I'm done with TurboTax my return is in a perfectly useable digital form that the IRS is willing to accept. Why has the IRS arranged free acceptance of this information only for those taxpayers with an AGI below $57K per year? It saves them money and it saves me money if I send it digitally. If efiled forms save the government money, then they should field a system that accepts them from everyone without charge.

The current arrangement is a back-room good deal for certain firms at the expense of taxpayers and it should be exposed for what it is.

 

[smjsl]

@samclem: what you said is true. I was responding to the notion that there is no way to transfer forms to IRS digitally, i.e. to efile. That was incorrect. You can see from the quote to which I responded, it explicitly talked about just that part.

 

[Independent]

It IS free. You can e-file with fillable forms for free without any income restrictions. (Free File: Do Your Federal Taxes for Free)

Looking at the website, it says that the forms now do "basic math". IMO, that's a step up.

 

[smjsl]

Came across this article about how Intuit has been fighting free tax preparations... not surprising I suppose.

The idea, known as "return-free filing," would be a voluntary alternative to hiring a tax preparer or using commercial tax software. The concept has been around for decades and has been endorsed by both President Ronald Reagan and a campaigning President Obama.

[...]

The disclosures show that Intuit as recently as 2011 lobbied on two bills, both of which died, that would have allowed many taxpayers to file pre-filled returns for free. The company also lobbied on bills in 2007 and 2011 that would have barred the Treasury Department, which includes the IRS, from initiating return-free filing.