Our Experiences Using Tax Software

tax breaks on laptop

A week ago I filled you in on why Kyle and I haven’t yet filed our taxes – we aren’t sure what our gross income truly is!  Now that we’re getting down to the wire on the deadline for filing our taxes we need to make a decision and get through the math of figuring out how much tax we owe for 2012.  Like other years, we will likely use free online tax software and do our returns manually so we can check them against each other and make sure that we’ve entered everything correctly and it all makes sense.

 

I confess that in the past I have used Excel to mimic the 1040, translating each line into a cell and adding in how they should relate to one another (Z is X subtracted from Y, etc.).  In the last year I have learned that there is a way to enter your tax information through a fillable online form on the IRS website that creates your 1040 for you, so I might do that instead of duplicating my own form in Excel.

 

In any case, we’ve had varied success with tax software like TurboTax and TaxACT (the free online versions, anyway).  I have been a bit suspicious of them – when we were paid with 1099s the software wanted to make all 1099-MISC income self-employment income, which it is definitely not in the case for fellowship income.  My partner investigated TurboTax in detail a couple months ago and found it is possible to force the software to understand 1099-MISC as fellowship income instead of self-employment if you tell it that enough times.  I guess when I was trying it out I never had the patience to repeat myself or the faith that it would work out, but apparently it does.  Now that we have W-2 income that isn’t an issue though, and the tax software can handle it fine.

 

 

In one year my hand-done return (and my general observational skills) was definitely shown up by tax software and Kyle loves to bring up that incident!  I completely overlooked a one-time huge tax credit during the recession (I believe it was for $600 per person)!  If I had filed my hand-done return the IRS would have sent it back telling me I owed less because of that credit, but thankfully the tax software knew about the credit and double-checking the two returns against each other pointed out my mistake.  So that is a big benefit of using this kind of software – it can catch credits and deductions you might not even be aware that you qualify for.

 


 

I do think it’s important to understand your taxes on a theoretical level, even if you farm out the actual work to a CPA or tax software.  There’s no excuse for not understanding how marginal tax brackets work or deductions vs. credits!  I think you should have a general idea of what deductions and credits you are taking and why you can take them.  For example, by just reading a quick summary (the kind you find on blogs!) you might think that Kyle and I are eligible for the Saver’s Credit because we save a lot for retirement and have a low enough income to qualify.  However, we fall into the footnote caveat that students are not eligible for this credit – bummer!  I definitely understand that people who have their own businesses have very complicated taxes and it’s not reasonable to do them themselves, but again I emphasize that a general, theoretical understanding is necessary for responsible citizenship.

 

Do you use free tax software, do you do your return manually, or do you pay someone/something to file for you?  Has tax software served you well or frustrated you?  Do you understand your taxes at a high level (at least) and is that because you do them yourself?

 

photo from Free Digital Photos

 

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28 Responses to "Our Experiences Using Tax Software"

  1. Sara says:

    No shame in my game- my parents do my taxes! They also do taxes for about 35 other people, though. I’m their opportunity to research the credits available to grad students and lower income earners so they can take on people like me as paying clients. Plus it gives me a great excuse to go home for a weekend and for them to have someone else do their least-favorite chores This year I washed both of their cars and took them for oil changes while they were working on mine. 🙂
    Sara recently posted..Wealth health, April 2013

    1. Emily says:

      That’s great that your parents study up on that demographic – and that you pay them in trade. Do they end up getting grad student clients?? I’ve never known anyone to pay for tax services.

  2. I have used the paid version of TurboTax for years because I have had my own business on top of a full time job. It has done well for me, but I also understand taxes to a certain level. I like that it finds my deductions and credits, but it also gives me an easy way to compare to last year to make sure I didn’t miss anything. I like it.
    Grayson @ Debt RoundUp recently posted..Love and Money – An Internal Debate

    1. Emily says:

      Sounds like you are about where we are (except your taxes are more difficult) with having an understanding of taxes as well as doing the fine details with software.

  3. Wow, I don’t think I’ve ever dug that deep into the tax software I use to question it (TaxAct). I started using it about 10 years ago, and that was an upgrade my own Excel 1040 worksheet. I do still understand how things work, but I rarely ever check over every little issue anymore. That will probably come back to bite me.
    My Money Design recently posted..How to Increase PageRank, Get Found Through Google, and Make Some Money!

    1. Emily says:

      I think we are emphasizing the manual returns less and less every year as we have more trust with the software – but we also understand our taxes better each year so I think we’re less likely to make mistakes in the first place.

  4. krantcents says:

    I use a CPA and have for probably close to 40 years. I can call with questions through out the year for no cost.
    krantcents recently posted..Why You Should Think Twice about Paying Off Debt!

    1. Emily says:

      Have you considered switching as new technology has come online?

  5. CashRebel says:

    I also like to do my taxes in excel first before I move on to TaxAct, but it’s always frustrating when the online software finds something you forgot about. I’ve been consistently wrong each time I’ve tried to do it on my own… oh well, I guess there’s always next year.
    CashRebel recently posted..Income Differences By Block: RichBlocks-PoorBlocks

    1. Emily says:

      Haha you have as bad a track record as I do! But I think it’s a valuable exercise to try to do them manually, even if you make a mistake.

  6. I used turbo tax for the first time this year. I found it pretty easy and intuitive to use. I had a few deductions I didn’t know I qualified for.
    Kevin Watts @Graduatingfromdebt recently posted..Completely Debt Free

    1. Emily says:

      Sweet! Did you double-check to make sure the deductions were legit?

  7. Yes. They were actually standard deductions that everyone at my job does
    Kevin Watts @Graduatingfromdebt recently posted..Completely Debt Free

  8. In the past, I did taxes myself. These days, I have a CPA take care of my taxes, due to time/complexity considerations.

    Regardless, I do agree that it’s part of being a responsible citizen to at least have a general understanding of tax basics, and how things work.
    Tie the Money Knot recently posted..The Insecure Husband

    1. Emily says:

      Glad to know we’re on the same page!

  9. I have used H&R Block for the past three years with good experiences each time.

    I have a general sense of my taxes, although I feel more comfortable using software.

    I can still remember my first experience doing taxes manually. I was 22, with grad school fellowship income of around $12,000/year and no other income. I called my dad in tears because I thought I owed $1,200, which would have drained my bank account. It turns out I didn’t even take the standard deduction into account (I ended up getting back several thousand dollars). Since then, I’ve been MUCH more careful and logical about my taxes!

    1. Emily says:

      Wow, what a powerful lesson in the awesomeness of the standard deduction! I’m surprised you got several k$ back on a 12k$ income, though – your withholdings must have been insane!

  10. Maybe you could team up with a CPA and a web programmer and design a tax software for use by grad students, that deals with the unique tax implications of that group?

    My aunt does taxes on the side and almost everybody in my family uses her, but in college, I had a small business and started doing the taxes for it and discovered how easy it is for most people. Since then, I’ve always done my own. Since the advent of free tax software, I’ve been going that route. Even though my taxes are much more complex these days then there were in college, they are still relatively straight-forward.

    I do think that for the average person, having somebody else do their taxes is less about complexity and more about laziness. Yes there are people that have tax issues that would benefit a trained professional to look at them, but anybody who files the 1040A or 1040EZ and knows how to add should save their money and do it themselves. My roommate is so lazy that he paid me to fill out his 1040EZ for him. He only had $7 on him, but it took me all of 5 minutes!
    Edward Antrobus recently posted..Net Worth Update: March 2013

    1. Emily says:

      You are so entrepreneurial, Edward! I would never think of doing something like that. I would be concerned about liability.

      I think getting someone else to do your taxes is only a little bit more lazy than getting tax software to do it, though, so that’s why I would guess it’s for their superior expertise/nuance. Don’t you pretty much have to organize all the info yourself anyway?

      1. I use free versions. As you mentioned in your post, sometimes there are things that have been updated that you aren’t aware about. I use software for that reason and basically as a calculator.
        Edward Antrobus recently posted..Net Worth Update: March 2013

  11. I have hope that I might be able to do my own taxes in a couple of years. There is no way now, but when all the business income is sorted out, it could happen. I’m afraid I don’t keep up with tax software because I know I will use an accountant.

    1. Emily says:

      I’m sure you can revert at least to software after your business stuff finishes! Save all that accountant money. 🙂

  12. Heather says:

    I’ve done ours using Taxslayer for the past few years. I’d recommend Taxslayer to others, though I don’t know how it treats 1099 in the case of your situation. Even though we end up paying about $20 – 40 to file our federal as well as state returns, I’m usually so satisfied with myself (and for all the knowledge I’ve gained!) that this cost is reasonable. I now know how to file amend forms, too! I had forgot to report the fellowship portion of my income from last spring, which was not totaled in my W2.

    I will say that between two incomes, and two, three, and sometimes four state returns, I would happily consider paying someone else to do our taxes. Why haven’t I? I have no idea what’s reasonable payment, and how this scales with filing complexity. If it nears $100, I’m not sure I’d go for it–my thrifty DIY mindset takes over. 🙂 I, too, would want someone who has experience with grad student-relevant tax issues.

    1. Emily says:

      I suppose you could ask a tax preparer how much it would be for a return that’s simple in terms of not being self-employed or whatever but complex with all the different states. Maybe it would be a lot because they generally only work with their own state?? I think it would be difficult to find someone with the appropriate grad student income experience, but I’ve also never tried. I do like learning about our taxes each year. This year we are filing through the free fillable forms from the IRS and our state because the free version of TurboTax wouldn’t accept our “church income.” Which led us to a lot of reading on what “church income” is – it’s weird! I’m also trying to learn more about capital gains taxes.

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