Death and TurboTax
Former Defense Secretary Donald Rumsfeld somewhat famously — at least in financial nerd circles — sends a letter to the IRS every year on Tax Day railing against the complexities of the U.S. tax code. Last year’s letter included this:
Despite having performed this civic duty for over half a century, at the conclusion of filing this year’s taxes, I remain mystified as to whether or not our tax returns and tax payment estimates are accurate. The possession of a college degree, retention of an experienced tax accounting firm, and earnest application have failed to provide confidence that my returns and payments are properly completed.
If someone with his resume requires assistance with his taxes, it should be no surprise the overwhelming majority of us do as well. For over a decade I have turned to TurboTax to help me prepare and file my taxes online. The interface is user-friendly, and does a thorough job of going through your potential tax issues.
As my tax situation grew more complex over the years, however, the cost kept rising. So much so that despite being a money guy with a degree in finance, I strongly considered just paying up a little more for a CPA. And I’m not talking about some seasonal worker at H&R Block that took a few tax prep courses, or someone in a Statue of Liberty costume waving to you as you drive by. A real certified public accountant. Someone who knows the tax code well and can help you pay the lowest amount you are required to by law.
If you have the simplest of tax situations and only need to file a 1040EZ, then most online tax software products have you covered with free filing. At least until they try to upsell you. But most grown adults have at least some moderate complexity to their taxes, whether it be because of itemized deductions, investments, or self-employment.
My big issue with TurboTax was not really the cost, however, but where some of that money goes. Intuit, the maker of TurboTax, has spent $23 million over the past decade lobbying. Much of that effort is to lobby against simplification of the tax code or methods for the IRS to create its own free, more simplified online tax-filing service. In short, Intuit is protecting its own interests, not those of the taxpayer. H&R Block does the same thing, spending $3.26 million last year lobbying on eleven different tax bills. Imagine if firefighters lobbied for more arson, or if financial advisors lobbied for the right to not put their clients’ interests first (oh, wait)? I can’t support companies that lobby against the interests of the customers they are supposed to serve.
Last year I made the switch to TaxAct. They don’t lobby and the service was much cheaper. The interface, however, was a bit lacking. It wasn’t as user-friendly as Turbotax or H&R Block. So I was pretty excited when I received an email from Credit Karma last month informing me they would be launching their own free tax software this year.
I have long been a fan of Credit Karma. They first came onto the scene in 2008, offering free credit reports to users. Not the “hey, this one is free but we’re just going to take your credit card and sign you up for our monthly plan and good luck trying to cancel” model like other offerings at the time. Actually free. Their model is instead based on revenue from targeted product offerings from sponsors.
*Based on this National Society of Accountants Report
I logged on last week and so far am very impressed with their product. It has an elegant interface, and a feel that will be familiar to TurboTax users. The process is easy to navigate, and walks you through all the necessary steps to help you minimize your taxes. And they don’t spend a dime on lobbying, either. Did I mention it was free? Check it out for yourself here:
It is the first year for Credit Karma Tax, and there are understandably some limitations to the product. Notably, they don’t support multiple state filings, part-year state filing, foreign earned income, state returns for married filing separately in community property states, or state filing without a federal filing. But for most people these aren’t issues.
I still believe going to a CPA is the best route for most people with anything more than a basic tax situation. But for the do-it-yourselfer, I recommend giving Credit Karma Tax a try this year.