TurboTax is tax preparation software. You can use it to fill out your state and federal income tax returns. The software allows you to electronically file your tax returns once you’ve completed them. You have the option to print out your returns to sign them physically and mail them to your designated address as well.
That is one way to prepare and file your taxes each year. Hiring a Certified Public Accountant (CPA) to prepare and file your taxes is another option.
Both options have some similarities to consider. You must provide each with your income figures, your receipts, your bills, and miscellaneous statements to provide a clear picture of your finances for the tax year. Most people will need to pay for both services, in way or another. And both services are also convenient in their own way.
Here are some of the pros and cons to consider when choosing TurboTax over the services of an accountant.
List of the Pros of Using TurboTax
1. Using TurboTax will save you money.
If you hire a CPA, then the experience can be costly. You’ll still pay more by using TurboTax than you would if you completed all the tax forms on your own. Thanks to the IRS website, you can fill out, then submit your forms electronically, without a fee. If you must file a state return and a federal return, you’ll pay $37 for the state, and a range of prices for the federal, which can be more than $90.
In comparison, the cost of a simple tax return averages about $250. A return which includes business information, even as a sole proprietor, might cost somewhere between $750 to $1,500.
2. Some filers can use TurboTax for free.
Although this option may go away in 2018 with the removal of the 1040EZ form, there are still circumstances where you can qualify for free tax preparation with TurboTax. That includes completing and filing your returns for free. In theory, a CPA could offer this service as well, but you would need to search for one willing to work with you.
3. TurboTax gives you peace of mind.
When you hire a CPA, you are trusting that they will submit your financial information to the government in a correct manner. Because tax season is the busy season for accountants, there is always the chance that the CPA could be overloaded with work and miss something. With TurboTax, you are able to complete the return on your own and verify that the information is complete. Starting in 2017, you could even pay to ask CPAs a question about your return if you were uncertain about something.
4. It gives you a chance to look closer at your finances.
TurboTax software is designed to take you through every aspect of your tax return. It asks you questions about your life, your finances, and your spending habits, then has you fill the information into boxes that are easy to understand. You’ll get to see what credits can do for your finances, where deductions may be lurking, and the benefits of maxing out your IRA contributions each year.
5. You have automatic access to all tax code updates.
The tax laws are constantly changing and evolving. In 2019, taxes are going to be filed in a completely different way than they were the year before. When you use TurboTax software, you’ll know with confidence that your figures are being placed into the correct boxes, using the correct forms. You don’t need to hunt those forms down online or in-person either. You just answer the questions and TurboTax does the rest.
6. You can work on your taxes anywhere with TurboTax.
There are two options for you to use when you choose TurboTax for your tax preparation needs. You can create an online account that allows you to work on your tax forms through an HTTPS site, where your data is stored by Intuit. You can also purchase stand-alone software that you install onto your computer. Both options allow you to work on your taxes anywhere, whenever you happen to have some free time to spare. With a CPA, you must bring everything to them to get your taxes started.
7. It allows you to import your data from other software products.
If you operate a small business and use QuickBooks, then TurboTax is going to be a walk in the park. You can import all of your QuickBooks data into TurboTax, which saves you a lot of time when composing your expense and depreciation reports. TurboTax automatically imports all your data from the previous year onto the current year’s form, which saves you from a lot of data entry. The software even compares your income from last year to this year, then gives you recommendations that can help you to maximize your refund.
8. You receive a maximum refund guarantee.
Of course, any software solution is only as good as the data it receives. When you input your own financial figures into TurboTax, however, there is a maximum tax refund guarantee. The software will review all potential credits and deductions to determine if you may qualify for ones you haven’t filled out. Users receive targeted questions that you must acknowledge before you can file your taxes. A CPA may offer a similar guarantee, to provide similar results, but again – at a cost that may be much higher.
9. It audits your tax returns for errors.
TurboTax takes a final audit of your state and federal return before allowing you to submit the paperwork to the IRS. This helps you be able to catch more errors than you might see on your own. CPAs double-check their work as well, but there is a human element to the accountant which is not present in the software, which can lead to a more accurate self-prepared return.
10. You can file tax returns for previous years with TurboTax if necessary.
TurboTax allows you to file taxes for previous years if you need to do so for some reason. Under their current structure, you can file taxes from 2014-2016 for a cost that is comparable to what the current year filing costs happen to be. You can purchase the Deluxe return for 2016 at $69.99, the Premier for $99.99, or the home and business package for $109.99. At the time of writing, the 2014 tax returns were actually $10 cheaper.
You can also file for extensions before the tax deadline expires through TurboTax. If you have an extension, you can then get your taxes started for free using their software.
List of the Cons of Using TurboTax
1. You must find the time to do your taxes with TurboTax.
If you hire a CPA to do your taxes for you, then you just hand over your financial records and you’re done. They’ll do all the work. When you use TurboTax software, then you are forced to commit more time resources to the process. It is up to you to understand current tax laws, prepare your relevant schedules, and have your financial documents ready for input. You’ll also need to have information on any dividends you earned, interest earnings, and what you may have paid in property taxes or mortgage interest.
2. The online help with TurboTax isn’t always helpful.
Tax preparation software is designed to make filing as simple and easy as possible. If your tax situation is simple and straight-forward, then you’ll experience many benefits using TurboTax. If your situation is complicated, however, then you may find that the help given for unusual situations could be minimal. Take your health insurance premium payments, for example. They are deductible for some people, but not all of them. Taking the deduction when you shouldn’t could result in penalties, interest charges, or even an audit.
3. You are fully accountable for the quality of your return.
When you file your own taxes, even with the help of TurboTax, then you are taking responsibility for the accuracy of the information. For that reason, most advisors recommend that you complete your taxes early, then set them aside for about a week before actually filing them. That will give you the chance to find income or expenses you may have forgotten about. Reviewing your return after stepping away from it makes it easier to find errors in your numbers as well.
4. TurboTax doesn’t compensate for incorrect answers.
If you place your income into the wrong section, such as self-employment income instead of W-2 income, then TurboTax is going to place your numbers into the boxes you’ve designated. Although the software asks plenty of questions to prevent mistakes from happening, it doesn’t always catch a mistake that occurs. That means you might need to file an amended return if you catch an error and that might result in a loss of a refund.
5. Audit protections from TurboTax cost more.
When you work with a CPA, you are generally receiving a certain level of audit protection. You’ll still have your financial documents reviewed by the IRS, but it will be through your CPA because they prepared and filed your return. You can have an audit defense package added to your TurboTax filing process if you wish, but this comes at an added charge. For a basic return, if you take the audit defense package with the added charges, the costs of the tax preparation software vs the CPA are almost identical.
6. It charges for each return you must file.
Income status isn’t the only reason why a tax return can be complicated for some households. You might earn income from different states, which would require different tax returns to be filed. TurboTax is going to charge you separately for each state return you complete and file online. Changes in family structure, especially marriage or divorce, can have a big impact on your taxes as well. You’ll also find that rental properties, with rental income, is a complex issue that may need the help of a CPA. If you’re unsure about what figures should go where and the troubleshooting mechanisms of the software are not helpful, then you must either read the tax code yourself or speak with a CPA.
7. Many of the advantages require a data connection.
With TurboTax, the bottom line is that you need to have a desktop, laptop, or compatible mobile device to use the software or online services for your taxes. To file your taxes, you must have a data connection. To use the online version of TurboTax, you must have a reliable connection to the Internet. If you do not have any of these things, then a CPA is going to be your better option.
The advantages and disadvantages of using TurboTax over a CPA involve your willingness to work with financial numbers and the amount of time you have. With the exception of a simple return, it takes 4-5 hours of work for most people to complete their tax forms and file. If you don’t have that time, a CPA is a good investment to consider. If you do have the time, the TurboTax will help you create a high-quality return for a budget-friendly price.