6 Biggest Mistakes People Make When Using TurboTax, According to Experts
You'll want to steer clear of these errors when using the preparation software to file your taxes.
For anyone who's not looking to bring in a full-fledged professional to help with their yearly taxes, services like TurboTax remain a popular way to ensure the filing process goes smoothly. The software can simplify the daunting task of organizing your information and sending it off to the IRS—without ever having to leave the house. But while the DIY approach may seem like a foolproof tool, there are a few things to keep in mind to avoid any serious errors. Read on for the biggest mistakes people make when using TurboTax, according to financial experts.
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Not realizing how much it will cost in the end
Part of the allure of TurboTax is that it's a more affordable option than seeking outside help from an accountant. But while the baseline price of the software can sometimes be too enticing to pass up, experts warn that you may end up paying much more in the end.
"TurboTax prices their tax filing software based on what forms and filing situations you need," says Robert Farrington, founder and CEO of The College Investor. "Simple returns are free, but once you add in things like having a health savings account, you might find yourself in the Deluxe tier—which could cost well over $50. Make sure you understand what you're paying and how it compares to the alternatives before you spend hours using the tool."
And there are other situations where you'll end up shelling out more than you expected. "The software can be pricey and lack transparency," warns Moira Corcoran, a certified public accountant and tax expert at JustAnswer. "If you do not qualify for the free option, paying $38 per state can add up if you file in more than one state. And depending on which version you use, the fees are unclear until you get through the whole process."
Not taking your time while using it
Besides being an allegedly more affordable way to file, people also turn to TurboTax to help streamline and simplify the confusing process of getting your documents together. However, just because the software can save you some time doesn't mean you can use it as an express lane.
"Taking your time when using TurboTax is essential, ensuring you're entering all your information accurately," Lyle Solomon, a consumer finance expert and principal attorney at Oak View Law Group, tells Best Life. "Running through the process can lead to errors and potentially even an audit."
Just like any other computer program, it's still ultimately your responsibility to do it right. "While TurboTax is designed to catch errors, it's still important to double-check all the information you enter to ensure it's accurate. This includes checking for typos and verifying that all your income and deductions have been included," Solomon says.
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Using it for complicated tax situations
Filing your taxes can be challenging even if you only hold one traditional job. Things become entirely more complicated if you have multiple revenue streams, various investments, or unique work and living arrangements. And unfortunately, experts warn these types of situations might make using TurboTax a mistake to begin with.
"For more complex returns, such as the sale of investments, selling a house, job changes, or owning a small business, using TurboTax is not intuitive and can miss some critical information relating to the calculation of tax liabilities," Corcoran says. "And add-ons like online assistance or wanting your fees paid directly from your refund can complicate the process."
Even if this doesn't make the software entirely off-limits, it could still wind up costing you in the end. "Access to a tax expert is also an add-on cost—and these days, with the complexities of tax regulations growing by the year, it's usually worth an expert eye for that peace of mind," says Chris Ratigan, financial expert and vice president of business development at Monterey Financial Services.
Not reporting all of your income
Just like any software, TurboTax is only as good as the information fed into it. Because of this, experts warn that one of the biggest mistakes users can make is forgetting to input all of their annual income, which can include money earned on investments, rental properties, and freelance or side work.
"TurboTax only knows about the payment you tell it about," says Solomon. "If you have multiple income sources, ensure you enter them all. Failing to report all your income can result in penalties and interest charges."
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Not updating your information after major life changes
Even though you'll file taxes every year of your adult life, how you file may change along with the significant milestones you hit along the way. Unfortunately, TurboTax users may make a grave error if they don't consider this while preparing.
"If you've moved or had a change in marital status, it's essential to update your personal information in TurboTax," cautions Solomon. "You should do so to avoid issues with your tax return."
Experts warn that this can be particularly hard for taxpayers who use the software year after year and reimport previous data to save time. "The potential issue with TurboTax carryforwards, cross-posted items, and prepopulated data is that it's extremely difficult to change in many cases," Jeff Jackson, a certified public accountant and tax expert with JustAnswer, previously told Best Life. "This prepopulated data may come into the taxpayer's return as static, and it could take hours to change and resolve through TurboTax customer service."
Forgetting to review everything before submitting
We're taught from a young age that checking your work before handing it in is essential. Of course, this same rule applies to our taxes, where mistakes can result in costly headaches down the line. That's why experts say filing without going over everything beforehand is a serious mistake.
"Review your tax return carefully to ensure that all the information is correct," says Solomon. "This includes double-checking calculations, verifying that all your deductions and credits are included, and providing you've signed and dated the return."
Best Life offers the most up-to-date financial information from top experts and the latest news and research, but our content is not meant to be a substitute for professional guidance. When it comes to the money you're spending, saving, or investing, always consult your financial advisor directly.