4 Warnings About Using TurboTax, According to Experts
Here's what to know before using this popular software to file with the IRS.
No matter how simple your financial situation may be, most people will always need a little help when it comes time to file with the IRS. And while some may opt to hire a professional accountant, millions of people turn to software such as TurboTax to help prepare their taxes each year. But even though the popular program can be an excellent fit for anyone looking to save some money on expensive accountant rates, taxpayers should know a few things before they begin filling out forms. Read on for warnings about using TurboTax, according to experts.
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The program can default to data from previous years.
Even though we file our taxes once every 12 months, there's a lot that can change over the course of the year. Everything from employment moves and new income streams to marriages and growing families can make your financial situation look pretty different by the time you begin preparing your information again.
According to experts, this can be especially problematic for some taxpayers who rely on the convenience of software.
"One major concern about using TurboTax is the carryforward of past years' calculations," Jeff Jackson, a certified public accountant and tax expert with JustAnswer, tells Best Life. "For example, if the taxpayer carries forward credits and prior year taxes from old tax returns, the credits could be applied incorrectly—or not at all."
Unfortunately, this can result in the taxpayer losing out on higher refunds or not receiving certain deductions. "It could also mean that the taxpayer doesn't apply limitations or taxable state tax refunds," he adds.
A new situation could make the filing process much more difficult.
Many customers are drawn to TurboTax for its speed and relative ease, allowing them to fill out the intimidating forms and paperwork that make up each filing in a fraction of the time. But on top of missing potential deductions, Jackson also warns that the same convenience can become a headache when it comes time to make any alterations while using the program.
"The other potential issue with TurboTax carryforwards, cross-posted items, and prepopulated data is that it's extremely difficult to change in many cases," he says. "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."
Unfortunately, this could set you up for a long and confusing process. "The average individual taxpayer might not even realize this data is wrong because carryforwards apply more complicated tax rules than taxable income," he warns.
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You could miss out on sound advice from a professional.
For some, TurboTax can provide a relatively simple way to file your taxes correctly with minimal effort. But some experts say that even though it can be helpful in many cases, you might be selling yourself short by not bringing in an accountant who can help ensure you're getting the most out of the process.
"Depending on your situation, you may want to pay a professional for both tax preparation and future tax advice so that you set yourself up for the future," says Robert Farrington, founder and CEO of The College Investor. "Tax software doesn't provide any type of tax advice. Questions such as whether you should maximize a retirement plan or buy an expensive business item now or later are best answered by a tax professional."
You might miss out on entering some crucial data.
While people may not have a say in whether or not they file taxes, the style in which they choose to do so can—and often does—vary significantly from person to person. Some may have their documents and records from the year organized and ready to go for prompt filing. Others may take a more leisurely approach that relies more on the motivation of a deadline to get them done. But in either case, anyone filing using TurboTax could miss out on including important information due to how the software works.
"Another issue that taxpayers might face is that they are not prompted to enter certain data if they have not told the TurboTax in the very beginning they have a certain income," says Jackson. "So if you get forms late and you started your return early, you might not be prompted to enter data because you didn't indicate in the beginning that you have a certain type of income."
Jackson says this can affect taxable items such as gambling winnings or a state tax refund, which count as income. "Since you don't get asked to add those items, this might confuse a taxpayer, and they might not end up including that income in their return," he cautions.
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.