10 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 Internal Revenue Service (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 experts' biggest warnings about using TurboTax.
RELATED: IRS Issues New Alert on 5 Things You Must Declare on Your Taxes This Year.
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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 year. Everything from career 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 (CPA) 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."
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," Jackson adds.
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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."
This could then 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," Jackson cautions.
RELATED: I'm an Accountant and Here's Why I'd Never File My Taxes Online.
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Your filing will likely have a price tag.
TurboTax appeals to many filers because it advertises a free option. However, CPAs say that more often than not, you'll end up paying to file.
"Many customers log into TurboTax believing they can leave their credit cards in the drawer for the entire tax filing experience," shares Jessica Wheaton, CPA, director of tax and accounting services at Fiske & Company. "While this is true for some, most taxpayers will have to pay a tax preparation fee."
According to Wheaton, you can check to see if you qualify for free tax preparation using IRS Free File. This is available to taxpayers whose Adjusted Gross Income (AGI) is $79,000 or less.
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And pricing can be confusing.
Even if you're prepared to pay to have your taxes filed, you should know that TurboTax "can be pricey and lack transparency," according to JustAnswer tax expert Moira Corcoran, CPA.
"If you do not qualify for the free option, paying $38 per state can add up if you file in more than one state," she says. "The fees are not clear until you get through the whole process (depending on which version you use)."
Paul Miller, managing partner and CPA at Miller & Company, also warns about TurboTax's upgrades and extra services you may need or want.
"While some, like audit protection or professional support, can be beneficial, users should assess their necessity before purchasing," Miller tells Best Life.
RELATED: IRS Warns 20% of Taxpayers Don't Claim Major Refund Credit—Are You Eligible?
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TurboTax recently ran into some legal trouble.
Officials point out that TurboTax's pricing structure has also landed the company in hot water with the Federal Trade Commission (FTC).
According to Eric Croak, certified financial planner (CFP), accredited wealth management advisor, and president of Croak Capital, Intuit (TurboTax's parent company) was accused of hiding its Free File page from search results, then employed "tricky marketing to make customers pay even if they filed for Free File."
The FTC sued Intuit in March 2022—and while the company didn't agree with the FTC's stance, it did stop the ads for the rest of that tax season. They also had to pay for the marketing mishap.
"They had to pay back 4.4 million customers after it turned out they made people pay for services that should have been free," Croak says. "They're also paying $141 million because they misled millions of low-income Americans into paying for what should have been free tax services."
In January this year, the FTC issued an opinion prohibiting Intuit from advertising free products and services unless they were free for all consumers or unless the company included the percentage of people the free services would apply to.
Intuit spokesperson Derrick L. Plummer told NPR the opinion was "deeply flawed" and the company would be appealing. However, at the time of writing, TurboTax's website notes that roughly 37 percent of filers qualify for the "TurboTax Free Edition."
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You might miss out on entering some crucial data.
If you start and stop the tax filing process with TurboTax, you 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 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.
RELATED: I'm an Accountant and These Are My 5 Tax-Filing Warnings for Retirees.
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The tech is only as good as the information you provide.
The idea of having a platform to calculate your taxes using algorithms and technology is certainly enticing, but it's important to remember that the software might not be perfect.
"Technology (tax preparation software included) is becoming more impressive by the day; however, it is only as good as the information you provide to it," Wheaton explains. "TurboTax can ask questions that apply to most taxpayers, but it cannot read your mind."
She continues, "Professional tax preparers probably can't either, (although that would make the job easier), but they will know which questions to ask you based on your tax situation and provide you with expertise throughout the tax filing process."
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You'll be responsible for double-checking your work.
Tax professionals stress the importance of ensuring you've entered the right information when using TurboTax—and without a CPA, you'll be the one in charge of double and triple-checking your submission.
"Turbo might be in the name, but keep in mind this information is being sent directly to the IRS, so be sure to enter everything correctly and double-check your work. 'Accidentally' adding a zero to your deductions or removing a zero from your wages is not something the IRS is likely to overlook," Wheaton warns.
Inputting incorrect data could very well result in an audit or refund delay, according to Miller. So, you might also want to familiarize yourself with tax laws.
"Double-checking all entries, including personal details and financial figures, is essential before submitting the return," he says. "Additionally, understanding tax laws independently of the software is key. While TurboTax provides guidance, having a basic grasp of tax principles helps maximize deductions and credits, minimizing errors in the return."
RELATED: 6 Warnings About Using H&R Block for Your Taxes, According to Experts.
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There are no in-person services.
While many take advantage of TurboTax because it doesn't require leaving your home—if you do like to see someone in person for help, there's no "store" you can visit.
"[TurboTax] does not offer in-person help or have brick-and-mortar stores for additional assistance," says Corcoran.
If you shell out for TurboTax Live Assisted, you'll be relying on screen sharing, phone calls, and chats with pros from TurboTax for assistance. If you pay for Live Full Service, you'll be matched with a tax preparer who files the return for you. But again, keep in mind this is all virtual, according to NerdWallet.
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You could miss out on sound advice from a professional.
TurboTax can provide a relatively simple way to file your taxes correctly with minimal effort. But some experts say 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."
And while you may think you're saving by not paying an accountant, this strategy could end up costing you money, warns Croak.
"Tax software can't understand your unique financial situation the way a human expert can. It also can't give tailored advice to help you make better financial decisions," he says. "If you have complicated tax situations, software might not cover all your needs. I believe that without professional advice, you might miss out on important deductions and credits, potentially costing you money."
This story has been updated to include additional entries, fact-checking, and copy-editing.
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.
