Posted on 02/04/22
| News Source: Washington Post
It’s that dreaded time of the year again: tax filing season.
Between new tax laws, pandemic-related relief credits and an increasingly mobile workforce, tax experts expect this season to be one of the most complex for filers. But technology tools and other programs may help ease some of the pain of filing.
Tax software providers and websites are aiming to help taxpayers file their taxes online, marketing their user-friendly interfaces and free or low fees for simple tax returns. But as users consider their options for filing, they should also heed caution.
Software may not always be the best bang for their buck and the charges could rapidly add up if users aren’t careful. Meanwhile, the Internal Revenue Service plans to use facial recognition software and targeted advertising deals that could come with free services, which may have important privacy implications.
“The problem with our tax system is it’s confusing and overwhelming,” says Caroline Bruckner, a tax professor at American University. “There are a lot of companies that have really taken advantage of the disconnect and created products for that. At the same time, there are really great free services people don’t know about.”
More than 14 million taxpayers in 2019 may have paid tax software providers when they could have filed free, according to an audit by the Treasury Inspector General for Tax Administration. In 2021, five of the most popular tax software services collectively saw a 1.4% rise in the total number of paid customers, with Jackson Hewitt jumping more than 26%, according to data from analytics firm Bloomberg Second Measure.
Software can expedite filing taxes for many people, but there are a few things taxpayers should know beforehand. Here is what experts and tax filing services told us.
– Ways to file this tax season. If you’ve decided not to hire an accountant, you have a few other options. But before forking out cash to a big tax software service, you may want to consider a couple of other entirely free options.
First, the IRS website offers a free filing program that should cover a large portion of taxpayers. Taxpayers who make $73,000 or less can use the government’s online guided tax preparation to file their federal and some state returns free. The site can help answer simple tax questions, do the math for you and allows users to send in their return online. Taxpayers who exceed the $73,000 income limit can still file free using the electronic IRS forms, but calculations are limited and users will not have any guidance.
Taxpayers who make $58,000 or less, are disabled or have limited English-speaking abilities qualify for the IRS Volunteer Income Tax Assistance (VITA) programs, which are community programs that help people file their taxes free in-person and virtually. Similarly, the IRS Tax Counseling for the Elderly programs can help seniors age 60 or older. The IRS website has a locator tool for the programs to help connect users to the closest center near them.
“It’s a great underutilized resource,” Bruckner said about the VITA programs.
Finally, tax software providers have made their mark by helping taxpayers file online through a system that walks them through every step. Most software services ask questions about whether you moved for a job this year or if you have any dependents to guide ta through each form.
– How to pick tax software. Some of the largest providers in the space include Intuit’s TurboTax, H&R Block, Jackson Hewitt, Blucora’s TaxAct and TaxSlayer, according to Bloomberg Second Measure.
But experts say when choosing a software provider, you may want to dig into specifics including cost transparency, access to help from tax experts, whether data can be imported or rolled over year to year, company track record, how many years it’s been in business, whether the service uses personal data for reasons other than filing, and how often the software updates. And at all costs, avoid buying into deals that offer free tax filing services that lock you into buying something with your refund or paying extra to get your refund faster.
There are “a lot of predatory” tax preparation services “that say use your refund here,” said Sonja Pippin, an accounting professor at the University of Nevada in Reno. “Don’t do that.”
In terms of the value, the best service really depends on individual taxpayer needs and preferences. Taxpayers should ask themselves what’s more important: price or features? That might boil down to how complex their filing is, whether they want a stable price across years or how much professional tax support they need.
– The price of tax software. One of the main differentiators between different online tax services is the cost. Several online services have a free option, but the price usually increases as the return gets more complicated.
Experts say do the research to understand exactly what forms you may need to file your taxes and understand what costs may come as a result. Several services allow taxpayers to begin their returns on the free level, but as the process continues, if a their filing is considered more complex – which in some cases includes things like investments or mortgage deductions – they could be forced into a more premium plan.
But every service is slightly different when it comes to cost. For example, this year, Jackson Hewitt changed its pricing to a $25 flat fee that includes federal and state returns regardless of the complexity of the filing.
That means whether people are full-time employees, self-employed, or have to file in multiple states, they’ll still only pay $25. On top of that, they’ll get locked into the $25 annual price for the next two years. Jackson Hewitt charges extra for other products like audit protection, which offers additional support if a client’s return is audited and includes identity theft restoration services.
“It’s the right thing to do,” Zach Cohen, head of digital products at Jackson Hewitt, said about the new pricing. “People are suffering, inflation has been high. It’s been hard for people.”
TaxSlayer has a four-tier price option, from free for a simple federal and state return to $84.90 for a self-employed taxpayer who wants a tax professional’s assistance in filing a federal and state return. TaxSlayer said its $17.95 package will cover all federal returns, even if they are complex. But users will pay more if they want one-on-one live support from tax professionals.
TurboTax, which took the lion’s share of tax prep software sales last year according to Bloomberg Second Measure, has eight packages that offer varying degrees of assistance and range in cost from free for simple returns to $433 for a tax expert to completely handle a self-employed federal and state return.
TurboTax says it’s offering the ability for taxpayers to fully hand off their simple return to a tax expert for free until Feb. 15. Taxpayers can also get a free expert review and help along the way for simple returns if they file by March 31.
“We used [artificial intelligence] and machine learning to match you with an expert in your specific situation,” said Lisa Greene Lewis, a certified public accountant and tax expert with TurboTax, explaining that the software uses the basic information users input to determine which expert should be consulted.
H&R Block offers four plans that span from the free package for a federal and state return to a $121.98 package for a self-employed federal and state return. And TaxAct’s four options include a free package that covers one federal but no state return all the way up to its $109.90 package for a self-employed federal and state return.
– Software features may differ. Taxpayers comfortable with filing their own taxes should start with the IRS website, says Bruckner. The website should have everything a person needs to file their taxes, but she says there is one caveat: It can be a little confusing. “It’s hard to find answers to questions unless you know what you’re specifically looking for,” she said.
That’s where tax prep software may provide an advantage. But not all services provide the same amount of help and the price can vary. TurboTax offers live professional tax support with some of its premium packages. TaxSlayer customers who purchase premium or self-employed packages can submit tax questions to their experts and expect an answer within 12 to 24 hours, the company said. And Jackson Hewitt offers free technology but not professional tax support during select hours.
Another feature some providers offer is making it easier for people to input their cryptocurrency investments. TurboTax increased the amount of crypto investment sales transaction a taxpayer can import at once from 2,250 to 4,000. Similarly, it bumped simultaneous stock investment imports from 1,500 to 10,000.
H&R Block is offering to help people input their crypto investments with its premium package, while TaxSlayer has debuted the ability for users to easily upload a document with their crypto and stock investments this year.
Finally, several tax software services spent some extra time building in more information screens and interview questions to help people with the child tax credit that has created a lot of confusion.
– Online privacy implications. There may be some privacy concerns taxpayers may want to keep in mind when using online software. Specifically, credit monitoring service Credit Karma offers a free tax prep service that uses TurboTax’s software. Before integrating with TurboTax, it used some customers’ personal data to target them with financial advertising. Now, Credit Karma asks users whether they want to share their data with the company. Credit Karma said the goal is help connect users with financial products they may need.
Meanwhile, the IRS is considering using facial recognition software called ID.me this summer to verify taxpayer’s identity at login. Carey O’Connor Kolaja, chief executive of identity verification company AU10TIX, says the plan raises “some legitimate concerns.”
She said it’s about what happens to that information once the government has it. Kolaja said the public sector needs to be held to the same standard as the private sector, and that means taking the responsibility to educate the public about the technology, how the data will be used and in what ways it will be stored. People should be given a choice on whether they want to use biometric information to verify their identities, she says.
“You can use a biometric signature as a choice, but it doesn’t have to be the only choice,” she said.