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Tax season is in full flight here in the US.
In my mind, a much better option for individuals without a business (if you own your own business, I honestly believe that you should have the help of CPA to make sure you don’t miss anything and to bounce ideas off of) over filling out the 1040/1040EZ tax forms directly are to employ one of the many low-cost online tax preparation platforms available on the market. These platforms ask questions in normal language (read non-IRS talk), and then populate the numbers in to the tax forms for you. A pretty sweet deal in my book!
As I have mentioned previously, the most widely-used online tax prep platforms seem to be TurboTax, H&R Block, and Tax Act.
Because of the wide-spread use of these three platforms, I think it’s important for people to have a good working knowledge about what they offer. However, in my experience helping people with their taxes, the primary thing that my friends get confused about is what these programs offer for free, and what is it you have to pay for. More specifically, I find that they often end up paying for one of the service upgrades being offered, when in fact, their taxes were actually simple enough that they could have just used the free versions.
So, the purpose of this post series is to dissect each of these 3 most popular programs one-by-one to determine what they offer, what is free, and what you need to pay for. Since the first two posts in this series dissected TurboTax and H&R Block, this post will analyze the third key player, Tax Act.
Note: If you missed either of the first two posts in this series, you can access them by clicking here to read about TurboTax and clicking here to read about H&R Block.
Tax Act is perhaps the least well-known of the three major players in the online tax preparation platform world. However, they are gaining new users and followers each year, and do truly offer a useful platform at the lowest costs (by far) of the TurboTax, H&R Block, and Tax Act “trifecta.”
Shown below is the overall pricing for the various options on offer by Tax Act that pop up on the site’s main page upon arrival. In my opinion, this table is a pretty nice overview of the options and is pretty self explanatory/clear for normal folks like us. There are three things that I want to make sure to point out though:
- You don’t actually pay for anything until you officially click “file taxes.” This means you can go through the system and fill in your tax information without worrying about accidentally paying for anything until the very end of the process.
- The prices in black bold letters shown in the below screenshot are only the pricing for filing your federal tax return (with the exception of the Ultimate Bundle, which does actually include the cost of filing both federal and state tax returns. A pretty sweet deal for only $18!). What this means is that you will have to pay an extra fee on top of the ones shown in the chart below because you are required by law to file state taxes. Don’t be surprised by this!
- According to Tax Act’s State Tax filing pricing, it costs $15 per state to file your state taxes using the Free Federal Edition, and $8 extra to file state taxes in the Deluxe Federal Edition.
- What this means is that the state tax filing is absolutely where Tax Act makes most of its money!
- One of the nice little perks about the paid versions of Tax Act is that they will automatically save and import your previous year’s tax information to the current year. They will also auto-populate your employer details based on solely their EIN.
So, as I mentioned above, this chart is pretty straight-forward and easy to understand. However, the place where it gets confusing and people with simple taxes end up paying for un-needed service add-ons is DURING the process of filing out your tax information as you are going through the various steps in the system.
Because of this, I feel we need to spend some time discussing places where potential mistakes could occur causing, someone that started their tax filing using the Free Edition (far left above) to end up unnecessarily using the Ultimate Bundle version. This happens quite often, in my opinion, because at almost every step of the way, the questions prompt you to upgrade to one of the paid options.
Of course, in the case of Tax Act, the total difference that you would pay if you went with the Ultimate Bundle is only $3 more than the Federal Free Edition (if you include paying for the $15 state tax filing). So, either way here, I suppose that you are not going to severely hurt yourself.
First, right off the bat, if you select the “Compare Online Tax Products” option, you are taken to this screen:
Now, I’m not sure what your reaction to this screen above is, but to me, I can tell a couple of things. First, I note that they do claim that with the Federal Free edition, Tax Act’s platform is still going to help you find a good number of the deductions that are due to you. However, after going through the whole Tax Act information entering process, I definitely feel that this chart understates all of the great options that the Federal Free Edition gives you. This simply is not the case. You can still get many deductions owed to you by using the free edition (even if you made donations to charity).
Tax Act’s “Life Events” Section
As I was going through the Tax Act online preparation system, I honestly became very confused when I ran in to the “Life Events” tab/section.
When I first came to the life events screen (an example is shown in the screen shot below), I figured, “OK, this is the section where I input my income and deductions for the various things listed.” As you can see in the screenshot below, this includes MANY very common items such as tip income, gifts, moving expenses, business income/expenses, investment income, etc. However, I then read the verbiage in the second paragraph stating that in the Free Federal Edition, you only get access to two of these categories. Upon reading this, I said, “Wow! That sucks – looks like I’ll have to pay for the upgrades if I want to enter any of this information.”
After spending some time reading over the Life Events section, I quickly realized that this section is only an area to obtain guidance/information about how the various things listed here affect your taxes. You don’t actually enter your specific numbers until later in the Free edition. Don’t let this trip you up like it did me!
What is Free and What Must You Pay for Regarding Income?
Having dodged the Life Events upgrade landmine, you then proceed to enter any income you had for the relevant tax year for your federal tax return.
I was very pleasantly surprised with Tax Act’s version of the income section of their tax preparation platform because ALL types of income are included for FREE in the Free Federal Edition. I am guessing that they don’t require upgrades because the total pricing for the Free Edition is only $3 off from the Ultimate Bundle, so why bother, right?!
Shown below is a screenshot of all of the different options for income types that are offered through Tax Act’s online platform. It pretty much includes everything you could think of, even business income!
Just to drive this point home, the all of the following types of income are included for free in the Free Federal Edition of Tax Act:
- Included in Free Edition
- Wages from regular employment (includes scholarship/fellowship income).
- 1099-INT and 1099-DIV.
- 1099-MISC income, provided that it is not regular/self employment income.
- 1099-B (sale of taxable securities).
- Income from rental properties, farming, or self-employment.
The only thing that gets mildly tricky here is that screens such as the one below OFTEN pop up recommending that you upgrade to a paid version. However, all of the screens I saw were worded clearly that they were in fact additional perks, not something that was absolutely required in order to enter a certain type of income in to the system, as is sometimes the case with online tax prep platforms. Just don’t be thrown off guard when you see this!
What is Free and What Must You Pay for Regarding Deductions?
In the deductions section of Tax Act, they also make it very clear to discern what is included in the Federal Free Edition and what you must pay for. In fact, it’s so simple because there ARE NO PAID UPGRADE REQUIREMENTS when it comes to deductions. Pretty sweet, right?!
That’s right, all of the deductions I inspected (shown on screenshots below) are actually included in the Federal Free Edition.
Just to drive this point home, all of the deductions listed below are in fact included in Tax Act’s Federal Free edition.
- Home loan interest paid.
- Car / property tax.
- Student loan interest paid.
- Medical/HSA contributions.
- Job-related moving expenses.
- Business expenses.
- Self Employed Retirement Accounts.
- Estimates taxes paid (as long as they are not for self employment income).
- Charity donations.
In my opinion, Tax Act offers a reliable, moderately easy-to-use online tax preparation platform that is hard to go wrong with. Even if your tax situation dictates that you have to use one of their paid options, I would consider it money well spent, and likely, a significant tax savings over the use of live tax professional. Besides, the most expensive paid option is only $3 more than their Free Federal edition + paid state filing! haha So, you don’t have much at all to worry about! It’s also really cool that all of their income and deduction options are included in the Free version, something that is hard to find online these days.
I sincerely hope this post helps you to understand not only a little more about what features Tax Act offers, but to also help you determine what level of services/pricing you actually need to use in their platform to accommodate your personal tax situation.
This 3rd post now wraps up our series here on MPFJ taking an in-depth look in to the 3 key players in the online tax preparation world. On the way soon will be a post comparing and contrasting the three side-by-side to determine which is best.
How about you all? How about you all? Have you ever used Tax Act’s online platform to do your taxes? If so, how did you like it? Did you ever find yourself paying for a upgrade to the online service when you really didn’t need it?
Share your experiences by commenting below!