I’ve used TurboTax for several years now. It’s usually simple and worth the cost. That’s why I spent $50 on it again this year. I even recommended it.
I’m not entirely rescinding my recommendation, but I feel like I should share my experiences this year in the interest of full disclosure.
Last weekend I finished my return in an hour and a half. I earned some freelance income, so I filed as a home business. I was a little nervous, but the program really did make filling out the forms easy. I answered the questions, filled out the necessary information, and found out I was getting a big fat refund.
An accountant at my work kindly offered to look over my completed return to make sure I hadn’t missed anything. Nice of him, right? I’m incredibly thankful he looked.
You see, before we got serious about personal finance, my husband and I took an early distribution from his retirement account. It was a few thousand dollars he had accumulated at his previous job. I don’t regret it. We really needed the money at the time, and though I know now that it wasn’t a smart move, it helped us get through the year without accumulating credit card debt.
Well, because it was an early distribution, TurboTax calculated that we owed a 10% penalty in addition to the income taxes that were withheld. I was expecting that.
When the acccountant looked at my return, he informed me that we are actually exempt from the penalty because my husband’s education expenses were higher than the amount he withdrew from his retirement account. We almost paid $350 more to the IRS than we owed, and TurboTax didn’t catch it.
Though I trusted my accountant co-worker (and he showed me the tax code), I did my own research since, you know, they’re my taxes. I found this. Confirmation from the IRS that we don’t have to pay the 10% penalty.
I should have looked into this on my own, but I honestly had no idea. I’ve always heard that the 10% penalty goes along with the early distribution. I didn’t think we could avoid it. TurboTax (which guarantees the “maximum deduction”), didn’t catch it.
Needless to say, I thanked my accountant co-worker profusely and made him cookies. He saved me $350!
I attempted to amend my electronic return. It took some time, but I eventually figured out how to take the deduction. I finally found the information hidden in a teeny tiny link. It said that “You may by exempt from the penalty tax for the following reasons.” But there was no option that said, “Hey, I actually qualify for this.”
Whatever. I was just happy it was over, and that my accountant friend had alerted us.
Then I tried to e-file. TurboTax normally charges for this service, so I’ve always mailed in my return. This year the federal e-file was free with the program. So I said what the hay. To avoid the hassle of mailing in my state return, I went ahead and paid the $20 to e-file that, too. In hindsight, $20 to e-file seems outrageous, but after the retirement distribution debacle I just wanted it to be over.
My e-filed return was rejected. Three times. It said that my previous year’s Adjusted Gross Income, which is used to prove my identity, did not match the IRS records. But the numbers were correct.
At this point I wanted to mail them, but I had paid $20 for the state return. I was either going to e-file or get my money back. So I spent 2 hours on hold waiting to speak to someone. I kid you not. Two. Hours.
When I finally got through, the customer service rep was helpful. He informed me that the problem was a glitch in their system. I had entered my information correctly, but due to this glitch I would not be able to e-file. I would have to mail my return. Fine.
Thankfully, they refunded the $20 e-file charge. Of course, I won’t get a refund for the cost of the “free federal e-file” that was included with the program. But whatever.
Moral of the story? In the future, I will probably use a cheap or free program and find an accountant to look over my return for a small fee (or free!). I can’t justify paying $50 (plus e-file fees) for a program that could miss such a big exemption.