TurboTax lobbies to keep taxes difficult
Stop supporting them by filing your return for free
By: Evan Lee
Feb. 4, 2024 |
Opinion
The tax preparation industry doesn’t want you to know this, but filing for your return doesn’t have to be difficult or expensive.
Most developed nations already offer free guided tax filing systems directly to taxpayers. This year, the US will finally do the same.
For years, companies like Intuit - the creator of TurboTax - have waged multimillion dollar lobbying campaigns against efforts to make filing taxes free and easy.
Under the guise of offering free versions of their own private software, Intuit, H&R Block and other tax prep companies stifled competition from public alternatives while maintaining profit margins by making no-fee options difficult to find. Eligible taxpayers were often misled into paying for premium services they did not need.
In 2019, an article published by ProPublica exposed the deceptive business practices of these companies, prompting Congress to reconsider non-competition agreements with the tax prep industry at large.
Today, it’s much easier for qualifying taxpayers to find the software they need to file their returns freely and easily online. Greater transparency has been enforced over no-fee tax prep offerings and a provision preventing the IRS from creating its own free filing system has been repealed.
Filing made easy, free, and public
In 2022, the Inflation Reduction Act mandated the IRS to examine the feasibility of running a public alternative to private tax preparation software. Beginning this year, that alternative is now available in select states.
It’s called
Massachusetts is among 12 states whose residents are eligible to participate in the program this tax season. It’s also one of four in the pilot that have separate state income taxes. While the program cannot directly file state returns, it will refer users to an e-filing system provided by their state if one exists - such as MassTaxConnect.
Set to launch in phases, the IRS expects the pilot to be open to most residents of Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington state, and Wyoming by mid March. Though, only those with relatively simple tax returns will be eligible at first.
Similar to already existing Free File options, reportable income for the pilot is limited to W-2 wages, social security, unemployment, and bank interest less than $1,500. Certain tax credits and deductions may be claimed as well.
“We’re starting small to get it right,” stated the agency, which hopes to adjust and improve the program with each phase. Success in the pilot could lead to a more comprehensive system in the future, one that gig workers reporting 1099-K income and others with more complicated returns may use as well.
That is to the chagrin of private companies still lobbying to keep taxpayers hooked on their paid systems. The tax preperation industry generated $13.9 billion in revenue last year, according to research by IBISWorld.
The IRS estimates that Americans spent, on average, $240 dollars and 13 hours of their time filing individual tax returns in 2022. Reducing the need for middleman tax prep software through a free public alternative will help taxpayers keep more of their returns in their own pockets.
However, tax prep companies as well as Congressional Republicans argue these savings will be overshadowed by the added costs of funding the IRS to operate Direct File. The program was kickstated with an $80 billion grant from the Inflation Reduction Act and could cost between $64 million and $249 million to run annually depending on its scope, according to the IRS.
But after initial development costs, its operating expenses are still well below the $13.9 billion Americans spent last year on private tax prep services. And its going toward a much more streamlined process that 72% of Americans are “very interested” or “somewhat interested” in participating in, according to the 2022 IRS Taxpayer Experience Survey.
A public tax filing system further opens the possibility for the IRS to pre-fill tax forms with W-2 data and other information already provided to it. Taxpayers would need only review their forms for accuracy and sign off on them to receive their returns, saving them much time and stress as well.
Far easier than any service TurboTax and H&R Block offers, save for maybe their most expensive options of doing your taxes for you, pre-filing tax return data is a free service already provided in many developed countries, including Germany, Japan and the U.K.
IRS Direct File represents an important first step for the US in joining them with a simple and cost-free public tax filing system of its own.
More ways to file for free
While IRS Direct File is in a limited pilot stage, there are still other ways to file for free and keep your full return.
The old fashioned way with pen and paper still works of course. It only costs 68 cents, the current price of a first class stamp, to mail a 1040 form to the IRS. More postage may be needed if more forms are filed.
Step-by-step instructions to complete Form 1040 as well as its schedules and other forms can be found on the IRS’s website. While doing your own taxes may seem daunting, it’s possible for the average taxpayer so long as all the necessary documents are order. I file my taxes this way.
For those who prefer to complete their returns electronically and with assistance, an already existing program called IRS Free File can direct taxpayers to “trusted partner” companies that offer no-cost versions of guided tax filing software to qualified taxpayers.
TurboTax is no longer among those partner companies.
Free File’s guided software is available to those whose gross income was less than $79,000 in 2023. For those who made more or simply prefer to do their own taxes, Free File Fillable Forms may be used instead to complete returns online without assistance and submit them electronically at no cost.
In Massachusetts, taxpayers may also freely e-file their state returns through MassTaxConnect. Full-time residents who have previously filed a return and are submitting supported schedules are eligible to use this service.
The state no longer offers fillable e-forms for residents to do their own taxes online, but physical forms can be printed off the state’s website or a packet of forms with instructions can be ordered by mail to fill out by hand.
Keep your full tax return - file for free!
(I have so far not faced the wrath of the IRS by doing my own taxes.)