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I’ve done my own taxes forever. I had always used TurboTax to prepare my taxes, but last year, I used my employer’s proprietary software while working as a tax preparer. This year, I wanted to compare my options. I prepared my personal income taxes using H&R Block Online, TurboTax, and FreeTaxUSA. I’d heard that FreeTaxUSA was a good cheap alternative and I wanted to check it out for myself. Here is my FreeTaxUSA review.
To do this review, I did my own personal taxes with three software options. I did not test every possible tax scenario, but my taxes do cover quite a few tax forms. To give you an idea, we personally had:
- W-2s for regular income
- 1099-INT for bank interest
- 1099-DIV for investment income (but no sales of stock)
- 1099-G for a taxable state tax refund
- 1099-R for a 401k rollover
- 1099-SA for HSA distribution
- 1098 Mortgage statement for interest and real estate taxes
- Cash charitable contributions
- Charitable contributions of items exceeding $500 total
- 1095-B for health insurance coverage
- Child tax credit
- Foreign tax credit because of investments
- State & local income tax
- 529 contributions (deductible on state taxes)
As you can see, my taxes cover a large number of common tax situations, so my review is fairly comprehensive. I did not have any self-employment income in 2016. I will have some in 2017, so that will add some additional complexity next year.
FreeTaxUSA Review: Overall Ease-of-Use
To look at ease-of-use, let’s compare FreeTaxUSA to the competition.
Turbotax was definitely the most conversational and probably offers the best hand-holding to a beginner. It asks questions in a friendly way and offers reassurance to the user. I also felt that it offered the best explanations of items throughout the process. Turbotax would be a good option for someone with a new situation like a first-time parent or first-time business owner.
H&R Block Online
H&R Block Online also asked questions in a conversational manner, but it felt a bit clunkier to me. It also seemed to ask more obscure questions about topics that are not relevant to most taxpayers. Overall, though, H&R Block Online would also be very good for someone new to preparing their own taxes.
I found FreeTaxUSA very easy to use and actually preferred it to Turbotax and H&R Block. It seemed to be more straightforward, leading you through the various forms. As someone who is experienced with taxes, I was relieved that it was more clear which forms I was filling out. It was a bit less conversational than the other options, though.
You can also see the various forms as you’ve filled them out, which is a big plus to me. It’s nice to actually see what’s going on behind the scenes instead of guessing until I pay & file.
FreeTaxUSA Review: Charitable Contributions
The biggest difference I noticed between the three options was how charitable contributions of items are handled. When I give donations of items to a charity like Goodwill, I always get a receipt and keep a detailed list of what was donated. This allows me to maximize the tax deduction since I know I will itemize.
In order to claim the deduction for the charitable contribution, I must value the items. Many people just pick a number out of the air, which is generally much lower than what is allowable. It is worth the time to value the items individually, as it can save a large amount of taxes. But what are 10 t-shirts, 5 pairs of pants, and 2 pairs of sneakers really worth? Here’s how the various software handles it:
Turbotax: Charitable Contributions
Turbotax is linked to a separate software called ItsDeductible. ItsDeductible uses eBay values to place a value on various household items. You can search through the database or browse through the different categories to find your donated items. It’s very easy to use and the values are likely much higher than what you would have guessed on your own.
H&R Block Online: Charitable Contributions
The H&R Block system was similar to Turbotax but a lot clunkier. One thing that bothered me was that I had to retype the charity each time I made a donation to it. I couldn’t have 3 donations to the same charity unless I typed the name and address three times. Also, if the total amount of items donated for the year is less than $500, I shouldn’t have to enter any addresses. Turbotax does not make you enter addresses until after your donations total over $500. Also, I had to enter items one at a time instead of entering all the clothing items at once.
FreeTaxUSA: Charitable Contributions
FreeTaxUSA does not offer any kind of service to help you value your donations. It doesn’t even offer to help you add them up. It just simply asks you for a total. If your noncash contributions total more than $500, it asks for more details about the donations (as required by tax law). It’s definitely very bare-bones compared to Turbotax and H&R Block Online.
Best Way to Value Your Charitable Contributions?
The lack of help valuing your charitable contributions was almost a dealbreaker for me. That could mean a significant difference in my tax refund. So what’s the best way to handle it? Should I just pay the extra money for TurboTax? Here’s a tip:
ItsDeductible is free for everyone to use, regardless of how you’re filing your taxes! You can use it through the ItsDeductibe website or there’s an iphone app. It easily imports into TurboTax, but there’s no reason you can’t use it with a cheaper way to file!
So that’s what I did! I used the ItsDeductible website, which is slightly different from the version through the Turbotax site. I actually liked it even better. For 2017, I’m going to try to use it throughout the year to stay organized and save time next tax season.
FreeTaxUSA Review: All Other Forms
For the rest of my big stack of forms, all three options were pretty similar. FreeTaxUSA doesn’t have as many importing features available as the other two. For me, that didn’t really matter. My forms were not excessively long, so it was not hard to type in the information. Taxpayers with large amounts of stock sales might prefer more importing features, as those forms can get very long.
Overall, I generally preferred FreeTaxUSA’s pages as I thought they were generally more similar to the real forms that I was entering.
As you can see, they’re all pretty similar for the basic forms. Turbotax & H&R Block are just a little “prettier”. They’re all just a tax form, though!
FreeTaxUSA Review: Calculations
All three of the software options calculated my taxes the same. There was a slight difference between them because of the differences in values for my charitable contributions, as discussed above.
FreeTaxUSA Review: Cost
Since all three software options were very similar in ease of use and calculations, what about the cost? Well, there’s a big difference there! Because I had many different tax forms, I did not qualify for either Turbotax’s or H&R Block’s free filing options. In both cases, I would need the “deluxe” options to cover all of my forms. Here are the prices:
Best Option for State Taxes?
For those of us in states with income taxes, we have to file multiple returns. Obviously, you could file with software, but did you know that filing your state taxes is free and simple through your state? State taxes are generally just a copy and paste of a few numbers from your federal return. There may be a few small adjustments, like my 529 contributions deduction.
Your state department of taxation likely offers a free service to e-file them for free online. You can file your more complex federal return through free software and then file your simple state return through the state directly for free. If you’re a fellow Ohioan, you can check out the State of Ohio department of taxation individual services. And guess what? If you already filed through software and calculated what your state refund should be, you have a perfect double-check! If the numbers match, you probably did it right!
Of course, if you don’t want to bother with the state filing, doing it through FreeTaxUSA for only $11.65 after the coupon is not a bad deal at all.
FreeTaxUSA Review: Great Cheap Alternative to Turbotax or H&R Block
I think it’s obvious by now that I think FreeTaxUSA is a great alternative to Turbotax and H&R Block. For free or less than $13 with a state return, you can do your taxes with excellent software. One of the best parts is that you can preview your entire federal 1040 form before paying or filing. Since it’s free to file federal, they have no reason to hide it from you like Turbotax or H&R Block. You can look it over line-by-line, checking for errors or comparing to previous years.
It’s incredible that FreeTaxUSA is able to offer such complete software at such a bargain. The free version covers almost all tax situations, including fairly complex ones like self-employment.
Bottom Line: What Will I Choose?
Here is what I plan to do for my own taxes:
- Charitable contributions: I’ll use ItsDeductible throughout the year to track and value my contributions for FREE.
- Federal tax return: I will e-file my federal taxes through FreeTaxUSA for FREE. I may also run my taxes through one or more competitors for a free double-check. If you’d like to give FreeTaxUSA a try follow this link: 100% Free Federal Tax Return
- State tax return: I will e-file my state tax return directly through the Ohio Department of Taxation for FREE.
Total cost: FREE!
What about you? How are you planning to prepare your taxes this year?