Best Values in Tax Software

Ryan Ermey: Unless you're super old school, you're filing your taxes online. The question is, which software to use? Well, we have the answers. Kiplinger.com tax editor Rocky Mengle joins the show to talk about our latest tax software rankings in our main segment. On today's show, Sandy and I talk travel insurance strategies in the wake of the coronavirus outbreak before delving into political donations and booking flights. That's all ahead on this episode of Your Money's Worth. Stick around.

• Episode Length: 00:27:18
• Links and resources mentioned in this episode
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Ryan Ermey: Welcome to Your Money's Worth. I'm Kiplinger's associate editor Ryan Ermey joined, as always, by senior editor Sandy Block. Sandy, how are you?

Sandy Block: Doing well, Ryan.

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Ryan Ermey: So have you ever been on a cruise of any kind?

Sandy Block: I was going to ask you that question, and I have a feeling, given your age, the answer is no, but I have been on one cruise. My mother and I took a Mediterranean cruise about five years ago and I've been a little obsessed with the travails of these people who've been stuck on a cruise for, it seems like, weeks because of the coronavirus.

Ryan Ermey: Yeah. And believe it or not, I have been on a cruise. I was a kid, though. It was us and a bunch of other families when I think I was about 10. Honestly, aside from not being of drinking age or gambling age... I know some cruise ships actually have casinos on them. It was like the perfect vacation for a 10-year-old kid. We were the unsupervised urchins running around the ship, which doesn't seem to be what's happening aboard these coronavirus-stricken cruises.

Sandy Block: Right, and I've heard from so many people who say they never want to go on a cruise again, and if they scheduled a cruise, maybe they want to get out of it. Well, here's the thing. Even if you bought travel insurance, which can be a very good thing to have if you spend a lot of money on a cruise or some kind of package trip where you might have to bail because a family member got sick or the place you were going became uninhabitable. Travel insurance can refund you for non-refundable cost. So, it's a good thing to have, typically costs from 4% to 10% of your trip.

Sandy Block: I know when my family went on a big package tour to Hawaii about 10 years ago, we did buy travel insurance because there were lots of people involved. We just didn't know what was going to come up. But what I've learned over the last few days is that, as far as the coronavirus is concerned, you're probably out of luck for two reasons. One is most travel insurance policies exclude epidemics as a coverage event.

Ryan Ermey: Oh, wow.

Sandy Block: They don't cover the epidemics. So, that's number one. Number two is even if your insurance policy does cover epidemics, it's now considered what's known as a named event, and basically... and this is something you may be more familiar with, with respect to hurricanes.

Ryan Ermey: With storms.

Sandy Block: That's right. If you book a trip after a hurricane has been named and you want to cancel it, you're out of luck. The travel insurance company will say, "You knew that you were traveling to a place where a hurricane was going to hit when you bought the insurance, so we're not going to cover you." Well, in the case of the coronavirus, insurance companies have picked various dates, but January 22nd seems to be the main one when it became official, when we knew that it was a thing, and if you bought insurance for a cruise or anything else after that date, your insurance probably won't cover it because they're going to say, "You knew the risk when you bought the insurance."

Sandy Block: Now there is a kind of travel insurance. It's called coverage for any reason where they don't exclude things, but it's much more expensive, can be up to 40% of your trip. And even then, even a cancel for any reason -- the policy may have some exclusions including epidemics.

Sandy Block: So I think the takeaway from all of this is that if you decide to buy travel insurance, and it can be a good investment, you really need to understand the terms. Read it very carefully to see what's covered, what's not, what could come up.

Sandy Block: The other thing I would say is, in the case of something like this, your first call should be to the travel operator. If you've booked a cruise and you've changed your mind because it's going into an area that you consider potentially dangerous because of the virus, call the cruise. These guys are already dealing with a lot of bad press and I have a feeling they would be amenable to maybe booking you at a later date or giving you another cruise. So whenever something like this happens, whether it's airline cruise, whatever, your first call should be to the travel operator and see what they can do for you.

Ryan Ermey: Yeah. In general, our advice has always been that you need to shop and examine policies carefully for any kind of trip insurance, because, as you say, it can be a really important thing. You can pay for a medical evacuation in some cases, which is really expensive and not usually covered by your health insurance if you're sick or injured while you're traveling abroad and need to be transported. And, as you say, if you've booked something and a cruise falls under this with a lot of non-refundable parts, but like you say, you don't know exactly what it's going to cover. So, if you are indeed shopping for trip insurance for even non-coronavirus related things, if you're shopping for a trip during the upcoming hurricane season, for instance, you really need to check what these policies cover. We've always recommended SquareMouth.com for this.

Sandy Block: It's a good comparison site. Yeah.

Ryan Ermey: So we'll put that up in the show notes. I mean, that's all I got on trip insurance. Anything else for you?

Sandy Block: No, no. I would just say if you do like to cruise, I have a feeling there's going to be some discounts coming down the line. Keep an eye out. The cruise stocks have been hit pretty hard recently.

Ryan Ermey: And don't let your 10-year-olds run amuck on the ship.

Sandy Block: Oh, that's the beauty of a cruise.

Ryan Ermey: We'll tell you the number one tax software and our ranking right after the break, but stick around for the rest of the talk. It's informative, we promise.

Ryan Ermey: We are back and we're here with Kiplinger.com tax editor Rocky Mengle and we are talking a topic that I think is going to be of a lot of interest to a lot of people -- tax software. Rocky, thank you so much for coming on.

Rocky Mengle: You're welcome. Glad to be here.

Ryan Ermey: The two of you, both, worked on our ranking of various tax softwares, and, Rocky, I guess don't keep us in suspense. Who won?

Rocky Mengle: Oh, you want to jump right to the winner?

Ryan Ermey: Why not?

Rocky Mengle: Do I get a drum roll?

Ryan Ermey: Oh, sure. Ready?

Rocky Mengle: Credit Karma.

Ryan Ermey: Hey.

Rocky Mengle: They came out on top this year for our rankings for the best value in tax software.

Ryan Ermey: Right and so you guys tested nine programs. What was the sort of methodology -- in terms of determining what programs offered the best value?

Rocky Mengle: Well, first of all, I guess maybe just define best value a little bit. We were looking for the product that gave you basically the most bang for the buck. And so, that's not necessarily the product that had the most bells and whistles, especially if you had to pay a lot for that. On the other end, it's not necessarily the lowest priced product, especially if it was kind of a stripped down version. We were really looking for a combination of good price and a good product.

Rocky Mengle: To determine that, I guess the first thing we did is we come up with 31 key factors that we wanted to focus on and they kind of fell in one of five categories: cost, functionality, navigation within the software, whether state returns were included, and, if so, for how much, and access to help with your tax questions.

Rocky Mengle: So we came up with that list of 31 factors. Then we layered on kind of a point system where the product could get either positive or negative points for things like, just an example, if the price was below a certain amount, they got points. If it was above a certain amount, then we would subtract points. If you had, say, live chat with a tax professional available, you'd get some extra points. If some of the tax information was confusing or outdated, actually, we saw in some cases, then you would subtract points.

Rocky Mengle: Then we created a couple hypothetical taxpayers. One had a relatively simple return. It was a single taxpayer with just a W-2 wage income. It took a standard deduction, did have student loan debt and did contribute to an IRA, but again, it was relatively simple return, overall. And then we had a married couple with a child and they had a more complicated tax return... $100,000 in wages. They had dividend income and capital gains. They itemized, and they also contributed to IRAs, 401(k)s, and a health savings account, as well. For each taxpayer or tax software product, we prepared returns for those two taxpayers. And all along we were tallying up the points that are the pluses and the minuses. At the end, Credit Karma had the most points. They won.

Sandy Block: So Rocky, we did do these two hypotheticals, but obviously everybody's situation is different. I'm wondering, what should someone consider when they're looking for a tax software program? And are there cases where you might want to pay a little more?

Rocky Mengle: Yeah. It really kind of all depends on who you are and what your tax situation is. Price, of course, is always going to be a consideration for some people -- especially, if you're on a bit of a tighter budget. Also, how complicated your return is can and make a big difference, too. If you have income from a lot of different sources or if you're self-employed or you're taking a lot of deductions or credits, you might want to lean towards one of the products that has more of the bells and whistles that can help guide you through some of the more complex parts of your return a little bit easier and smoother, and then how much handholding you need, too, is an important consideration. If you're more comfortable with the idea of doing your own return and you know your way around the tax code a little bit, then having all those bells and whistles maybe isn't so important. On the other hand, if you're kind of nervous and don't know much about taxes, then maybe one of the more expensive ones will get you through the return a little bit better.

Ryan Ermey: What are some of the ones that have a little bit more, in terms of those bells and whistles?

Rocky Mengle: Well, there's TurboTax, H&R Block. They probably are the top of the list, in terms of programs with the most functionality. They also, I think, are some of the more expensive ones, too. So, there's a trade-off there. I think that's why they didn't automatically rise to the top of our best value rankings. Again, because the price kind of affected that.

Sandy Block: We have been hearing so much about free programs, and TurboTax has a big ad campaign where they say, "Everything is free."

Ryan Ermey: Free, free, free, free, free, free, free.

Sandy Block: Free, free, free, free. But in my testing, what I found was, it doesn't take a lot to make you not eligible for the free stuff. Can you talk a little bit about that?

Rocky Mengle: Yeah. Our single taxpayer, for example, had that student loan debt and so you can deduct interest you pay on student loans, and that seemed to be a trigger in a lot of different... I don't know if it was for all of the programs that we tested. For a lot of them, that would trigger an automatic upgrade to a more expensive package. Sometimes, you know right away if you're being upgraded. It'll give you a little notice there, but other times, you don't know you're being upgraded until the very end when it's time to file and pay what's due. All of a sudden, you started with the free program, and like I said, you're ready to file, and all of a sudden, they say, "No, you owe us $50," or something like that.

Sandy Block: Yeah. I think that's one thing that taxpayers really have to be aware of, is not just that most of these programs let you do them for free. I mean, you can put...

Rocky Mengle: You can start for free.

Ryan Ermey: Yes.

Sandy Block: You can start for free, and then you find out how much it costs when you file, and it's a little bit of a gotcha, because by the time you've put in all of that information, you're not going to necessarily change your mind. You're not going to say, "Oh, I don't want to spend $35 or $50," and do all this again.

Sandy Block: The other thing that we note in our reviews that people need to be aware of is that most of the... and I guess this is why Credit Karma rates so highly, because you don't have to worry about this. Most of them engage in a little bit of surge pricing. The price you see right now when you go online and look at the products, they'll give you a price, but I don't think any of the ones that I looked at, and maybe I think this might be true of yours, too, Rocky, will guarantee that that's the price you'll pay on April 15th. None of them guarantee that the price will stay the same. As you get closer to the deadline, there's a very good chance that the price could go up.

Rocky Mengle: That's right and they're very vague about that. When I contacted the software providers, they just really danced around the topic.

Sandy Block: They say, "We reserve the right to change our prices." Well, it sounds to me like you're going to change your prices.

Ryan Ermey: Yeah. If you're going to take the time to reserve the right to do it, then you're probably going to do it. Well, and just to be clear, this is a ranking of paid... I mean, we say free in some cases, but like this is if you go to this company's website and use their service and not say the version that might be available through the IRS Free File program. Right?

Rocky Mengle: That's right. Yeah. So if you have $69,000 or less of income, you can go to the IRS website, and it'll be prominently displayed, the link for the free file program. Follow that link and you'll be taken to a list of... I think it's 10 software providers that offer free tax preparation services. If you go through the IRS free file program, you're much more likely to end up with, actually, a free return in the end.

Sandy Block: Because one of the advantages of free file is that they won't upgrade you, no matter how... If you qualify, if you have less than $69,000, and then the individual providers are allowed to have their own terms...

Ryan Ermey: But those are listed on top.

Sandy Block: They're listed and there's a tool where you can find them. But if you qualify for a free file, it doesn't matter how many deductions or kids or other things that you have. They're not allowed to force you to pay. Now they may require you to pay for a state return, but the federal turn is free no matter how complicated it gets, and there's been a lot of talk about confusion -- because people hear that TurboTax has a free version and they think that's free file, and it's not. So if you really want to absolutely make sure that your tax return is free and you qualify, that's the place to go.

Ryan Ermey: And I guess sort of the last thing that I would be curious about, because I've done our version of this for brokerages, and the ones that come out on top, they're the ones that our algorithm -- and I create the algorithm -- assign the highest scores to, but even among the ones that aren't necessarily like the first place, best ones, they have features that I like or that I think are helpful or cool. Did anything kind of stick out to either of you with any of these softwares that you thought that's a really neat thing for people?

Rocky Mengle: I like the feature that will upload W-2 information into your return, instead of having to type it out, which is a pain in the butt. This saves you a lot of time, if you can just upload it automatically from ADP or some other...

Ryan Ermey: Like a PDF. You can just load it in. Take a picture of it.

Rocky Mengle: No.

Sandy Block: No, it just imports it. It just imports it... it's really kind of miraculous.

Rocky Mengle: Yeah. It also makes your return more accurate, too, because there's no chance that you're going to type the wrong number.

Ryan Ermey: Who's got that feature?

Sandy Block: H&R Block and TurboTax, I think, have the most robust, because not only will they import your W-2, but they'll import a lot of information from your financial institutions, as well. So if you've got a lot of W-2s, a lot of financial documents, you may want to pay just for that, I think.

Rocky Mengle: And 1099 sometimes, as well or importing information from our previous year's tax return. That can be helpful, too, and a time saver, and some of these companies will even import from a competitor's return from a previous year. So, that's a big plus.

Ryan Ermey: All right. Well, listen, thank you very much for coming on. I'm sure people are eager to put down their headphones and go read the story, or read it while you're listening to the rest of the show. Why not? So, folks should head over to kiplinger.com to check it out, right? It's up online now.

Rocky Mengle: It's up online.

Sandy Block: And we'll also be featuring some of it in our upcoming April issue.

Ryan Ermey: All right, be on the lookout for that, folks. Rocky, thanks again for coming on.

Rocky Mengle: You're welcome.

Ryan Ermey: Coming up, we're talking political donations and flight booking strategies in the new edition of Financial Fact or Fiction.

Ryan Ermey: We are back and before we go, a quick game of Financial Fact or Fiction. Sandy, what do you got?

Sandy Block: Oh, okay. Fact or fiction, Ryan? You can deduct contributions made to a political candidate.

Ryan Ermey: Certainly, an important thing to think about at this time of year, and I happen to know that to be fiction.

Sandy Block: It is fiction, and I think it's important to point out right now, because we're hearing a lot about grassroots campaigns where maybe people who've never made a donation to a candidate before are sort of getting in on it. On the off chance that you still itemize, and some people still do, or maybe you're a really big giver, you need to know that contributions to a political candidate are not deductible. That also goes for contributions to a political party or a pack. Those are not deductible. So, if you do it, do it out of a sense of civic duty or fandom, but you can't deduct the contributions.

Ryan Ermey: Now if you're looking for an action, so it has to be a 501(c)3 to get you a tax deduction. Right? For it to be a charitable organization.

Sandy Block: Right.

Ryan Ermey: I do know, because I think I've wrote about this ages ago, that some kind of political organizations have affiliated foundations that aren't involved in politics, but the rule is if you're a 501(c)3 charitable organization, you can't be involved in politics at all.

Sandy Block: Right, and that's a good point, Ryan. If you have any questions about that, I would ask because if you aren't sure if you're giving to a pack or maybe a foundation that is a registered charity, ask them for an acknowledgement that it is deductible. I think what confuses people is, a lot of these political organizations are, themselves, tax exempt. They don't pay taxes.

Ryan Ermey: Right.

Sandy Block: So, you think, well, that must be like a charity. Well, it's not. Your donations are not tax deductible. So again, if there's any question about that, ask them for an acknowledgement that your contribution is tax deductible, and if there's no acknowledgement, no tax deduction for you. What you got?

Ryan Ermey: All right. Mine is that you can get a cheaper roundtrip domestic flight if you book your roundtrip as two one-way trips.

Sandy Block: Whoa, sounds complicated, but I think there might be a little trick here. Is that true?

Ryan Ermey: There is a trick, and I always thought that this was definitely not true. I always felt like I was looking at, it was always going to be more expensive as two one-way trips, and it is. It only works on domestic routes, and this comes to us from our friend, Scott Keyes, who runs Scott's Cheap Flights. But if you book them separately, you can get it cheaper, and he cites a trip that he booked Portland to Atlanta, Atlanta to Portland, and it was $603, versus the roundtrip, which was $637. That's $34 in savings for what took an extra, what? Minute to search.

Ryan Ermey: So, why is this? He explains that if you book a roundtrip flight, it's going to slot you into the same level fare. If you're main economy going out, you're main economy coming back. What he points out is that it could be that one leg of that roundtrip flight has a basic economy section, and the other flight doesn't, but they're going to book you two at that main economy, because that's available on both -- but you could be missing out on the basic economy fare.

Ryan Ermey: It's not going to work all the time, because it just could be that both of your flights... neither one of them offers what he's calling a cheaper fare bucket, and it's not going to work just because he says it's more complicated when it comes to international flights. But if you've got a roundtrip domestic flight that you're looking at and that you have flight alerts set on, set alerts for one-way routes, as well as roundtrip routes, because it could end up saving you a little bit of extra money that you can spend on a massage in the airport or something or other.

Sandy Block: And it's certainly worth checking. It doesn't cost you anything to look.

Ryan Ermey: Exactly. It's going to take you an extra couple minutes to set up an extra flight alert. It's not going to cost you anything. Like I said, essentially, we always on this show like opportunities for people to just get free money or just to not spend money that you don't have to spend. If you're planning any kind of domestic travel and you plan on returning to your home at some point, check out one-way trips. Once again, advice coming to us from Scott's Cheap Flights. Be sure to check that out, as well. Friends of the podcast.

Ryan Ermey: That's it for this episode of Your Money's Worth for show notes and more great Kiplinger content on the topics we discussed on today's show, visit Kiplinger.com/links/podcasts. You can stay connected with us on Twitter, Facebook or by emailing us at podcast@kiplinger.com. If you like the show, please remember to rate, review, and subscribe to Your Money's Worth wherever you get your podcasts. Thanks for listening.

Links and resources mentioned in this episode

• Protect Your Vacation Fund With Travel Insurance
• When It Pays to Buy Travel Insurance
• Compare Plans at SquareMouth.com
• IRS Free File
• The Best Tax Software Values for 2020
• Political Contributions Aren't Tax Deductible
• Check Out Scott Keyes on Twitter