Tax Breaks

PODCAST: Why Pay Money to File Your Taxes?

Far more people could be filing their federal returns for free; maybe even their state taxes. Also, the latest from Brandon Copeland and the not-so-secret perks of stock ownership.

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David Muhlbaum: We are rolling into the heart of tax filing season, and so we’ll dig deep into the annual questions: Can you file yourself? Which software? And, could you do it for free? Also new content from our friend Brandon Copeland and the perks of stock ownership. That’s all coming up on this episode of Your Money’s Worth. Stick around.

David Muhlbaum: Welcome to Your Money’s Worth. I’m senior editor David Muhlbaum, joined by my cohost, senior editor Sandy Block. Sandy, how are you doing?

Sandy Block: I’m good, David. I understand you’re in a yurt, which I think is like a New England word for trailer, but I’m not sure.

David Muhlbaum: It’s Mongolian.* But yes, I have decamped yet again to work remotely, this time from another undisclosed location in yes, New England.

Sandy Block: A yurt with wifi. This is how we live now.

David Muhlbaum: Exactly. Also for this week, we don’t have a guest. It will just be our dulcet tones you’ll hear. However, we’re going to make a lot of references to someone we did have on as a guest here last year. And he has continued to be a vibrant Kiplinger contributor.

Sandy Block: Professor Cope!

David Muhlbaum: That’s right. Brandon Copeland, New England Patriots linebacker. He has a number of University of Pennsylvania connections as well. He’s a graduate and has taught a class in personal finance there. We really enjoyed talking to him, and I encourage listeners to download that chat too.

Sandy Block: Sadly, he got hurt after his appearance on Your Money’s Worth. Not during his appearance on Your Money’s Worth.

David Muhlbaum: Yeah, yeah. That’s true, too. He tore his pectoral muscle about halfway through last season and ended up on injured reserve. I don’t think there’s any connection, Sandy.

Sandy Block: No. I don’t know any other guests that have ended up in the hospital. So we take no responsibility, but we also wish him a speedy recovery.

David Muhlbaum: But in truth, we may have benefited a bit because Professor Cope probably got a bit more time to work on his projects with us. Surgery, PT, Kiplinger videos. His latest is about money anxiety, which as it happens is something both old and new. Old in that people have been worrying about money since there was money, and new because right now worries about money are running particularly high.

Sandy Block: Sure. I mean for obvious reasons, but he’s a well-compensated NFL player. Some people are going to hear, “Pro linebacker, what’s he got to worry about,” or, “Where does he get off telling me what to think about money worries?” Maybe the money worry is that everyone knows how much NFL players make. Like, it’s right out there on the internet, by individual.

David Muhlbaum: True. Plus they get thousands of people judging whether they’re worth that money every week or day. I mean, that’s got to be stressful. And in fact, the question of salary disclosure, I think that came up when we talked to Brandon before. But you’re right, those money anxieties are kind of unique to the professional athlete. Well, corporate executives, elected officials, they kind of feel that heat too. In fairness, he does talk a lot about sports and the challenges, money and otherwise, of a professional athlete.

His guest, co-host really, is a guy named Joe Holder. The two of them played ball at Penn together. Now, unlike Copeland, Holder didn’t go pro. But he’s a Nike master trainer, among other things. And he’s the creator of The Ocho System, which is about holistic wellness. It’s going to take a whole segment alone to explain that, and I’d still be giving it short shrift. So the link to Brandon and Joe’s video is in the show notes, and I bet you’ll enjoy it.

David Muhlbaum: And if you’re not into what my older daughter used to call, dismissively, sportsball, I think you’ll appreciate it anyway. But I’ll give you a cheat code. The money anxiety talk? That shows up around 1:14.

When we return, paying money to pay your taxes. Seems cruel. Maybe you don’t have to.

David Muhlbaum: Welcome back to Your Money’s Worth. Tax season is upon us. By the time you’re hearing this, the IRS will have opened the window to accept returns. It came a bit later this year, February 12th, as the government had to deal with processing stimulus payments among other issues. As usual, Sandy and others at Kiplinger have been busy testing all the tax software available to help you complete your returns. Competition for those apps is pretty vigorous and every year requires a fresh look.

No doubt you’ll be getting all kinds of email and other contact from whatever platform you used last year. I’m sure they’d like you to use them again. And while there are advantages to continuing on with your old favorite, it could pay to re-shop. But we’re not going to run down Kiplinger’s Best Values in Tax Software. And not just because we want you to click, click, click on that piece of content.

Sandy Block: No, we’re doing you a favor. It doesn’t make compelling audio. And frankly, part of what I think makes our advice so useful is that we dig into which software is best for your situation, because we know they vary a lot. Are you self-employed? Do you have investment income, or a simple return? Etc. But we will be naming some names today. So don’t despair. What we want to do is look at ways you can file your federal taxes, and sometimes even your state taxes, for free.

David Muhlbaum: Allow me to grump for just a moment that it’s kind of a crazy world where many of us have to pay money so that we can pay the government money. It reminds me of the hated dealer processing fee on a car. Hey, I’m going to give you a lot of money and you’re going to charge me a fee to ring it up?

Sandy Block: Right? And actually, a lot of people really hate the fact that they have to pay to file their taxes, and in other countries they don’t. Their version of the IRS just sends you a bill. And if you like it, you send the money and you don’t have to do this. So, a uniquely American thing.

But in fact, anybody can use the free fillable forms that the IRS provides on its site for free. Although that requires a certain... There’s no hand-holding there. It’s just filling in the boxes and doing the math. So just about anybody can file for free that way, but doing things the old way on paper is rarely the smart option. That’s where people will make a lot of errors and it really slows down getting your refund, which you’ll get very quickly if you use software and file electronically. So the software can add value, just like hiring an accountant.

David Muhlbaum: Yeah. That reminds me of a license-plate surround my father-in-law has on his car. On top it says “certified public account.” And underneath it says “never underestimate the value.” Catchy, huh?

Sandy Block: Oh yeah. We’re here all week.

David Muhlbaum: Accountant humor. Yes, well, okay.

Sandy Block: Some people do need a CPA or an enrolled agent or some kind of tax professional. And I know I’m going on a bit of a tangent here, but we do have a good piece about finding a good tax advisor.

David Muhlbaum: Yeah. I’ll put a link in the show notes, but let’s get back to filing for free. Your tax situation needs to be relatively simple then? You get to file for free. You don’t get a CPA for free.

Sandy Block: No, not necessarily because the hard and fast rule for being able to file for free, no matter how complex your return, is that you must’ve had adjusted gross income of $72,000 or less in 2020. And that actually covers a big chunk of tax filers.

David Muhlbaum: Okay. Because it’s using AGI, adjusted gross income, which allows you adjustments, particularly if you’re self-employed. But what if I don’t know my AGI going in? Say I’m on the bubble, somewhere between $70K and $75K, how’s that going to work for me?

Sandy Block: Well, the way for me to answer that is to back up to how people should be going about filing for free or seeing if they can. The place to start is called IRS Free File. Those three words are important: IRS Free File. The reason I’m repeating myself is that there’s a lot of language out from various companies using the word free, but not every pitch, whether it’s an email or whatever with the word free in it means that you’ll be able to file for free.

So you could be in a situation where you tediously type in lots of personal information and income and deductions, and then, uh oh, it’s very much not free.

David Muhlbaum: It’s a trap!

Sandy Block: It is a trap, right? Thank you, Admiral Ackbar. And so two ways to not fall for it. One is I said before – twice actually – is to go to IRS Free File and start from there. There are nine companies currently participating. Some of them are offerings from big names in the field. Some you might not have ever heard of. And within those nine, there are further distinctions. Some might have a lower income threshold. Some will let you do state filings for free. Some are only available to certain ages. So the IRS has a tool you can use to find one that matches your situation.

David Muhlbaum: At IRS Free File.

Sandy Block: Right. It’s very transparent, to use the buzzword. The terms are up front. That said, there are other ways to file for free than IRS Free File, which is useful if you make more than $72,000. One is Credit Karma Tax, which is a site and service people might know best for its credit monitoring and guidance since that’s right in its name.

David Muhlbaum: Yeah, no. These guys I know and have used -- not personally but professionally. So, over the last few years, the interns and I filled out literally hundreds of returns for Kiplinger’s Middle-Class Tax Map and the Retiree Tax Map. We just kept changing the state and rerunning out our sample filers as if they lived in Vermont or Colorado or South Carolina, just over and over and over. And frankly, I always wondered if someone at the other end over at Credit Karma would notice something weird going on. I don’t think they really pay that kind of attention, but it would have been weird because we just kept changing the states. Didn’t pay a cent. But well, we gave them a credit line though.

Sandy Block: That was big of you. And that was because Credit Karma will let you file a state tax return for free. But the point here is, one return. You get one state tax return.

David Muhlbaum: To file one.

Sandy Block: Right. It’s an important distinction because a lot of people this year moved from one state to the other and might have to file more than one state tax returns and Credit Karma’s program just can’t process multiple state tax returns.

David Muhlbaum: Okay. How about some others?

Sandy Block: Well, another one that we like is Free Tax USA, which offers a free federal tax return even for complex returns. A state tax return costs just $13, which is pretty cheap. And then there are two offers from the big players that are also worth considering. If you only have W2 income, income from unemployment, or you qualify for the earned income tax credit or child tax credit, you can get a free federal and state tax return from Turbo Tax Free Edition. But be careful, if you claim the student loan deduction, which a lot of people with pretty simple tax returns claim because you don’t have to itemize to claim it, you’ll probably be required to upgrade to a more expensive addition.

H&R Block Free Online also offers a free state and federal tax return for straightforward tax returns. And you can use it even if you deduct student loan interest. However, if you have a health savings account, you’ll have to upgrade to H&R Block Deluxe, which costs $30 plus $37 for a state tax return. And I think a lot of people would not think that a health savings account makes their tax return complicated. They have a health savings account because they have a high deductible insurance plan. So that’s something you got to really read the fine print on these so-called free additions.

David Muhlbaum: Or you use those three words we keep saying: IRS Free File. But I still don’t know what I’m supposed to do if I think I’m around, maybe over, maybe under that magic $72,000 AGI. Did you tell me that?

Sandy Block: No. Well, I mean, a lot of folks can look at last year’s tax return and figure out if things changed a little bit, suppose it did. You made a lot more money, you got married or something like that. I’d say, start with Credit Karma Tax, just like you did for your sample testing. You don’t have to get all that terribly far in to figure out your AGI. And then once you’ve figured that out, you can either plow ahead with Credit Karma Tax, if you like it, or figure out which of the free file offerings would be best for you.

David Muhlbaum: Sandy, one thing we talked about off mic was the gap between the number of people who are eligible for Free File – I think essentially there’s like legislation that says what percentage of the filing population has to be eligible – and the percentage of people who actually do. Basically, more people could be filing their taxes for free than they do. What is going on?

Sandy Block: Oh yeah. And this is a little geeky history here, but basically Free File was an agreement between the IRS and software providers that the IRS would not offer free tax software, not go into the business.

David Muhlbaum: Right. Because it could just cut them all off at the...

Sandy Block: Yeah, it could cut everybody off.

David Muhlbaum: Could be like those foreign countries you were talking about.

Sandy Block: Like France. We could be like France. Yeah. And there’s something to admire about that. But as part of this agreement, the IRS said, “Okay, you have to offer your programs for the entirety of Free File.” Something like 70% of the population must be eligible to file their taxes for free by using IRS Free File, and that’s where that AGI comes from.

So on paper, a whole lot of people should be able to use Free File. Hardly anybody does. I mean, I think in the past few years it’s been maybe 5% or less. And there’s all kinds of reasons for this. One is that IRS Free File is not promoted that much. And another reason frankly is because people get confused. They Google “free Turbo Tax” or “free H&R Block” or “free tax software.”

David Muhlbaum: Oh, and then you just drown in returns on that.

Sandy Block: Right. And then they get all these commercial offerings and they think that’s what that is. And they go down that road and sometimes people get very aggrieved because they find out it’s not really free at all. And that’s why we keep repeating IRS Free File. And we will put the link in the show notes because a lot of people could be using this who are not using this. And if you qualify and you find a program that you’re eligible for, it’s really hard to see the downsides, because they are not allowed to force you to upgrade if you have investment income or you claim the student loan deduction. There’s no trap doors here. It really is free. You just got to go look for it.

David Muhlbaum: Actually that reminds me that I took advantage of one of those last year. My daughter, who made some money slinging vegetables at the farm stand and had some withholding. We used IRS Free File to essentially get her a refund back and she didn’t pay a cent.

Sandy Block: Yeah, it works great. I think it’s really great for young people. I mean, these are good programs, but if your tax return is... If you don’t want a lot of hand-holding and you qualify, I just don’t see any downside to using IRS Free File. There really are no trapdoors here.

David Muhlbaum: Welcome back. And we’re going to close out with a taste of something that caught our eye the other day. Shareholder perks. Not executive perks, shareholder perks, like, something you get for being a shareholder other than hopefully price appreciation and maybe a dividend.

Sandy Block: That’s right. And maybe we should have written about this before, and maybe we will in the future. But frankly, it was a pitch from a company called Tiicker, with two i’s.

David Muhlbaum: So Teecker.

Sandy Block: No, just Tiicker. So what they do is connect people who own shares with companies that have programs that provide perks to shareholders.

David Muhlbaum: Okay. Like what?

Sandy Block: A couple they mentioned include discounts on vehicle purchases for Ford shareholders, and Royal Caribbean Cruises offers shareholders up to a $250 onboard credit during their cruise.

David Muhlbaum: Ah, but you have to be a Royal Caribbean Cruises’ shareholder. And eh, I don’t know about that...

Sandy Block: That maybe it’s a value stock. But I’ll tell you this because I looked it up, Royal Caribbean Cruises, that ticker RCL, has tripled, since it fell off a cliff almost a year ago. Tripled. People are going to cruise again. In fact, people are cruising again.

David Muhlbaum: Not Americans.

Sandy Block: Nope. Not Americans. Discounts or no.

David Muhlbaum: No, but back to the perks. This is giving me a bit of a flashback. I mean, I feel like when I was a kid, my parents were shareholders of a big tobacco company. And along with the annual report, they got literal cigarettes in the mail.

Sandy Block: Yeah. Well that was once the thing. I mean, cigarettes. Wow. That must’ve been a long time ago.

David Muhlbaum: What are you saying? Yes, it was a long time ago.

Sandy Block: And then there was Wrigley’s gum and Topps baseball cards, but that’s gone. No, this spin is very 21st century. You tie up your investing account to Tiicker, and then they tell you what you’re eligible for. To the consumer, it’s free.

David Muhlbaum: Well, okay. What if you don’t want to play along? What if you just want to do it DIY?

Sandy Block: Well, that’s not impossible because near as I can tell the list of companies offering perks with appreciable value isn’t stupendously long and a whole lot of them are associated with Warren Buffett’s Berkshire Hathaway.

David Muhlbaum: Oh yeah. Right. Speaking of a man who knows something about brand loyalty. I take it this is part of why the Berkshire Hathaway annual meeting, Woodstock for capitalists, is such a big deal.

Sandy Block: Right. But you don’t have to truck out to Omaha to get all of the breaks. If you own some Berkshire stock, you can get an 8% discount on Geico Automotive Insurance premiums. Geico, of course, is a Berkshire Hathaway company. But what Tiicker would tell you is that they’re trying hard to get more firms to play the game. And if your interest in a stock perk is kind of niche, well, maybe they’ll make the connection for you.

David Muhlbaum: Interesting. A brand-building exercise for everyone. Maybe a way to get more people to invest.

Sandy Block: And now since it’s so cheap on Robinhood and things like that to buy shares, it’s easier than ever. But it’s not a reason to invest in a given stock. Don’t let the perks tail wag the fundamentals dog.

David Muhlbaum: My god, we’re just going to have to close on that metaphor.

Sandy Block: Yes, we are.

David Muhlbaum: Thank you, Sandy.

David Muhlbaum: That will just about do it for this episode of Your Money’s Worth. If you like what you heard, please sign up for more at Apple Podcasts or wherever you get your content. When you do, please give us a rating and review. If you’ve already subscribed, thanks. Please go back and add a rating or review if you haven’t already.

To see the links we’ve mentioned in our show, along with other great Kiplinger content on the topics we’ve discussed, go to kiplinger.com/podcast. The episodes, transcripts, and links are all in there by date. And if you’re still here because you want to give us a piece of your mind, you can stay connected with us on Twitter, Facebook, Instagram, or by emailing us directly at podcast@kiplinger.com. Thanks for listening.

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* Yurt is actually the Turkic word for the round, portable structure that traces its roots to Central Asia. The Mongolian word for it is “ger.” -- DM

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