Finding Your Best Tax Return Hack: More Money Back, Lower Fees

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Updated on Wednesday, February 17, 2016

Tax return check

We all want the highest tax return possible at the lowest cost. The benefit of online tax software is convenience. You just hop online to answer some questions and file. But, there’s a good chance you’ll get varying results with each tax software you try. So, the best way to find the highest refund with the lowest processing fee is to use them all and compare before filing.

A Case for Trying Multiple Tax Services Before Filing  

Let’s take a simple hypothetical case. I simulated the federal tax return process on TurboTax and H&R Block with the following details:

  • Single
  • Gross income of $30,000
  • $3,000 of federal tax withheld on W-2
  • An 11-year-old dependent
  • Raising a dependent without any financial support

With this information on TurboTax, I got a Child Tax Credit of $1,000 and an Earned Income Credit of $1,455. In total, my TurboTax refund came to $4,177.

For H&R Block, I got the same exact credits totaling $2,455. But, the H&R Block refund came out to be $3,557; $620 less than TurboTax.

Now, this scenario is purely for example and I could have left it at that. But, the Type A personality in me had to figure out why one service was giving me more than another.

I went back line-by-line through the final TurboTax return and found the problem. On TurboTax, I checked off Head of Household. On H&R Block, I overlooked the question, “Did you pay for more than half of the household bills?” which triggered a Single filing status and not Head of Household.

Once I changed the H&R Block filing to Head of Household, the standard deduction increased from $6,300 to $9,250 giving me an extra $620 refund matching TurboTax exactly.

Moral of the story? You can easily make mistakes entering data, so it’s important to compare results. If I only used H&R Block to file my hypothetical tax return, I would have left money on the table and that’s never good.

[Free Tax Filing for Every State Online]

The Cost of Filing Taxes with Each Software

Tax return aside, let’s compare fees. In this example, H&R Block wasn’t free for what I consider a pretty basic return, reporting W-2 income and nothing else. I had to upgrade to the H&R Block Basic Edition for $24.99 to take advantage of the Earned Income credit, $1,455. (Be sure to read the next section to find out how to avoid this $24.99 fee).

HR Block EIC

[Review: H&R Block Tax Software]

However, the basic TurboTax product gave me the refund for free.

TaxHack2

[Review: TurboTax Software]

If you made under $62,000 in 2015, there’s a way to get your return from H&R Block for free as well (credits included). Since our example family made $30,000 last year, I went back to find out how to access free e-filing.

How to Access Free E-Filing for Income Under $62,000

The Free File Alliance is a coalition of tax software companies (TurboTax and H&R Block included) that partner with the IRS to offer the Free File Program. Its purpose is to provide low to middle-income earning families and military servicemembers affordable tax prep. Each company sets its own qualifying criteria for the program.

Don’t confuse free e-filing with products you can “start for free” promoted front-and-center on tax prep websites. The Free File Program allows you to file more than just simple tax returns for free.

For example, the H&R Block Basic product starts as free. But, if you want to take advantage of certain credits, you have to upgrade for forms, which is what happened in our example scenario.

I found the link to the H&R Block Free File Program on the IRS website. The process is exactly the same. The refund turned out the same as well. But, this time I wasn’t asked to pay for the $1,455 credit.

As a rule of thumb, if you made less than $62,000 in 2015 and have a complex tax situation, you should check the IRS website to see if you qualify for free e-filing before dishing out money to a tax prep company.

[Free Tax Filing for Seniors: Easy Ways to Get Access]

Should Freelancers Use Online Tax Software?

Going through the tax return process yourself to find the best return at the lowest cost is pretty easy when you’re working with W-2s. For freelancers, solopreneurs and other sole proprietors the process is a little more challenging.

If you fall into either of the categories above, you know Form 1099 and the Schedule C all too well. Form 1099 is almost like an independent contractor’s W-2 (without tax withholding). The Schedule C is used to report income and loss from your business.

Freelancers can get a stack of 1099s at the end of the year, which complicates things. Then you must factor in writing off business expenses and entering quarterly tax payments making it even more difficult.

[7 Best Online Tax Prep Software for the Self-Employed]

If you’re a sole proprietor and not feeling confident about filing taxes on your own, it’s better to have someone help you. You don’t want to get a surprise tax bill or audited later. Last year was my first year filing income as a sole proprietor. I attempted to do it on my own but felt much safer handing it over to a tax advisor.

The Schedule C is one of many supported documents in the H&R Block Free File Program. So, if you made under $62,000 freelancing last year and you’re comfortable tackling taxes on your own, that’s a good place to get it done for free.

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