Issue #228: If at first you don’t succeed…

Hi y’all —

There’s a famous quote misattributed to Albert Einstein that proclaims “insanity is doing the same thing over and over again and expecting different results.”

And for me, it’s never more applicable than during tax season.

Every year, I get overwhelmed by the number of tax prep services. I’ll sit down in front of my laptop, pull up my software of choice (lately, Cash App Taxes) and inevitably start to worry I’ve made the wrong choice. As I upload my W-2 and click through the questions — no, I did NOT live in Yonkers this year — the anxiety creeps in. By the end, I’ve fully descended into panic.

What if the numbers are wrong? What if the IRS comes after me? What if I hop over to H&R Block and do the whole thing again to see whether I get the same results?

Should I prepare my taxes twice to make sure they’re right?

I got on Google Meet with Bill Harris, founder of the fintech Evergreen Money, to get to the bottom of this. He gave me a straight answer: “I don't think it's worth people's time to try to calculate their taxes with two different tax software programs,” he says.

That’s because all major tax preparers generally operate in the same way. They may have distinct advertisements, websites and tools, but at heart they’re identical.

“The IRS code is the IRS code,” says Harris, who ran TurboTax for most of the ‘90s and later served as CEO of PayPal. “Now, it does get subject to interpretation in some ways when you get to very, very complex filings, but for the filings that most of us will do as individuals — and without esoteric investments — it's cut and dried.”

Some 129 million Americans are set to file their taxes before the April 15 deadline, though, and I’m not the only one wondering whether it’s a bad idea to fill out two 1040s. Just a few days ago on Reddit, a user posted, “Recently I heard someone saying how they did their taxes on both TurboTax and FreeTaxUSA, and FreeTaxUSA yielded them a larger [refund]. How can that be?”

Unfortunately, the most common explanation for a discrepancy like this is user error.

It’s possible to get different results from different tax preparers if, while typing, I enter a number incorrectly. It could also happen if I include a personal detail (like a dependent) or a form (like a 1099-INT) on one website and not the other.

Soon, however, this might be an issue of the past.

This year, the IRS is actually testing its very own free tax prep tool, called Direct File, in 12 states. The hope is that it’ll eventually roll out to all taxpayers in all states in the future, giving Nervous Nellies like me the peace of mind that we’re doing our taxes correctly because we’re preparing them directly with the IRS rather than a third party.

It’s also worth noting that, despite my fears, I’m not at huge risk of the government knocking on my door to yell at me if I make a mistake. Although the IRS is spending a big chunk of its controversial Inflation Reduction Act funding on enforcement, the agency swears it’s cracking down on wealthy tax dodgers, not regular Joes.

In fiscal year 2022, the overall odds of getting audited were 0.38%, according to the Transactional Records Access Clearinghouse. The vast majority of these were correspondence audits, meaning the IRS simply mailed letters to people requesting more info on their taxes (aka I probably don’t need to fret about a surprise visit from an agent with handcuffs).

Anyway, back to the topic at hand. Harris says that if I’m unhappy with my refund after doing my taxes, it’s smarter to investigate the causes rather than blame the software.

Am I contributing enough to my 401(k)? Do I have a Roth IRA? What’s my investing strategy like?

Harris says this type of tax planning can ultimately save me thousands.

“Don't waste your time chasing a very small amount of money in a very unlikely situation [by doing your taxes twice],” he says. “If you have that kind of time, think about structuring your financial life a little bit more optimally.”