Navigating the Complexity of Tax Returns: What's Simple and What's Not?

Ever watched a YouTube ad for TurboTax that claimed, "simple tax returns only"? You may be wondering: is there a legal difference between a simple tax return and a complex one? Or is it just what TurboTax considers simple and complex?

What’s Simple and What’s Complex?

People often contact us, assuming that they have a "simple" tax return but when we dig deeper, we find that it's more complex than they think. Preparing your tax return isn't just about completing the necessary forms; it's about maximizing your tax deductions and planning for the future, especially if you're self-employed.

TurboTax's ad slogan, "simple tax returns only," isn't always accurate. It's more about their offerings and the fees they charge. If you have a "simple" return, you can file with TurboTax's Free Edition. However, if your return is more complex, you might need to upgrade to a paid version.

TurboTax's Definition of a Simple Tax Return

To understand what TurboTax considers a "simple" return, let's look at what their website states:

“You can file with TurboTax Free Edition if you have a simple tax return. A simple tax return is Form 1040 only OR Form 1040 Unemployment Income. Situations covered in TurboTax Free Edition include:

W-2 income Limited interest and dividend income reported on a 1099-INT or 1099-DIV Claiming the standard deduction Earned Income Tax Credit (EIC) Child tax credits Unemployment income reported on a 1099-G

Situations not covered in TurboTax Free Edition include:

Itemized deductions Business or 1099-NEC income Stock sales Rental property income Credits, deductions, and income reported on schedules 1-3, such as the Student Loan Interest Deduction

TurboTax's definition is quite limited, focusing mainly on W-2 income and standard deductions. If you have itemized deductions, business income, or other complex deductions, you'll need to consider a more expensive version of their software.

My Definition of a Simple Tax Return

When I talk about a "simple" tax return, I define it as one that requires only Form 1040 and Schedule A (Itemized Deductions) and Schedule B (Interest and Dividends). This is a fairly straightforward return with minimal additional forms or complex deductions.

Compared to TurboTax, my definition is broader. I consider single W-2 income with no additional forms to be simple. However, if you have multiple W-2s, multiple forms, or other complex elements, it becomes more complex.

Conclusion

Remember, the term "simple tax return" is subjective. Companies like TurboTax use it to promote their free services, but their definition is limited. If you have a more complex return, you'll need to consider a paid version or seek professional help.

TurboTax's offering is part of a larger product line, where higher-end versions can handle almost anything but come with a higher cost. Understanding what you need and making an informed decision is key to getting the best tax return.