H&R Block Online Review – 2014 Tax Year Features and Screenshots


Here is my 2014 review of H&R Block Online DIY tax preparation software, to complement my TurboTax 2014 review and TaxACT 2014 review. I filed my personal tax return using each of the “Big 3” and I will try to share the overall experience along with their specific strengths and weaknesses.

H&R Block Online comes in Free, Basic, Deluxe, and Premium tiers. Due to having stock sales but no self-employment deductions, I am going with H&R Block Deluxe Online which costs $29.99 for Federal and $36.99 for State (free state options may be available separately). I am reviewing the more popular online software, not the desktop download software which may be different both in user experience and price.


Tax Situation
Here’s a quick summary of our personal tax situation.

  • Married filing jointly, subject to state income tax
  • Both with W-2 income, as well as some simple 1099-MISC forms.
  • Interest income and dividend income from bank accounts, stocks, and bonds (Schedule B).
  • Contribute to retirement accounts (401ks and IRAs).
  • Capital gains and losses from brokerage accounts (Schedule D).
  • Itemized deductions (Schedule A), including property taxes and charitable giving.

User Interface and User Experience
In terms of overall visual feel, the 2014 user interface is clean and pleasant. If I was comparing with TurboTax and TaxACT, I would say H&R Block is a little less pleasing than TurboTax and a little more pleasing than TaxACT. All of them are perfectly acceptable, but that is my personal ranking. See screenshots throughout this review.

In terms of user experience, H&R Block also uses a question-and-answer format like other tax prep software, but I actually think they have the best layout for intermediate to advanced users (i.e. you’ve done your taxes online before). Before each major section (Income, Deductions, Credits), it present a long checklist of potential items to enter in. You just tick off the ones you need, instead of repeatedly reading a new screen for each little thing and clicking Yes, No, No, No, Yes, No, etc. It know it may sound insignificant, but it really does speed things up with everything on one screen. Here are partial screenshots to help explain:



Importing Data From Previous Years
You can pull up all of your old tax information for free from any of the Big 3 providers (H&R Block, TurboTax, TaxACT) as long as you are using Basic, Deluxe, or Premium (no Free). You may need to have the information downloaded in PDF format. You’ll get filing status, dependents, address, DOB, SSN, etc.

Importing W-2 and 1099 Forms Directly From Providers
Similar to TurboTax, H&R Block also automatically imports many W-2 and 1099 forms. You can pull up W-2 data using your employer’s tax ID number (EIN). My data point: the same W-2 that TurboTax imported, H&R Block did successfully as well (TaxAct could not).

H&R Block does not appear to publish a list of all their 1099 import partners, but I would say it is a little smaller than TurboTax and much more than the 6 partners that TaxACT supports. You just start typing the name and it tries to autocomplete if available:


Here is a partial sampling of eligible financial institutions:

  • ADP Retirement Services
  • Alliant Credit Union
  • Ally Bank
  • Ameriprise Financial
  • Bank of America
  • Betterment
  • Charles Schwab
  • Chase Bank
  • Citibank
  • Discover Bank
  • E*Trade
  • Edward Jones
  • Fidelity
  • Gainskeeper
  • Interactive Brokers
  • Merrill Lynch
  • Navy Federal Credit Union
  • Pentagon Federal Credit Union
  • Scottrade
  • Sharebuilder
  • T Rowe Price
  • TD Ameritrade
  • TradeKing
  • USAA, USAA Federal Savings Bank
  • Vanguard Brokerage, Mutual Funds
  • Wells Fargo Bank, Advisors

I’m a fan of automatic import because it both saves time and reduces data entry errors. I did have a couple of hiccups with the import, however. I suspect that the problem is the same as I had with TurboTax – that the file is not ready for electronic import yet even though it is available in physical form. Some patience may be in order?


The Small Stuff

  • When entering charitable donations of physical goods, H&R Block did not provide any assistance as to valuing the object. (TurboTax and TaxACT did.)
  • When entering my 1099-MISC information, H&R Block quickly allowed me to indicate that it was not a business and instead a one-time event. That saved me from answering a lot of unnecessary questions.


  • Starting in the 2014 tax year, you’ll have to have health insurance or else pay a penalty. I indicated to H&R Block that I had employer-provided coverage for the entire year, and it did not ask for further proof or documentation.

Upselling and Price Change Tricks?
I was not presented with any upsell attempts to their Premium tier and there were no price change shenanigans, which was nice. They also had no need to offer me $40 “audit protection” because it is already included in the price. H&R Block’s “Free In-person Audit Support” is definitely a differentiating factor for the audit-fearing folks out there. In the unlikely event of an audit, an H&R Block Enrolled Agent will help you communicate with the IRS, prepare for the audit, and will attend the audit with you (though they do not provide legal representation).

The only upsell was for their “Best of Both” package, which for $50 lets you have an H&R Block human discuss and review your return with you:


H&R Block also keeps your past returns for up to 6 years for free, so there is no option to pay more for “data archiving”. Seriously, how much space on a hard drive could it possibly take?

TL;DR Recap
hrb2014_logoH&R Block did my taxes properly and covered the same topics as their competitors. I actually liked H&R Block’s Q&A format a little better than either TurboTax or TaxACT, assuming you have done your taxes online at least once or twice before; it may save you some time.

I would say that H&R Block Deluxe’s value proposition is this: it offers most of the added import conveniences of the similar TurboTax Premium, all at a fraction of the cost ($30 vs. $55 Federal, both $37 State). If you have a lot of stock sales from a specific broker, sign up for a account (they are all free to try; you only pay when you file) and go straight to the 1099 section to see if the H&R Block supports it. H&R Block also offers free in-person audit support, which costs $45 from TurboTax and $40 from TaxACT.

Bottom line: H&R Block Online offers most of the time-saving features of TurboTax for a lower price ($30 vs. $55 Federal, both $37 State), plus it includes free audit support which costs $40+ with other services.

Fidelity IRA Match: Switch and They’ll Match Your Contributions Up to 10%

Fidelity has released an infographic [pdf] about the power of saving 1% more of your income:


To coincide with this, Fidelity started a related promotion to entice folks to move over their IRA assets to them. The Fidelity IRA Match is designed to mimic the 401(k) contribution matching that many employers offer, where Fidelity will match between 1% and 10% of your future contribution for 3 years if you roll over $10,000+ to them. Valid for both new and existing Fidelity customers, but only for IRAs and not other account types. Here’s the breakdown:

Qualifying transfer* Match rate Estimated max benefit* (age 50+)
$10,000 1% $165 ($195)
$50,000 1.5% $247.50 ($292.50)
$100,000 2.5% $412.50 ($487.50)
$250,000 5% $825 ($975)
$500,000 10% $1,650 ($1,950)


* Qualifying transfers must be rollovers or transfers from non-Fidelity IRAs (Traditional or Roth). Rollovers from workplace savings plans are not eligible for this offer. Estimated max benefit is based on $5,500 annual contribution for three years ($6,500 for age 50+). Max benefit is set at $1,950.

It’s an interesting proposal. Keep in mind that many IRA custodians will ding you with an outgoing transfer fee if you move your money out. Also, Fidelity has other deposit promotions going on that offer a little less than the max payout here, but they are more straightforward bonuses.

To participate, you must register at www.fidelity.com/IRAmatch. If you do participate, I would like to point out the availability of their Fidelity Spartan Index funds, their Fidelity Freedom Index 20XX target-date funds which you can now purchase in an IRA, and their commission-free iShares ETFs. Fido has some good, low-cost products on their menu, but you may have to look for them.

Selected fine print:

[Read more…]

The Best Credit Cards For Millionaires Who Count Their Miles… and The Rest of Us

millThe sales pitch for American Express has always been that their cardholders are wealthy and thus big spenders, which in turn justifies their above-average transaction fees charged to merchants. The theory is a merchant won’t mind paying more in fees if it is offset by higher average receipts (and thus profits). This is why Tiffany & Co takes AmEx and my favorite Indian food truck does not.

However, this recent Bloomberg article suggests that American Express is losing their millionaires because they are actually doing the math on their credit card rewards and finding the perks are better elsewhere. The title in the Businessweek magazine version is “Even Millionaires Count Their Miles“. To which I say, of course they do!

As less-affluent consumers cut spending during the recession and a 2009 law known as the CARD Act limited lenders’ ability to raise interest rates and charge late fees, banks revved up their pursuit of customers with top credit scores who pay their bills on time.

The article quotes hedge fund manager Whitney Tilson, who switched from using American Express for 30 years over to the new Barclaycard Arrival Plus World Elite MasterCard (my review). He states:

The difference between getting 1 percent and 2 percent cash back is thousands of dollars and for that amount of money, Barclaycard has a better offer […]

(I should mention that Tilson is well-known as a disciple of the Graham-Dodd-Buffett-Munger school of value investing. You would think value investors would know a good deal. 🙂 Of course, you could also flip that as the largest shareholder of American Express is… Berkshire Hathaway.)

The problem is that the American Express Platinum used to be “the” card for affluent travelers because it got you into any of the airport lounges from all major carriers. But now if you want access to all American lounges, you need the premium Citi co-branded credit card. To get access to United lounges, you need the premium co-branded Chase card. And so on. AmEx even started building their own airport lounges, but so far there are only four of them. Nowadays, unless you redeem Membership Rewards for frequent flier miles and use them wisely, it is hard to get even 1 cent of cash for 1 MR point these days. Even a plain-vanilla rewards card will pay you 1% cash back and more importantly their direct competitor Chase Ultimate Rewards will get you 1 cent back or 1.25 cents towards travel.

Here’s the Bloomberg graphic of credit cards that cater to “affluent consumers”:


I want to point out that the graphic is misleading because the AmEx gives a $200 travel credit every year while the Barclaycard $400 statement credit is one-time only. I do agree the Barclaycard at 2.2% back towards travel is good if you have travel charges that you redeem against, and the $400 upfront bonus counters the $89 annual fee.

Not mentioned in the article are two cards that I think are solid no-brainer cards for anyone. Both earn double the cash back from ordinary 1% cards and have no annual fee. Unless you are redeeming frequent flier miles for business class tickets or hotel points for luxury stays (which I try to do with part of my credit card rewards), it is unlikely you are getting more than 2 cents a point.

If you charged $100,000 a year, getting 2% instead of 1% would be an extra $1,000 a year back. Even if you charged $10,000 a year, that is an extra 100 bucks. You don’t need to be wealthy to appreciate simple cold, hard cash. Because there is no annual fee, I think everyone, including millionaires, should have one of these in their wallet.

Big Picture Financial Advice from Jonathan Clements

clementsbookHere is some “big picture” financial advice from author and columnist Jonathan Clements. I’d like to collect enough of these tips from notable people and make a compilation post.

Clements recently wrote his last column “How to Live a Happier Financial Life” for the Wall Street Journal Sunday (which is ending publication), but he’ll still be writing for the main Wall Street Journal (on Saturdays). I’ll just paraphrase the bullet points below; read the full article for the details.

  • The biggest waste of time is commuting.
  • The best investment attribute to have is humility.
  • The biggest key to financial success is cheap housing.
  • The best way to spend money is to buy experiences.
  • Your top financial goal should be to have the ability to do fulfilling work, as opposed to working solely for a paycheck.

I guess he’s a sentimental guy because he also wrote a “last column” called “Parting Shot: What I Learned From Writing 1,008 Columns” in 2008 when he left the Wall Street Journal to join Citigroup (before coming back). Highlights below; read full article for details.

The question – What is the reason for all this saving and investing?

  • If you have money, you’ll worry less about it.
  • Money can give you the freedom to pursue your passions.
  • Money can buy you time with friends and family.

I checked and both articles weren’t behind a paywall at the time of writing, but that may change in the future.

AssetBuilder 2015 Annual Letter: Currency Effects and Interactive Returns Tool

I enjoy reading articles by Scott Burns (also here) because he sometimes offers a unique perspective on things. He recently released the 2015 Annual Letter for his asset management company AssetBuilder. The whole thing is a good read, but here are two items of note:

Keep in mind the effect of currency fluctuations on your portfolio returns. In 2014, the MSCI European Index fell 6% in dollars. However, that index actually rose nearly 7% in Euros. Most international stock funds sold to US investors, including the Vanguard Total International Index fund, are not currency-hedged. The strong dollar in 2014 has made international returns looks worse from a dollar-based perspective.

At the same time, the dollar rose against other currencies. Over the year, the dollar gained 12.5 percent against a basket of widely traded currencies tracked by the Wall Street Journal. That increase created a looking glass problem. U.S. investors felt investing in Europe was a losing proposition, with the MSCI Europe Index falling 6.18 percent in dollars.

Europeans, meanwhile, felt differently because the index rose 6.84 percent in Euros. Indeed, the world looked strangely positive to an internationally diversified Russian investor. Thanks to the miracle of modern currency collapse, international portfolios measured in Rubles soared. We doubt that gave Russian investors great comfort.

I still like the idea of having my portfolio diversified globally, and hopefully this makes you feel a little better about the recent performance of your international holdings. This will someday work in reverse, where currency fluctuations makes returns look even better.

Also included is an interactive table of asset classes ranked by returns over the last 15 years, similar to the Callan Periodic Table. But with this graphic, you can hover your mouse over any asset class and see it in highlighted. Here it is with the S&P 500:


Notice that the S&P 500 has had quite a run the last 6 years. Since the -37% drop in 2008, in subsequent years 2009-2014 the S&P 500 has went up 26%, 15%, 2%, 16%, 32%, and 14%. It would have been really hard for the “I’ll buy on the next dip” folks to time their way back in the market. If you’ve been invested throughout the entire time, you should be rather pleased with yourself.

TaxACT Review – 2014 Tax Year Features and Screenshots


Having already done my TurboTax 2014 review, here is my review of TaxACT 2014. (H&R Block is next week.) For all three, I will be comparing the far-more-popular online versions.

TaxACT come only in two basic flavors: Free and Deluxe. With the Free Edition, Federal (including e-File) is free, while State (included e-File) is $14.99. With the Deluxe Edition, Federal (including e-File) is $12.99, while State (included e-File) is $7. (The “Ultimate Bundle” is simply getting Deluxe + State for the same price of $19.99; there is no discount.) So if you do want Fed + State returns, the Deluxe bundle is only $5 more expensive than the Free bundle.


They also have a promotion where if you import a PDF copy of your 2013 TurboTax or H&R Block return, you can get TaxACT Free Federal + State for $5, a savings of $9.99 off the regular price. Similar $5 deal for US Armed Forces with qualifying EIN.

Unlike TurboTax and H&R Block, TaxACT supposedly does not base the tiers on your tax situation – for example if you have stock sales or itemized deductions. Instead, it’s more about the level of service and convenience. Deluxe includes things like telephone support, charitable donation valuation assistance, importing from previous year TaxACT returns, and importing W-2 and 1099 forms (where available).

Accordingly, I tried my best to just use the Free version, but as you’ll see below after multiple hurdles and upsell attempts, I finally gave up and upgraded to Deluxe. Note that after you agree to upgrade, there is no way to downgrade again. You have to start over with a new account and username.

Tax Situation
Here’s a quick summary of our personal tax situation.

  • Married filing jointly, subject to state income tax
  • Both with W-2 income, as well as some simple 1099-MISC forms.
  • Interest income and dividend income from bank accounts, stocks, and bonds (Schedule B).
  • Contribute to retirement accounts (401ks and IRAs).
  • Capital gains and losses from brokerage accounts (Schedule D).
  • Itemized deductions (Schedule A), including property taxes and charitable giving.

User Interface and User Experience
The 2014 user interface for TaxACT is also cleaner than in previous years. Overall I think it is just fine, but on on a relative basis it felt a little cluttered with smaller text (you can enlarge things with your browser using Ctrl+ or Command+, but then the graphics looked a little off). Everything worked without issue, I just felt more eye strain as compared with TurboTax. There will be screenshots throughout this review.


TaxACT uses the same question-and-answer format as other tax prep software. One way that they are different is that for filling out 1099-INT and 1099-DIV forms, you can use a special forms view where it looks like your actual paper form:


I liked the idea, but in practice it wasn’t that great. 1099 forms may have the same numbers but usually have different layouts from provider to provider, and their model form has spaces for information like address that you don’t even need to enter in the normal Q&A guided format. In the end, the regular way is probably faster.

Importing Data From Previous Years
If you used TaxACT the previous year, it will pull up all of your old tax information only if you upgrade to Deluxe. You’ll get filing status, dependents, address, DOB, SSN, etc. Ironically, you can also import a previous year’s return from another provider like TurboTax or H&R Block by uploading a PDF of your old return – all without upgrading to Deluxe (I guess they don’t want to put up another hurdle for potential converts). So much for rewarding loyalty!

Importing W-2 and 1099 Forms Directly From Providers
Technically, TaxACT does support some W-2 and 1099 direct imports for Deluxe users. But in reality, this feature is very limited as compared to bigger competitors H&R Block and TurboTax. The same W-2 form that I imported successfully while using TurboTax was not available on TaxACT. I got the impression that relatively few employers were supported.

TaxACT does not support 1099-INT from any banking institutions. None.

TaxACT does now support 1099-B direct imports, but only from the following six financial institutions:

  • TD Ameritrade™
  • ShareBuilder®
  • Form8949.com
  • GainsKeeper®
  • Raymond James®
  • Betterment


This is where I gave up and upgraded to Deluxe, as I wanted to test out this import feature. It worked fine, but you will need information from your paper 1099 form from TD Ameritrade and Sharebuilder, as opposed to just knowing your login information. Betterment import worked fine with just login information. You can also import via .CSV file as with other tax prep providers.

The Small Stuff

  • Having to input W-2 and 1099 forms manually increases the likelihood of data entry errors, and in fact I did make an error but TaxACT caught it as it didn’t make sense relative to my other numbers.
  • When entering my 1099-MISC information, TaxACT also led me down the same rabbit hole as TurboTax, asking the name and nature of my “business”, trying to determine if it was a hobby/farm/business, asking my business license number, and trying to claim various deductions like home office. I guess that’s just how it is done now by everyone.
  • Starting in the 2014 tax year, you’ll have to have health insurance or else pay a penalty. I indicated to TaxACT that I had employer-provided coverage for the entire year, and it did not ask for further proof or documentation.
  • When it came to the foreign tax credit, TaxACT’s questions made it easier to claim it as a credit rather than a deduction, as compared to TurboTax (it is more valuable as a credit).

Upselling and Price Change Tricks?
My goodness. The upsells with TaxACT Free were quite annoying this year, seemingly on every third screen. If you want to import a W-2, you’ll have to upgrade to Deluxe. If you want to import a 1099, you have to upgrade. If you want TaxACT to compare your tax refund if you file Married Joint vs. Married Separate, you’ll have to upgrade:


If you have more than one “Life Event” like getting married, having kids, retiring, owning a home, breathing air (ok I’m kidding on that one), then you’ll have to upgrade to Deluxe. But they don’t make it very clear that this is all just “extra guidance” and not critical to finishing your return. You could easily assume that you need to upgrade if you did any two of the things on this very broad list. Here’s the page so you can see what I mean:


The thing is, TaxACT Deluxe is still cheaper than their competitors by more than $20 if you do both Federal and State! I would say just pay the extra $5, get all the features available, and save yourself the headache of reading their spiel and saying no over and over. It’s still a good deal. If you only have a Federal return and have relatively simple needs, then out of pure cheapskate principle I might try harder to get that $0 return. 😉

The final two upsells are Tax Audit Defense for $39.99 and Data Archive Service for $6.99. I would personally decline both as I’m not sure of the quality of their subcontracted personnel and I can just save a PDF of my final return thank you very much.



TL;DR Recap
ta200In the end, TaxACT did my taxes properly and basically asked the same questions in the same manner as their more expensive competitors. The full-featured version of TaxACT Deluxe costs at most $20 for both Federal and State returns including e-File for both. Their Free Federal version provides a full-featured free Federal return at any income level and for all tax forms. Many other providers have “free” editions that are restricted to certain income levels or are only for 1040-EZ forms with no investment income or business income.

Users should accept that the import feature set is rather weak and you will spend more time with data entry if you have multiple W-2 and/or 1099 forms, including stock sales. In addition, the repeated upsell attempts to Deluxe were a turn-off. I had to read every one carefully and decide “is it really worth the upgrade?” If I was going to pay for the State return anyway, I would have gone back in time and paid the extra $5 upfront just to avoid the hassle.

Bottom line: TaxACT is the best value choice if you just want accurate DIY tax return software and you don’t value the time-saving features of their competitors. If your return is relatively simple, why pay more than nothing (Fed only) or $20 (Fed + State)? If you are doing Federal + State returns and want to avoid repeated upsell attempts, I would pay the extra 5 bucks and upgrade to Deluxe right off the bat. You’ll still pocket some decent savings and you’ll be in a better mood. If you are converting from TurboTax or H&R Block and have a PDF copy of your 2013 return, note their $5 Fed + State deal.

TurboTax Review – 2014 Tax Year Features and Screenshots


Although I’m still waiting on some 1099 forms (*cough* TD Ameritrade), I’ve already got most of my paperwork in order for my tax returns. I plan on comparing the three major tax preparation websites again this year: TurboTax, H&R Block, and TaxACT. I like shopping around as with all of these services, you only pay when you file. First up is Intuit TurboTax, the more popular online version.

Tax Situation
Here’s a quick summary of our personal tax situation.

  • Married filing jointly, subject to state income tax
  • Both with W-2 income, as well as some simple 1099-MISC forms.
  • Interest income and dividend income from bank accounts, stocks, and bonds (Schedule B).
  • Contribute to retirement accounts (401ks and IRAs).
  • Capital gains and losses from brokerage accounts (Schedule D).
  • Itemized deductions (Schedule A), including property taxes and charitable giving.

TurboTax comes in Free, Deluxe, Premier, and Home & Business tiers. Due to my stock sales, I am going with TurboTax Premier Online. Although their website shows a “retail” price of $79.99, anyone who visits the site will automatically see a discounted price of $54.99 for Federal including e-File. TurboTax State Online an optional add-on at $36.99 including e-file. There are additional discounts out there available through various financial firms like Vanguard or Fidelity.


This year, TurboTax also has an “Absolute Zero” promotion where you can get Fed + State + Fed eFile + State eFile for $0. However, you must have a very simple tax situation so that you can file Form 1040A or 1040EZ – that means taxable income of $100,000 or less, no itemized deductions, no investment income, no stock sales. I remember those days… my entire tax return fit on a single sheet of paper.

Note: I was able to enter the data from 1099-MISC forms without having to upgrade to Home & Business, even though this could be technically called “self-employment income”. I’m pretty sure if you don’t enter any business expenses and/or deductions then you won’t have to make the upgrade.

User Interface and User Experience
The 2014 user interface is probably the cleanest one I’ve seen from Intuit. It feels like I could fill it out on an iPad, with its clear text, lots of pictures, and big buttons. I’m sprinkling several screenshots throughout this review, which you can click to enlarge.



As in previous years, TurboTax uses a question-and-answer interview format. I still remember filling out paper 1040 forms, and this is definitely easier to understand and less intimidating. I did feel like there were two slight changes from previous years though:

  • There was an increase in probing questions. For example, just entering a simple $700 1099-MISC from some random bonus deal led me down a 5-minute rabbit hole where TurboTax was trying to decided if this was really a W-2 job or independent contractor pay, if it was a business or hobby, and if I could deduct my cell phone usage and mileage for it. It should have asked me first if I actually wanted to figure these things out.
  • The software’s “personality” was more friendly and positive. For example, after entering in my property taxes, it said something like “Good news! The $X,XXX you paid is deductible and just reduced your tax bill!”

Importing Data From Previous Years
If you used TurboTax the previous year, it will pull up all of your old tax information. Filing status, dependents, address, DOB, SSN, etc. They also had all my old W-2 and 1099 providers to reduce my data entry needs a little bit more. For example, all my Employer Tax IDs and addresses were pre-filled. This did feel rather convenient, and it helped make sure I didn’t forget any 1099s from old bank accounts. I think most other competitors do this as well, however.

I did not use the option to try and import a previous year’s return from another provider like TaxACT or H&R Block. Please share in the comments if you used this feature.

Importing W-2 and 1099 Forms Directly From Providers
One of the major reasons to use TurboTax is that you can directly import your W-2 and 1099 information from a hundreds of partner providers, more than their competitors. The W-2 import function has been improved; you now simply type in your employer’s tax ID number (EIN) and if they can they’ll import your entire W-2 electronically. It worked seamlessly for me.


However, 1099 forms are the real time saver for me. If you have a lot of stock sales, this could save you hours of tedious data entry. Now that 1099-B forms include cost basis, the benefit is even greater. Example 1099-INT, 1099-B, and 1099-DIVs that I was able to import: Vanguard, Fidelity, Betterment, Motif Investing, Sharebuilder, Scottrade. (The big banks like Bank of America and Chase are also available, but who actually earns any interest from them?) I did have a hiccup: Pentagon Federal Credit Union was on their partner list above, but I could not find it as an option while filing my return. I created a community question about it, my guess is perhaps it won’t be supported until later in the year? (Update: My guess was right, PenFed 1099s will be available starting February 23rd.)

In addition, it can prevent costly errors. In a previous year, I found that I had made a data entry error of $300 with one wrong digit when manually entering all those capital gains and losses from stock sales. The TurboTax import would have avoided that mistake, which I don’t think I would have caught if I wasn’t comparing these three tax software side-by-side.

The Small Stuff
A few observations:

  • As in previous years, TurboTax automatically enters commas when you reach thousands (ie. 3,459 instead of 3459). It helps with data entry, as I have already shown that I am error-prone! I think it’s a nice touch.
  • If you donate goods to a charity like the Salvation Army, you’ll get a free walkthrough using their ItsDeductible software which helps you value your donations. It’s a good double-check, although somehow it thinks a used jogging suit is worth $20, but you can edit their suggestions as needed.
  • Starting in the 2014 tax year, you’ll have to have health insurance or else pay a penalty. I indicated to TurboTax that I had employer-provided coverage for the entire year, and it did not ask for further proof or documentation.
  • When it came to the foreign tax credit, it was again much more work to claim it as a credit rather than a deduction (it is more valuable as a credit). In previous years, it was much easier in TaxACT to do so but I haven’t tried this year yet.

Upselling and Price Change Tricks?
This year, I noticed much fewer upsell attempts during the tax return, but that may be because I already started with Premier and not Deluxe. However, I was never upsold to Home & Business and the only offer I had was a final pitch for a product call Audit Defense for $44.99, which provides you “professional representation in the event of an audit” and covers both federal and state returns. In the end, the final price was the same as quoted in the beginning with no tricks.


TL;DR Recap
tt2014_logoIn the end, TurboTax.com showed why it is both the most expensive and widely-used tax software. It covers all of the tax aspects as well as the others, perhaps with a bit more thoroughness (sometimes even too much thoroughness). However, where it separates itself is with the extra features including ItsDeductible and the ease of importing data from many financial institutions. The design is clean and direct, without the air of desperate upsells. I should also acknowledge here that TurboTax did receive negative publicity this year due to an poorly-handled price increase for their Desktop users (download and CD versions).

Bottom line: TurboTax is more expensive than its competitors – but if it saves you both time and effort in data entry (and potentially prevents errors), then I can definitely see how people would be willing to pay a premium. If your return is simple, you are less likely to need the additional features.

Tax-Efficiency and Qualified Dividend Income Percentages

10keybiggerDividend distributions from mutual funds and ETFs are either qualified or non-qualified, and the difference could have you paying double the taxes. Qualified dividends are taxed at the lower long-term capital gains rate, which varies from 0% to 20%. Non-qualified dividends are taxed at ordinary income rates, which can be as high as 39.6%. Even though they all show up as “dividends” in your account, their classification can make a big difference in your final after-tax performance.

At the end of each year, Vanguard provides a list of their mutual funds and what percentage of their dividends are qualified. Here is their 2014 report and 2013 report [pdf]. I don’t know if other fund companies do the same. The Vanguard (US) Total Stock Market Index ETF and mutual funds had 100% of their dividends as qualified for 2014 (VTSMX, VTSAX, VTI). The Vanguard Total International Stock Index ETF and funds had 72% of their dividends as qualified (VGTSX, VTIAX, VXUS). The numbers for 2013 were similar. To me, this establishes a sort of baseline expectation.

I recently made a tweak in my portfolio and replaced my value-tilted holdings with a couple of WisdomTree ETFs. While doing my 2014 taxes, I noticed on the 1099-DIV tax form that only half of the dividend distributions were counted as “qualified dividends”. What was up? I took a closer look.

Here are the specific Wisdom Tree ETFs, their closest Vanguard competitor ETFs, and their respective 2014 qualified dividend income (QDI) percentages with the WisdomTree numbers based off my 1099-DIV form:

  • WisdomTree SmallCap Dividend ETF (DES) 64%
  • Vanguard Small-Cap Value ETF (VBR) 72%
  • WisdomTree Emerging Markets SmallCap Dividend ETF (DGS) 34%
  • Vanguard FTSE Emerging Markets ETF (VWO) 37%

After comparing these numbers, I guess the WisdomTree ETFs aren’t that inefficient on a relative basis, but I’m still not very happy about it because I am holding these ETFs in taxable accounts. My current ordinary income tax rate is pretty high, and I need to figure out a way to fit these inside an IRA or 401(k) plan.

I hadn’t realized that the dividends from nearly all Emerging Markets ETFs were so tax-inefficient. (I usually just hold Emerging Markets exposure inside a Total International fund.) As the dividend yield on these Emerging Markets ETFs range from 2.5% to 3%, it makes a difference over the long-run to keep these in tax-sheltered account if possible.

By the way, I think noticing these types of things is one of the benefits of doing your income tax returns yourself. Even if you hire a professional, try running the numbers on your own and see if they match up. Even CPAs can make mistakes.

Costs Matter: Vanguard Long-Term Performance Update 2015

costsmatterThe purpose of Vanguard’s commitment to low-cost investing is not just to be cheap, it is to give their clients higher performance. Whenever a money manager charges higher fees for themselves, they will have to compensate by creating that much higher returns through whatever combination of skill or luck.

Over long periods of time, the luck tends to shake out and the higher expense ratios usually become a very hard hurdle to continually overcome. (In turn, this pressure also leads some managers to take increasingly risky bets and have luck either save their butts or lose all their client’s money!)

Taken from a recent Vanguard article, the chart below confirms this tendency. It shows the percentage of Vanguard funds in each major asset category that exceeded the average returns of their competing fund peer groups (as determined by industry-standard Lipper) over the 1-, 3-, 5-, and 10-year periods ended December 31, 2014.


Every single number on that 10-year return column is 90% or higher. Every asset class. Is that something I could interest you in?

Costco No Longer Accepting American Express in 2016

Starting in early 2016, you will no longer need an American Express card to pay with a credit card at Costco. Not earth-shattering news (although I do buy a lot of stuff at Costco), but as a credit card geek I thought some of the details that came out were interesting:

  • American Express and Costco are ending their 16-year partnership when their current contract ends on March 31, 2016. After that, American Express will no longer be accepted at Costco wholesale stores.
  • The relationship accounted for 8% of AmEx’s revenue last year, 20% of its worldwide loans, and 10% of its cards in force. That’s a pretty sizable chunk of their business, but American Express had to offer deeply-discounted transaction fees to get it. I guess they didn’t think it was worth it anymore.
  • In Canada, Costco has already dropped AmEx and replaced them with Capital One and Mastercard. Reportedly, Costco is also in talks with CapOne and Mastercard for their US stores as well (though they state they are also talking with other issuers).
  • The co-branded Costco TrueEarnings American Express card is expected to be discontinued, and American Express will probably be offering cardholders an alternative card. It really wouldn’t make sense to keep it around if you couldn’t even use it at Costco.

Sources: WSJ, AP, Marketwatch

Chart: Vanguard Low-Cost Philosophy At Work

costsmatterThe debate between active and passive investing has come full circle. We’ve officially gone from “index funds will never work!” to “index funds are working too well, it can’t keep on going”. Check out the Forbes article Is Vanguard Too Successful?

Passive vs. active is just a smokescreen. You know what really works? Low costs! There was a big hubbub when Morningstar admitted that expense ratios were a better predictor of performance than their much-advertised star ratings system. Vanguard has many successful actively-managed funds and that is due both to good managers and low costs. Wellington, Wellesley, PrimeCap, they all have expense ratios that are fractions of their competitors.

In addition, what makes Vanguard special is their inherent, longstanding commitment to low costs. Look at how the asset-weighted average expense ratio of all Vanguard funds (including actively-managed funds) has dropped since their inception:


Providers like Schwab and iShares all have some ETFs that are very low cost now, but they also have a duty to maximize shareholder value. If you’re a for-profit company and you think you can keep prices the same even as your assets rise, you do that. The very structure of Vanguard states that the investors themselves own the funds, which means they naturally pass on any savings onto the retail investor. (I do believe that the recent competition is good however and it keeps everyone, including Vanguard, on their toes.)

The “at-cost” investing structure is why the majority of my assets are invested in Vanguard funds and ETFs.

Comparing Your 529 In-State Tax Deduction vs. Better Out-of-State Plans

50statesI’m getting ready to put down a decent chunk of money into a 529 college savings plan, which means lots of research as there are a lot of options and nuances. A general plan for those without strong investment preferences would be to go with one of the age-based portfolios from a consistently top-rated plan by Morningstar, or your in-state plan if the tax deduction is juicy enough.

But how exactly do you compare them? The easiest way to calculate your in-state tax benefits is to use a tool from either Vanguard or SavingforCollege.com.

Let’s say you are a married Virginia resident making $100,000 in household taxable income and you want to contribution $4,000 a year to college. Here’s what the Vanguard tool says:


The big block of text explains the assumptions the tool had to make in order to keep things simple. Note that in addition to the state tax savings, you have to consider that you’ll have less state tax to deduct on your federal return (if you itemize deductions).

The SavingForCollege tool comes to the same conclusion regarding tax savings (minus a rounding difference). However, it also goes one step further and helps you quantify the relative value of your in-state tax deduction.


In order for the out-of-state 529 plan to make up the difference from the lost state tax benefit, it would have to achieve better net investment returns of 0.25% per year over the 18 year time period.

So if your in-state plan offers similar desired investments but with expense ratios that were 0.25% higher than the best out-of-state plan, you may actually want to forgo the tax deduction. Note that this number is also based on a set of default assumptions like an 18-year investment period and a 6% annual returns for both plans (you can edit these as you like).

But wait! Some state plans allow you to roll your assets over to another state after making the contribution, and keep the tax deduction. So you could make the contribution, grab the tax credit, and then roll it over into another state’s plan. (You are allowed to have multiple 529 plans.) However, many states have a recapture or “clawback” provision that will make you pay back the tax benefit somehow. For example, if you perform a rollover or non-qualified withdrawal from the Virginia 529 plan, the principal portion will be added back to your Virginia taxable income (to the extent of any prior deductions).