Analyzing this year's crop of tax preparation software for personal computers turned out to be like the new tax law itself--difficult and confusing.
Tax preparation software ought to be more useful than ever because preparing the new tax forms has become more complicated. But using such programs may, in fact, make the chore more difficult.
Two popular programs actually produced erroneous returns. A third came with a physically flawed disk. A fourth got so bogged down during testing that it simply stopped working.
A fifth, aimed at taxpayers with complex business and investment income, forces some users to manually override its calculations to get one of the forms correct.
That leaves two programs that performed flawlessly. However, both are so limited that they are suitable only for people with the simplest of returns to prepare.
All of the tested programs run on IBM PC and compatible computers. Several are available in versions that run on Apple II series, Apple Macintosh, Amiga, Atari and Commodore computers. All of the programs can help with tax planning by using "what if" values to test effects of changes in your income, deductions and investments.
No computerized tax preparation program is a substitute for competent tax advice from a professional. All of their manuals contain disclaimers noting that you are responsible for making sure the right information is entered into your return.
Although many of the programs include two or three dozen tax forms, you should obtain from the Internal Revenue Service all of the actual forms you would need to do your taxes by hand--as well as instructions for using those forms. Then study the instructions and make sure you understand how your data should be entered before you use the program.
All programs were tested with the same sample return, that of a middle-class, two-salary family with a sideline consulting business, portfolio capital gains and two rental properties that generated net losses. Testing revealed that the programs fall into three general categories--suitable for complex returns, less complex returns and simple returns.
Extensive investment gains and losses, business income and losses, rental and royalty gains and losses, and complex property depreciation scenarios.
TurboTax, $75.00, ChipSoft Inc., 5045 Shoreham Place, Suite 100, San Diego, Calif. 92122, (619) 453-8722. For IBM PC and compatibles only, floppy or hard drives, minimum of 256 kilobytes of random access memory (RAM), graphics monitor not required.
This is the fastest program and also relatively easy to use. It includes on-screen work sheets and close approximations of 32 tax forms and schedules. Line numbers of TurboTax forms correspond to those of the IRS form, and the wording is identical or a close approximation.
Navigating through the program is easy with a pop-up menu that overlays the form currently on your screen. Choices can be made by moving cursor keys or pressing an indicated letter. A pop-up calculator also is included.
Extra Schedule C, D and E forms are available for taxpayers with multiple business enterprises, lengthy lists of portfolio transactions or numerous property transactions to report. Any entry can be annotated to help you recall how it was derived if you are audited. Depreciation computations are automated, but the program does not match recovery periods to the year property was placed in service, so you can make erroneous entries.
"Passive" losses are automatically calculated on a Form 8582 when they occur, but the first version of the program that was tested did not properly limit those losses. As a result, the test return claimed a larger loss than allowed by the IRS this year and calculated too little tax. However, the return was accurately computed on a revised version of the program.
You should call the publisher to verify that the version you buy is the latest available. The company also maintains a computer bulletin board for its customers to receive information about updates, tax tips and other information.
The IRS is very picky about the look of the 1040 forms that it will accept. TurboTax prints an acceptable version on some dot-matrix printers but not on laser printers. It took 22 minutes for the sample two-page 1040 form to be printed on my Epson RX 80 printer.
You also can use the preprinted forms supplied with the program for use in your printer, or print the quick draft version of the 1040 and transfer the numbers by hand or typewriter to an actual 1040. All other forms in the return are printed properly on a dot-matrix, daisy-wheel or laser printer.
ChipSoft also offers TurboTax versions for the California state income tax return and those of 25 other states. It is the only program tested to offer more than two state returns. Each version costs $40.