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Making Task Less Taxing

The last thing you need is a program that adds to the stress of preparing your return. Here are some CD-ROM and Web options.

March 08, 2001|LIZ PULLIAM WESTON |

When it comes to tax preparation software, TurboTax and TaxCut are still miles ahead of the competition--and TaxCut is finally good enough to give bestseller TurboTax a run for its money.

Each year, I prepare my family's tax return several times over using tax preparation software and Web sites. In previous years, Intuit's TurboTax was always easier to use, with a more intuitive navigation process, better help features and fewer glitches.

This year, TaxCut--now a joint production of Microsoft and tax preparation chain H&R Block--has caught up to the market leader and even surpassed it in some areas, such as the explanatory videos that come with the deluxe CD versions. With rebates, TaxCut is cheaper than TurboTax, which by itself should win it more fans.

There are plenty of other would-be contenders, of course. A few have interesting features, but many lack the kind of guidance taxpayers generally need to get through a return. Some, such as, compound the problem with an ugly, difficult-to-use interface that is likely to add to tax-time stress rather than relieve it.

To know which program is right for you, you'll need to understand something about the many options available.

There are three basic ways to prepare your taxes using a computer: You can buy software in a store, typically in basic or deluxe CD-ROM versions; you can download a program from the Internet; or you can prepare your return using a Web site's online program.

Some software providers offer a variety of options. TurboTax has CD versions and an online program. TaxCut can be purchased on CD or downloaded. H&R Block has an online program and sells the download version of TaxCut.

Most programs now use an interview format that asks questions about your situation and fills out your return based on your answers. A few Web sites eschew the interview feature and offer only fill-in-the-blank programs that can be confusing for the inexperienced.

The less experienced you are or the more complicated your return, the more help you're going to need.

That probably means going with TurboTax or TaxCut, and perhaps opting for the deluxe CD-ROM version. The deluxe CDs have instructional videos and more detailed help features than TurboTax's online version, TaxCut's download version or either program's "basic" version on CD.

Only hardy taxpayers with the simplest returns--1040EZ, 1040A and 1040 with the standard deduction--should use the other online or downloaded software that's available. Their help features typically aren't as extensive or comprehensive, plus the chances for errors rise with the complexity of the return. And sometimes the issues that trip up the software aren't even all that complex.

Here's an example. Contributions to California's state disability fund are deductible for people who itemize. But employers report SDI contributions in different places on W-2 forms. My employer put the information in boxes 19 through 21, where local taxes are usually reported, and my husband's employer put it in box 14, which is labeled "other."

All the programs figured out that my contributions were deductible and transferred them to schedule A. TurboTax and TaxCut also picked up my husband's deduction, but several other programs missed it.

I discovered other problems that might have been due to "operator error"--perhaps I overlooked an entry or checked the wrong box--or that could have been the result of flaws in the program.

Somehow, for example, the online software provided by financial services company H.D. Vest didn't account for some income that should have been reported from a 1998 Roth IRA conversion--just the kind of omission that the IRS is going to notice.

And H&R Block's program double-counted our 1999 state tax refund, an error that boosted our tax bill by hundreds of dollars.

Even if user error created these problems, though, that still doesn't get the software entirely off the hook. The best programs anticipate taxpayer ignorance. TurboTax and TaxCut repeatedly ask about Roth IRA conversions to make sure they're not missed. And only H&R Block's program double-billed us for the tax refund.

Being good has its downside. The extensive help features offered by TurboTax and TaxCut can lead taxpayers to tackle areas that might be too complicated for them to handle.

The deluxe versions of TurboTax and TaxCut are better than ever at explaining and guiding taxpayers through such issues as depreciation on a business asset or the tax treatment of incentive stock options. But most people who have to deal with these situations could probably benefit from a professional tax preparer's advice. It's pretty easy, for example, to opt for the wrong method of depreciation or get confused about the alternative minimum tax when dealing with stock options.

Finally, online users need to consider security and privacy issues.

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