Tools to make taxes less taxing

The dotcom revolution may have gone awry, but someone must have forgotten to tell the accounting industry. Companies keep popping up with fresh, low-cost ways for people to prepare and file their taxes online. Search carefully enough and you may be able to do it for free.

Such Internet entrepreneurship is music to the ears of the Internal Revenue Service. Every time a taxpayer goes paperless, the IRS reduces its workload and its error rate. A growing number of taxpayers are warming to online tax-prep, too.

Not only does the software do all the math, it cuts in half the refund waiting period. It also lets consumers try the software for themselves - with no commitment or outlay of money until they're ready to print the return or file it electronically.

This year, the IRS expects 45 million taxpayers to file electronically. That's up from 40 million last year and represents a third of all returns from individuals who will file this year.

Foremost among the free programs is TaxACT.com (www.taxact.com). It allows users to work through the entire standard program and print out their return for free. Or they can file electronically for an extra $7.95. Completing and electronically filing state taxes costs an additional $7.95.

Some may find the free standard program annoying, however, because it repeatedly urges users to buy the deluxe version for $19.95. An ad or two for a free product doesn't raise hackles. But page after page of the same pitch goes too far.

For those living in New York City or in the Washington, D.C., area, consider TaxSlayer (www.taxslayer.com). In recognition of the terrorist attacks last September, the Georgia-based company is offering residents of both cities free income-tax preparation and electronic filing of federal and state returns. That's a generous offer for those who live in the right place. Otherwise, it's $9.95.

Computer novices may find installing the program a little daunting, since it requires them to download the program first, and then run the "install" program. An easier solution comes from CCH Inc., the respected tax-law service based in Riverwoods, Ill. Its $17.95 CompleteTax program (www.completetax.com) lets users file federal and state returns electronically.

If you're a lower-income individual, several online companies offer free tax-prep and filing. The IRS maintains a website that lists those options as well as other programs that let users file electronically (www.irs.gov/elec_svs /partners.html).

Of course, the easiest and most powerful tax-prep programs still come from the two industry leaders: Quicken's TurboTax and H&R Block's TaxCut. If you want comprehensive advice on filling out forms, either tax package can meet your needs. Besides their online format, the two programs also come as regular software sold on a CD-ROM. That may prove special comfort to those who are suspicious of putting such personal and sensitive financial numbers on the Internet.

Of the two packages, best-selling TurboTax retains the slicker interface. Everything works predictably and smoothly. The standard package on CD-ROM costs $19.95 and comes with a free federal filing (after mail-in rebate). The deluxe package, which costs $29.95 (after rebate), includes helpful videos and lots of tax help as well as the state program.

Turbo Tax's Macintosh version costs $49.95 on CD-ROM. TurboTax's online versions cost the same as the packaged software, except that Mac users don't pay an extra premium.

This year, Intuit has introduced an even more feature-packed program called TurboTax Premier. At $39.95 (after rebate) in both its software and online forms, the program includes planning tools that show users how to invest their refunds in their 401(k) plans and let them pick a strategy for maximizing their deductions for the next 10 years.

Such features, along with the changes in H&R Block's TaxCut this year, mark the programs' migration from tax tool to financial-planning tool.

TaxCut presents a friendlier face from its opening screen to the various aids along the way. H&R Block has packed five new financial-advice features into this year's edition. Users can learn whether an individual retirement account is right for them, and even open an IRA online and fund it with their federal refund. They can also plan their retirement, figure out how to save for their children's education, and decide whether it makes sense to refinance their home mortgage.

For a fee, both TaxCut and TurboTax give users the option of having a professional adviser look over their returns before filing them.

TaxCut costs less than TurboTax (after mail-in rebates): $9.95 for the basic Windows edition, $19.95 for the deluxe Windows or Macintosh version. The company also offers a $49.95 home-and-business-tax package.

In my view, the software versions of the program worked better than the $19.95 online offering, which at times presented incomplete screens or posed questions without displaying an answer box.

These Internet-related problems were quickly solved by rebooting the computer and logging back on, but such quirks can be annoying.

On the other hand, the online part of the tax-preparation business is growing faster than the software segment.

"We're seeing triple-digit growth," says Aaron Horvath, director of online products for H&R Block, based in Kansas City, Mo. "We expect to catch up with software in terms of number of returns filed in the next couple of years."

Three years ago, in its first year online, H&R Block suffered a security breach that potentially affected a small handful of online users. Since then, however, security measures and monitoring have improved so much that the company has not experienced a breach since, Mr. Horvath says.

The Internet, it seems, is fast becoming the playground for accountant types - and many novice number-crunchers, too.

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