Putting tax-prep sites, software to the test
If you're sharpening your No. 2 pencil and looking with dread at a pile of paper tax forms, this is the year to see if your computer can simplify matters.
Online tax programs have become so refined and easy to use that paper-laden filers owe it to themselves to try them out risk-free. You usually don't pay a dime until you print out your return or file it electronically. And thanks to a new initiative by the Internal Revenue Service, many lower-income taxpayers won't even have to cough up the dime.
The idea: Letting the computer do the math reduces mistakes on your part - and knotty problems for the IRS. That's why the agency has teamed with 17 online tax services to create the Free File Alliance.
The alliance claims that 60 percent of taxpayers - some 78 million people - should be able to prepare and file their taxes electronically at no charge. (Some taxpayer advocates are troubled by aspects of the program. See story.)
The rest of the nation's taxpayers have the option of paying anywhere from $8 to $25 for an online service or buying any of the increasingly sophisticated tax software packages. The latter option usually costs more, but the data resides on your hard drive rather than on someone else's server, and, as a result, the programs run faster.
For this review, the Monitor tried out five online tax programs, two of which are also available in packaged software versions, to see how they stacked up against each other. The bottom line: You get what you pay for.
If you're familiar with the tax forms you need and don't require a lot of hand-holding, the online option works well. If you want more extensive help and tax planning for future years, the packaged software looks better.
One of the easiest ways to find an online tax program is to visit the IRS's website (www.irs.gov) and click on "Free File." The site lists links to the various offerings but it's easier to use the site's "Guide Me..." function. By asking simple questions about income and the complexity of your return, it quickly sniffs out appropriate programs.
Two popped up for me: TaxACT Online (www.taxact.com), which offered to prepare and electronically file my return for $7.95, and eSmartTax.com (www.esmarttax.com), which offered to do it free because I live in Illinois. Since free is awfully hard to pass up, I plunged into eSmartTax and found a competent and streamlined program. I had a clear idea which forms I needed, and found that the program moved through the process efficiently.
But a few glitches popped up: The state-tax refund form wouldn't allow me to enter my refund and the form for reporting losses from damaged or stolen property hadn't even been posted yet (even though other programs had it).
The program can handle relatively simple returns. But if you fit the criteria for free filing with more sophisticated programs (typically, an adjusted gross income below $30,000 or so), you'd be better served going elsewhere.
TaxACT, on the other hand, takes a loss-leader approach. It lures users with a standard version, where they can fill out a return online and print a paper version free of charge (or e-file it for $7.95). But the company stuffs the first and last parts of the program with hints and prods to upgrade to its $9.95 deluxe version. Get past these and a nifty, streamlined program takes you smoothly through the process.
The system was smart enough to catch me when I typed in inaccurate Social Security and Medicare withholding figures. Although the help is basic, TaxACT offers the experienced taxpayer an inexpensive way to file returns.
On the other end of the spectrum lies CompleteTax, an online program from the tax experts at CCH Inc. (www.completetax.com). It's free for those who file returns with adjusted gross incomes of $33,000 or less. For everyone else, it costs $24.95.
The program offers a step-by-step interview, help screen a click or two away, and plenty of safeguards. (It stopped me from entering mortgage and real estate taxes in one place since I'd already entered them somewhere else.) It's also competitively priced between the $19.95 basic version of the leading tax-prep program, TurboTax for the Web (www.turbotax.com), which offers little help, and the $29.95 deluxe version, which offers lots.
CompleteTax could be the pick of the bunch if it weren't for TurboTax and its main rival, TaxCut, from H&R Block (www.taxcut.com). Both these software packages have honed the interactive taxpayer interview over many years. And it shows - regardless of whether you use their online versions or packaged-software versions.
As usual, these two competitors are running neck and neck this year. TurboTax displays a slicker interface and more features; TaxCut offers lower pricing and tighter integration with live tax professionals (not surprising, since it's from H&R Block).
Both have included new higher-priced versions of their software tailored to investors and others who might need extra help. Both have streamlined the data-input process by offering previous users a summary of last year's tax return. That way they can quickly spot what they probably need to answer this year and indicate any variations.
"People's tax situations don't change much from year to year," says Scott Gulbransen, spokesman for Intuit's TurboTax division, based in San Diego. So "instead of having you walk through dozens of screens, we just give you one page."
TurboTax's most exciting advance is its growing number of partnerships with payroll and investment companies. So instead of laboriously typing in all that data from an employer's W-2 or a mutual fund's dividend report, chances are the program can import it automatically. You may have to wait a bit, since firms can be slow getting their data online. Still, it's a big step toward automating the entire tax-filing process.
The company has also released its first all-Spanish version of the program this year. It has also begun using "product activation" to keep people from sharing the program with their friends. Annoyingly, it also bars legitimate users from loading the program on more than one computer.
Overall, I preferred TaxCut. Its step-by-step interview handled with aplomb the complicated issue of IRA recharacterizations (switching between traditional and Roth IRAs and back again). And the video advice in its deluxe and platinum versions seemed more on-target than TurboTax's.
The icing on the cake is the price for Windows users: After rebates, TaxCut Standard costs $9.95, TaxCut Deluxe, $19.95 - about $10 cheaper than comparable versions of TurboTax. (Macintosh versions of either program come only in higher-priced, deluxe editions.
This month, the number crunching begins in earnest.
If your W-2 form remains in a sealed envelope under a pile of bills, relax.
You're not alone.
A recent poll of 939 taxpayers by financial website kiplinger.com indicated that more taxpayers do their filing in February than any other month.
Only a handful - 6 percent - attacked the task in January. And most people evidently need to see the deadline looming before getting down to business: March and April combined represent the highest number of filers.