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Making Task Less Taxing

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liz.pulliam@latimes.com

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.

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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 E1040.com, 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.

Some people are understandably concerned about leaving their tax information on a Web site, where it could conceivably be vulnerable to hackers. Accessibility also can be a problem. Web sites can go out of business, taking your tax information with them, and some sites--including TurboTax online--don’t allow you to look at or print out a previous year’s return. If you lose your printout, you have to go to the IRS to get another copy.

If you’re concerned about these issues, you should carefully read the tax preparation site’s privacy policy. Some sites want to share your financial data with affiliates and pitch you products. Most allow you to opt out of this information sharing, but the opt-out box is often buried in the user agreement that many people speed through on their way to starting their tax return.

Here’s a rundown of some tax preparation software:

TurboTax Deluxe

Format: CD or Zip disk

https://www.turbotax.com

Cost: $29.95 (after mail-in rebates)

Rundown: Cost includes federal and state return preparation and federal e-filing; state e-filing is $9.95 extra.

TurboTax Deluxe has all the bells and whistles, including explanatory videos, links to IRS publications and various tax planning features. Maker Intuit also has improved the downloading feature that allows you to transfer information from TurboTax’s sister personal finance product, Quicken. Instead of transferring all your tax-related transactions in a lump--errors and all--you can review and edit the information before it’s included on your tax return.

TurboTax’s review and audit flag features are especially helpful. The program finds errors that would prevent you from filing electronically and notes entries that might make you more subject to IRS review.

Plus, TurboTax has excellent navigation features that allow you to hop from the interview format directly to the forms you’re filling out. Experienced taxpayers will like this feature, because they can double-check their work or circumvent the interview feature, which otherwise guides you through the program.

For the first time, TurboTax has an Automated Tax Return feature that downloads tax information from W-2 forms and 1099s directly into the program. Unfortunately, the number of payroll companies and brokerages that are cooperating in this venture is limited, but this could be a real time saver for some users. Participating brokerages this year include Cititrade, Fidelity Investments, Invesco Funds, Salomon Smith Barney, T.D. Waterhouse, T. Rowe Price and Vanguard Group. To find out whether your employer offers the W-2 download, visit TurboTax’s Web site.

Live help options: Links to a Web site where certified public accountants offer their services for $1 to $3 per minute.

TurboTax.com

Format: Online

https://www.turbotax.com

Cost: $14.95 for federal return, $9.95 for state

Rundown: Cost includes e-filing.

The online version of TurboTax doesn’t have the videos, but it includes most of the help and review features of the deluxe version. In fact, it has enough of these goodies that filling out your tax return can be somewhat slow if you don’t have a high-speed Internet connection. Still, many people like the convenience of being able to fiddle with their tax returns from home, work or wherever they have an Internet hookup.

Like the CD version, the online software allows you to circumvent the interview process if you desire--a boon for experienced taxpayers with simpler returns.

As in previous years, TurboTax offers its Quicken Tax Freedom Project: Taxpayers with adjusted gross incomes under $25,000 can prepare and file their federal and state returns for free.

Live help options: Same as with the deluxe version.

TaxCut Deluxe

Format: CD

https://www.taxcut.com

Cost: $19.95

Rundown: Cost includes federal and state tax return preparation and e-filing of federal return.

For the last few years, TaxCut has been just a little snazzier than its rival. Its help features tend to include little jokes but still manage to be clear and understandable--some users think they’re more understandable than TurboTax’s help features, depending on the situation.

This year, it’s the videos that are much improved, with better graphics and a livelier presentation than TurboTax’s more staid versions. Also nice is a “shoe box” feature to help organize your tax information, a tax research library, access to IRS publications, error review and audit flag features and tax planning help.

TaxCut offers relatively easy imports from Quicken or Microsoft Money software. You don’t have quite as much control over the information as TurboTax gives you, but it’s pretty simple to edit your entries.

Live help options: Through H&R; Block, below.

TaxCut.com

Format: Download

https://www.taxcut.com

Cost: $19.95

Rundown: Includes federal and state return preparation and e-filing of federal return. The download version doesn’t have the videos or the research features, but it does have the organizers, planners and help features of the deluxe version. It’s an 8-megabyte file that takes about 25 minutes to download with a 56-kilobit-per-second modem.

Live help options: Through H&R; Block, below.

H&R; Block

Format: Online

https://www.hrblock.com

Cost: $19.95

Rundown: Cost includes federal and state return preparation and e-filing.

Like TurboTax and TaxCut, H&R; Block’s online program uses an interview format but has somewhat less helpful help features and seems more prone to glitches on complex returns. Its navigation is not as flexible as TurboTax or TaxCut, which could prove frustrating to experienced users or those who have to come back repeatedly to fill in missing information. As with TurboTax’s online program, users should have a high-speed Internet connection or some patience.

H&R; Block shares your financial information with its affiliates unless you opt out. The opt-out box is included in the user agreement, but it’s easy to miss if you’re in a hurry.

On the plus side, H&R; Block offers a variety of options for taxpayers who want someone to hold their hand through the process.

Live help options: E-mail, chat or call an H&R; Block preparer for $19.95 per topic. You also can have your online tax return reviewed by a company preparer for an additional $29.95, or have a preparer do it from scratch (after filling out an online tax organizer) for $99.95. (Average tax preparation fee at an H&R; Block location last year was $92.)

H.D. Vest

Format: Online

https://www.hdvest.com

Cost: Free

Rundown: This financial services company offers free tax preparation software and e-filing in exchange for access to your information so it can pitch you financial products. You can opt out of this information sharing and still use the software, though.

H.D. Vest offers an easy-to-use interview format and decent navigation features, although you can’t always get direct access to some tax forms. And again, the site works best with a high-speed Internet connection.

The quality of its help menu was spotty. Frequent hot links provide definitions for tax terms and some questions are answered well and thoroughly. Other times, the program is almost abrupt. For example, in answering the question “My W-2 is incorrect--what do I do?” the program responds, “Call your employer and request a copy of your W-2.” There are other ways to approach the problem, especially for people whose employers have gone out of business, but you’d never know that from this program.

Live help options: Web site offers a link to an H.D. Vest-affiliated tax professional; costs vary.

TaxAct.com

Format: Online or download

https://www.taxact.com

Cost: Online costs $7.95 for federal tax return, $7.95 for state; download costs $19.95 for deluxe package

Rundown: Online costs include e-filing; download costs include federal e-filing only.

Since TurboTax and TaxCut have gotten so good, rivals have to either match their quality (not likely), offer something unique (like H&R; Block’s hand-holding), or offer a significantly lower price. TaxAct’s online version is somewhat less expensive than TurboTax, but you pay for it with more limited help features and a cramped interface. (A big, blue “TaxAct Online” banner takes up one-fifth of the screen.)

TaxAct’s deluxe download version, on the other hand, has several interesting features, a nicely designed interface and good navigation. But its help features aren’t quite as good as those on TaxCut’s download, which sells for about the same price.

TaxAct’s online and download versions use the interview format; the download versions let you see your entries as they’re typed into the form, which will help experienced users correct their mistakes. The versions’ help links essentially quote the IRS publication “Your Income Tax Guide,” although TaxAct adds its own comments here and there.

Like TurboTax and TaxCut, TaxAct also keeps a running total of your refund in the upper left-hand corner, which is nifty.

You can get a taste of what TaxAct offers by downloading a free version of its federal tax preparation software. If you like it, you buy a code for $19.95 that unlocks the program’s deluxe features.

Privacy note: 2nd Story Software Inc., the program’s creators, might contact you about products unless you request otherwise; there’s no opt-out box, so you must send notice by telephone, mail or e-mail.

Live tax help options: None

Taxslayer.com

Format: Download

https://www.taxslayer.com

Cost: Free for tax return preparation; $9.95 to e-file federal and state returns

Rundown: This no-frills software is only for those who don’t need any guidance and who don’t mind an old-fashioned, Windows 3.1-style interface. It’s designed for tax preparers and the most experienced taxpayers; although there is a help menu, it’s written in stiff IRS-ese that can leave you more confused than when you started. Navigating the program also can be pretty baffling, and users might find they spend as much time figuring out how to get from form to form as they do inputting their information.

The good news: The slim program makes for a fast download.

Live tax help options: None

E1040.com

Format: Online

https://www.e1040.com

Cost: $14.95 for federal returns, $4.95 for state

Rundown: Cost includes e-filing.

This is another site that seems designed with the pros, rather than the general public, in mind. Unlike Taxslayer, you have to pay for this one.

There’s no interview process. Instead, E1040.com employs a drab, hard-to-use interface with tiny arrows and question marks as navigation aids. The program also wipes out your entries if you forget to push the save button way at the bottom (guess how I found that out), and it won’t perform any calculations if you fail to fill out every box. Most other programs will work with what you give them, which can help if you want to get a quick overview of your tax situation.

Since you’re working on one long screen, though, slow load times are less of a problem than with other online programs.

Live tax help options: E1040.com offers a tax preparation service for those who want to have a preparer fill out the returns. Cost for the assisted service starts at $49.95 for basic federal and state forms (such as 1040, 1040A, 1040EZ), plus $10 to $30 for each additional form (Schedule A, Schedule C, etc.).

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Many Happy Returns

Electronic filing allows taxpayers to send their returns from a personal computer or a Web site to the IRS and state tax agencies. This process avoids the need to have a tax agency employee input the data to the agency’s computers, and reduces the chance of error. E-filing also speeds up the return filing process and can shave weeks off the time it takes to get a tax refund.

E-FILING

Step one: Return is transmitted from a PC to a private company such as Intuit, maker of TurboTax.

Step two: The private company that batches the e-return with other returns and transmits those batches to the IRS and the FTB.

Step three: The tax agency checks the returns for errors. If there are none, the returns are accepted and a confirmation code is transmitted back to the company and the taxpayer. The code is considered proof the return was received. If there are errors, the return is rejected and an explanation of the problem is included.

PAPER FILING Step one: Return is printed out.

Step two: Return is mailed to federal or state tax agency.

Step three: Return is opened and sorted. If sent certified mail, the receipt is returned to the taxpayer, although the receipt is not considered proof that the return was received.

Step four: An IRS or FTB employee manually inputs the data into the IRS’ computers.

(Optional Step five: The tax agency sends the taxpayer a notice if the return contains math errors, incorrect Social Security numbers or other problems and asked to file a corrected return.)

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Source: Times research


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