Comparison: Tax Preparation Services

Preparing taxes has become easier in some ways and more difficult in others over the years. There are numerous online and software products to help individuals file their own taxes at a minimal cost. On the other hand, the tax code has seemingly become more complex, so mistakes are easy to make. Fortunately, the following software and online tax preparation programs have systems in place to double-check deductions and credits and flag anything that seems out of place. These same programs are also intuitive to use and can ease the burden of filing taxes.

This comparison covers three well-known services: TurboTax, H&R Block At Home and TaxAct. The programs are similar in their step-by-step guidance and ability to find appropriate deductions and credits. Where the programs differ is in the presentation of information, the help available and the price. Looking at each program individually, we discuss the process from start to finish using the online versions. The software versions of these services are similar to the online versions, but cost more since you can file multiple returns with a one-time purchase of the software. Online programs allow you to file only one return per account created.

Each of these programs offers a free online version for e-filing the basic federal return (1040-EZ). For other return forms, you can use each program fully for free and pay only when you decide to file the return. In addition, each program offers the option to file state returns for a fee. The programs conveniently transfer your data to the state forms. Keep in mind that many states allow taxpayers to file their state returns online for free.

In testing the services, refund calculations were consistent among the programs: The same information was entered into each program and the exact same refund amount was generated.

The grid on page 2 lists the price of each product and the features available as well as minimum computing requirements for using both the online and software products.

TurboTax Deluxe 2009 — Editor's Choice

While Intuit’s Web site seems to suggest that the Deluxe version will not handle buying, selling or ownership of investments (securities and rental properties), we had no problems using the Deluxe version for just that.

The site also implies that only TurboTax Premier is for investors with real estate as well as traditional stock, bond and mutual fund securities; however, Deluxe will handle these all as well. By calling customer service, we learned the main difference was the guidance provided: The Premier version offers step-by-step instruction for rental properties while the Deluxe does not.

TurboTax Deluxe 2009 CLICK ON IMAGE TO SEE FULL SIZE.

There is a completely free version of TurboTax for those filing federal 1040-EZs. We were able to use this for a simple return that included interest earned from investments as well as interest paid on loans. However, the free version offers no step-by-step instruction. A Basic version for $14.95 does offer the step-by-step instruction for simple returns.

If you are unsure of which version to use, the Web site has a “Help me Choose” function that will assist you in picking the correct program for your needs. The Deluxe online version is reviewed here and costs $29.95.

The first step in using the program is to enter personal information. If you have used TurboTax in the past, you can import data from last year’s filing. TurboTax starts by asking: “Tell us what changed for you in 2009.” The program then makes adjustments to future prompts regarding these changes (i.e., marriage, home ownership and job changes, self-employed, buying and selling of investments). It also gives TurboTax a chance to up-sell you to the next program level.

After you have entered your information, the program chooses the filing status it deems appropriate for you. You can change this if it is not correct. The next step is to review and edit your information.

For the rest of the return filing process, the program can walk you through step-by-step, prompting you with questions throughout the process. This is a great option for people who are new to the program or self-filing. Otherwise, you can simply choose the appropriate categories and enter data yourself.

The wages and income section is self-explanatory. You have the option of importing information directly from your employer, broker or bank. You can also import from Quicken. The program handles all investment-related tax forms including interest income, dividends, and capital gains and losses.

Many of the brokers commonly used by AAII members are included on TurboTax’s import list. However, attempts to import stocks that were sold from accounts at both Scottrade and E*Trade were unsuccessful, possibly due to antivirus protection. Errors range from “unavailable” brokerage forms to unrecognized login information. Other users have reported similar importing errors, so be prepared to enter your broker transactions manually.

TurboTax’s wage and income section also accounts for Social Security benefits received, retirement account distributions, pension payments, annuities and more. Throughout the process, you can choose “explain this” to get more information about each line on the forms. You can also account for self-employment income, rental properties, gambling winnings and alimony payments.

TurboTax tracks your refund or the amount you owe as you add information, and it provides a summary of each section on one page. You can easily make changes to any information by choosing the “update” link next to each category.

Similar to the process of entering income, the deductions and credits section guides you step-by-step or lets you do it on your own. If you are unsure about which deductions and credits you qualify for, the step-by-step guide may be useful.

Deductions and credits are broken down by category (house, family, cars, education, medical, retirement and other). Again, you will see the impact the deductions and credits have on the amount you owe or are owed along with a summary page of all your entered data.

TurboTax checks your deductions and credits to be sure you have not missed anything. It gives you the option to add the information to claim the credits and deductions. The It’s Deductible program helps you decide how much to claim for various charitable deductions, such as clothing donations.

The federal review page allows you to see all of the information you entered on one page along with the results of the calculations. TurboTax then runs an error check to be sure there are no discrepancies that need to be reconciled.

The state return follows the same process as the federal return.

When you are finished, you can e-file or print and mail your returns. TurboTax allows you to e-file for free and set up a direct deposit of your refund (or an automatic withdrawal, if you owe taxes). Typically, your return is verified within a few days and your money is deposited or withdrawn within two weeks.

As far as help goes, TurboTax includes a “live community” feature that allows users to ask other users questions. You can also call a tax expert for a fee. Throughout the entire process, if you have questions, you can choose the “learn more” link for more detailed information.

H&R Block At Home Deluxe 2009

H&R Block’s tax software has a new name and design, but the program itself has not changed much since our last comparison. Formerly TaxCut, H&R Block At Home offers a free online version for basic returns and allows for one free e-file for federal returns. The online Deluxe version costs $29.95 and is appropriate for most filers with investments, various sources of income and homes. Those who are self-employed or own rental properties will want to use the Premium version for $49.95. Filing a state return costs $29.95 no matter which version you use. To go the software route, you can purchase the Basic version for $19.95, the Deluxe for $44.95 (which includes state filing) and the Premium for $59.95 (state included).

H&R Block At Home Deluxe CLICK ON IMAGE TO SEE FULL SIZE.

To start online, you can import personal information from last year’s return even if you used TurboTax. Otherwise, the program walks you through this first step, asking questions along the way to determine if you have special tax circumstances based on filing status, personal disabilities, disaster relief and more.

Next, the program moves to income. A nice feature at the start of each section is a list of all the potential tax forms you may need in the section. The income section is divided into categories that include: common income (employment wages, interest earned and retirement income), investments (dividends, capital gains, etc.), business and rental property income, and retirement and Social Security income. At Home allows you to check all the income types that apply and then walks you through entering the correct data.

At Home does allow you to import your W-2 if your company is in its database. Otherwise you can enter the information manually. At any time, you can choose “learn more” if you would like further information about the form. You can also choose “income” from the top of the page to return to the index of income options.

The program keeps a running tally of your refund or amount owed, which allows you to see the impact of each piece of information you input. At Home does not import brokerage transactions but handles numerous investment transactions and types including interest income, capital gains and losses, wash sales, dividends and more.

Moving to adjustments and deductions, you can again check the boxes for the deductions that apply to you. Deductions include retirement account contributions, energy efficiency home improvements, child care, and charitable donations. The program’s Deduction Pro tool helps you calculate appropriate values for charitable donations. This is an extra service that costs $19.95.

The credits section is similar to the rest, allowing you to choose the appropriate credits. The program asks questions to be sure you are making the correct choices.

Finally, you can use At Home’s Error Check tool. While the Web site says that At Home offers “guidance…to ensure you get the most deductions,” the other programs have a specific section that checks for missed deductions or credits. The user assumes the program is doing this throughout the process by asking leading questions. The other two programs have a separate check before the final return is completed that looks for missed deductions and credits. However, in all three programs, the same missed property tax deduction was caught.

Once you are finished filing, you can e-file your federal and state return or print your forms and mail them in. You will receive confirmation when your return has been accepted by the IRS, and you can choose to have the refund directly deposited to, or the payment directly withdrawn from, a bank account.

As for state returns, the Deluxe software allows you to file one state return for free and e-file additional state returns for $19.95 each. The information is automatically transferred to the state format and the program asks a few additional questions before running the error check.

H&R Block offers a community on its Web site that allows users to ask questions of each other and to post questions to professionals in a message board setting.

TaxAct Deluxe 2009

TaxAct is a relative newcomer to the tax preparation software scene. TaxAct offers the cheapest options in our comparison, but the program relies on the taxpayer to understand which deductions and credits are appropriate for them.

TaxAct Deluxe 2009 CLICK ON IMAGE TO SEE FULL SIZE.

The free version differs from the pay version ($9.95 online) in that you do not get access to free professional help and cannot import data from previous years. You can also purchase the online Deluxe plus state for $17.95.

A great feature of TaxAct is the ability to import your tax data from a PDF. If you have last year’s return in PDF format, simply upload it to the site and your personal information is automatically entered. This proved to be accurate. You can also import the data from last year if you used TaxAct to file. If neither of these options work, simply enter your personal information manually and save it for next year.

TaxAct first asks a few basic questions about special tax circumstances, then moves to life events where you choose from a list of appropriate events that may have taken place over the year. You can choose to enter information such as Social Security and pension benefits now or later in the income section.

The federal Q&A section is divided into categories: income, deductions, credits, miscellaneous and summary. You can either enter the data by typing directly into the form or TaxAct will walk you through that process. Missing throughout is a link to learn more or a “what is this” button that offers a quick description of the income, deduction or credit to help see if it applies to you. However, you can always use the TaxTutor help function.

The program lists possible sources of income and relies on you to choose the correct type. The program does list the appropriate form next to the income type as the other two programs do. TaxAct accounts for the typical tax-related investment issues but does not offer the ability to import from a broker.

TaxAct also relies on you to know what you are looking for in the way of deductions and credits. It provides a list of deductions and credits and you must research each option to decide if it is appropriate for you. However, TaxAct does provide detailed information about the deductions and credits within the program’s TaxTutor tool. In contrast, the other programs offer the option to walk you through each possible deduction or credit, asking questions to gauge which deductions and credits you may qualify for.

TaxAct’s Donation Assistant lets you track donations and provides resale values for commonly donated items.

As you enter data, the amount of your refund or the amount that you owe is tallied in the top right corner of the page. You can also view summaries of each section and your overall return as you proceed.

After you have entered all the information, TaxAct will check your data for mistakes or red flags, marking alerts in red, yellow and green. Red alerts are mistakes that need to be fixed, yellow alerts warn you of potential problems (double-check these to be sure you entered the data correctly), and green alerts mark possible missed deductions and credits.

Once you have completed the error-checking you can e-file one return for free or print your information for mailing. You can have your refund or payment directly deposited to or withdrawn from a bank account. You can check the status of your e-file at any time as well.

The program can then transfer your information to a state form. You fill out the remaining information in the same process and TaxAct will check for errors and missed deductions and credits. You can also e-file the state return.

Overall, TaxAct is a cheaper alternative; however, it is more suitable for those familiar with the tax preparation process. With less hand-holding and prompting, TaxAct relies on you to make many of the decisions.

Conclusion

In the end, the choice to file taxes on your own is based on time, ability, confidence, complexity of your situation and cost. Each of these programs offers a reliable and accurate means of filing your taxes. They all account for typical deductions, credits and sources of income. TaxAct is not as sophisticated as the other two programs and does not offer as much step-by-step assistance. If you are comfortable with tax filing and would like to save some money, then TaxAct may be the right option for you.

TurboTax’s “guide me” option is great for those new to tax filing or those who wish to be walked through the entire process. One issue with this option is that it will ask numerous questions to ensure you are choosing the right options. Those more experienced with filing may find the “explore on my own” option a better fit.

At Home is very similar to TurboTax but does not offer a guide-me option. The program instead provides checklists to help you decide which sections apply.

All three programs offer form numbers and detailed instructions on which information goes where, error-checking and deduction and credit finders as well as the ability to e-file federal and state returns. At any point with all three programs (online and software versions), you can stop and save your work and return to it later. Each has an option to start exactly where you left off.

We’d like to hear what you have to say. Please e-mail your experiences using these products to CI@aaii.com or post a message at the Comments link.