The Most Popular Tax Preparation Services Used by AAII Members

AAII members were surveyed about which tax preparation service they used and what their opinion was about that service. TurboTax and H&R Block are added to the list. TaxAct was also listed among the services. This article focuses on the online offerings for these three, though downloadable software offers similar features.

One advantage of using a tax preparation service is that it can take the puzzle out of the sometimes taxable and inevitable changes that are made every tax season. This year, these services may be particularly helpful, since 2018 is the first filing year with the Tax Cuts and Job Act (TCJA) in force. Among the changes in the new law are higher standard deductions, the elimination of the personal exemption and a $ 10,000 cap on state and local income, sales and property taxes (aka, SALT).

Along with the new law, Form 1040 was revised. The new form is shorter but comes with six new schedules. Forms 1040-A and 1040-EZ were eliminated as part of the audit. For more about rates and schedules, we encourage you to read " The Individual Investor's Guide to Personal Tax Planning 2018 " in the December 2018  AAII Journal.

Tables 1  and  2  compare the main features for the free and premium versions of the three services. The information used was gathered from each of the company's websites in early February 2019.  Table 3  compares the prices of the three services. We report the standard full prices; promotional prices may differ, so check each provider for the most current information.

Tax Service Preferences Among AAII Members

Most individuals took the survey using the Premier version of TurboTax or the Deluxe version of H&R Block. Fifteen percent hire and certified public accountant (CPA) to prepare their taxes for them.

A majority of respondents cited ease of use and the ability to carry over last year's tax data as major advantages of the tax prep service they use. Some of the shortcomings have been associated with additional state-related forms and not being able to handle non-standard situations [such as master limited partnerships (MLPs), excess Medicare with holding, alternative minimum tax (AMT), etc.]

When asked about what they look for in a tax preparation service, respondents cited:

• Ease of use and a reasonable price,
  
• Comprehensiveness / complete ness,
  
• Accuracy,
  
• Clearly stated instructions and easy lookup of additional information through available links and resources,
  
• Easy download of last year's tax information
  
• Ability to handle relatively complex tax situations without significant time and effort.
  

The same reasons also mean that the decision to switch from one service to another.

TurboTax

Intuit's TurboTax ( turbotax.intuit.com ) is the most popular tax preparation software among AAII members, even though it is the most expensive of the major online offerings. The company's free edition provides free federal and state filings for most basic tax situations.

TurboTax provides a comprehensive list of employers and payroll service companies that can download and import their W-2 directly from ( www.partner.turbotax.com/top_partner_list.html ). We could not find a similar list for TaxAct or H&R Block.

Fifty-four percent of members who answered the AAII Journal of Tax Software Survey using TurboTax. Of those, 67% use the downloadable version, while 19% use the online version (13% were unsure about which version they use). Forty-five percent of TurboTax users opt for the premier version of TurboTax, while 24% use the deluxe version.

Member Comments on TurboTax

Benefits

• TurboTax automatically loads my information from previous years into the current year version. It also was very easy to use to file an amended return for a previous year.
• I find TurboTax to be quite comprehensive for my tax situation, and I feel quite confident that I am preparing and filing my income tax returns properly and correctly.
• TurboTax easily handles depreciation schedules for multiple items over 10 years. One enters the initial year and TurboTax automatically enters the needed values for all subsequent years. It handles the rules for federal versus state for each item (e.g., accelerated option for federal versus 15 years for my state).
• TurboTax has a format superior to H&R Block’s, is easier to use and also provides one’s risk of being audited.

Shortcomings

• TurboTax asks a large number of questions that the average user has no idea why they are being asked and that impact a small percentage of users. It can be overwhelming wading through all those questions.
  
• I don’t think TurboTax is good for employee expenses or if you have a death in the family and have inheritance taxes that have to be completed.
  
• There are some checks that TurboTax makes when you think you are done and ready to file. These checks usually turn up issues where data is missing or conflicting with other entries. I wish TurboTax would do this while you are filling out the applicable forms as it takes a lot more time to get your head back to where you made the entries originally and regularly requires time and research.
  
• Have had excess Medicare taxes taken out for several years. To get the money back, you fill in Form 8959. TurboTax will fill in that form, but it does not bring the total to 1040 as it should. They have not fixed this error for this year either. If anyone had excess Medicare and used TurboTax, they were short-changed and did not even know it. Ended up using Free File on IRS website last year and will probably have to do the same this year.
  
• I used to use TurboTax. I switched the year TurboTax tried to charge extra for the schedule to report stock gains and loss and have never gone back to using their product.

H&R Block

H&R Block ( www.hrblock.com ) was the second-most used service among surveyed AAII members, with 18% of survey respondents listing it. H&R Block's free online filing works for basic tax filings. It also lets taxpayers file the new 1040 Schedules 1 through 6. Those whose situations have complexities beyond the basics will need to pay for one of the other versions or visit a local H&R Block office.

Eighteen percent of surveyed AAII members use H&R Block. Of those, 77% use a downloadable version, while only 20% use an online version. Sixty percent use the deluxe downloadable version, while 15% use the deluxe online version.

Member Comments on H&R Block

Benefits

• H&R Block is pretty good on accuracy. It is good at taking last year’s return and pointing out changes in the current year.
  
• I use H&R Block, but I have a tax preparer inside a building. I could easily do my own taxes, but I want the IRS to know a second set of eyes looked at my taxes and it is H&R Block.
  

Shortcomings

• Used H&R Block for many years. Switched to TurboTax to see how well it works; I like it better than H&R Block. Seems to do a better job of pulling in 1099s than H&R Block.
• I am considering a change to TurboTax since H&R Block software does not handle the amortized bond premium correctly.
  

TaxACT

TaxAct ( www.taxact.com ) is generally cheaper than similar offerings. Its support options are as in-depth as TurboTax or H&R Block and some of their help links lead directly to IRS documents.

In our survey, TaxAct was the third-most-used tax prep service, with just 3% of respondents opting for it. TaxAct also ranked behind using a CPA (15%). Comparatively, TaxAct's interface is barebones and varies the visual panache of its rivals, but the data-entry process is similar.

It's best for those with basic filing needs and who need little support and are simply looking for way to file taxes electronically.

Member Comments on TaxAct:

• I used TaxAct a couple of times. The user interface was not as clear as that for TurboTax. I felt that TurboTax was more accurate.
  
• The free version of TaxAct has too many pop-up ads.

Conclusion

If you are already using a tax service you are comfortable with, don't change it. If not, it may be worth considering whether one of the other options might be right for you. TurboTax, H&R Block and TaxAct offer the ability to enter information before paying for the service with their online versions.

Most respondents to our tax software survey reported being satisfied with their tax service. On a scale of 1 (not satisfied) to 5 (very satisfied), 49% were themselves very satisfied, while 39% were themselves satisfied.

The right tax software will come down to a person's particular needs, comfort and experience level with filing taxes. A fair number of respondents reported that they did not need to use these services or filed their return themselves for free. Additionally, members who reportedly switched their methods or services did so primarily for cost reasons, because the software did not work on their computer anymore, because they did not act as well. Switching was not common, however: Three-quarters of respondents have been using their tax service for more than five years.

Member Comments on Using a CPA:

Benefits

• My CPA is reliable and ethical besides the fact that she knows the tax laws. The bottom line is that she looks out for the client’s best interest.
• My CPA reviewed prior years’ taxes for free and found errors in the H&R Block program that cost me about $700. I refiled and it paid for the next several years of their work.

Shortcomings

• Used to use a CPA, which was so lame that they had me paying double. I realized I could do better myself.
  
• Used to use a local CPA. He didn’t do anything TurboTax and I couldn’t handle.
  

Comments on Other Services

• This is not for the average user, but you can get a single return version of Intuit Lacerte [professional software]. It is much better than TurboTax if you have some idea of what you are doing.
  
• FreeTaxUSA reads more like the IRS forms than what the big-name options show you, as I guess the big-name options have gone through and made it easier to understand the wording.
  
• I used TaxSlayer as part of the AARP Tax-Aide program. It did not make me want to switch from TurboTax.

Related

Feature

The Individual Investor’s Guide to Personal Tax Planning 2018

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Financial Planning

Retirement Planning Strategies Following the 2017 Tax Act