Guide to Desktop Tax Software
Schedule by Schedule
These four comparison reviews cover the major federal tax schedules: Schedule A (itemized deductions), Schedule C (self-employment income), Schedule D (capital gains and/or losses), and Form 2106 (employee expenses).
In general, Intuit's TurboTax and H&R Block's TaxCut Web are the strongest. CCH CompleteTax is particularly adept at filling out Schedule A and Form 2106, however.
I found little difference between the ways the Web sites and the packaged software handled these forms.
Review: Schedule A
I recommend CompleteTax in this category partly because I know my way around Schedule A all too well. For those unfamiliar with this form, TurboTax is a better solution because it gives detailed prompts telling you which receipts you should find (or should have saved). The other three are too basic for all but the simplest tax situations.
The rankings: (1st) CCH CompleteTax, (2nd) Intuit TurboTax, (3rd) H&R Block TaxCut, (4th) 2nd Story Software TaxAct, and (5) Petz Enterprises TaxBrain.
Schedule A is where you enter itemized deductions; you generally go here only if the total exceeds 2 percent of your adjusted gross income. If you are a homeowner with a mortgage, you likely easily meet this requirement.
Schedule A also includes medical expenses (deductible if they exceed 7.5 percent of your adjusted income), real estate and other taxes, charitable contributions, miscellaneous deductions, and employee business expenses. (Form 2106 handles employee expenses.)
TurboTax goes into great detail about medical expenses. Its approach is similar to that of TaxAct, with very few items on each screen.
The value of this approach is that TurboTax gives extensive descriptions to help you determine what to include. But if you've been filling out medical expenses on Schedule A for a few years, you'll probably find this approach tedious.
Still, some parts of the medical expense area are tricky. Medical travel expenses are the worst. TurboTax breaks these down by type and helps you determine which mileage qualifies as a deduction.
On the other hand, TurboTax sometimes wants too much information--and uses too many screens to get it. For example, TurboTax uses two full screens for each mortgage lender. This information could easily be gathered with a single, well-designed screen.
TaxCut begins Schedule A with a checklist of major sections. Leaving a box unchecked means you won't be asked questions for that part of the form, which is sensible.
Unfortunately, the program doesn't remain efficient. Its treatment of medical expenses is primitive, requiring extensive input. Although TaxCut provides pull-down menus for the description field, they cover only the simplest cases. The choice of categories is inadequate.
TaxCut does better with medical mileage. One gripe: It provides no category for medical mileage for two people (if they both have appointments at the same time.) Slots for other medical transportation and lodging expenses are missing entirely.
As you delve into TaxBrain, you encounter forms like its reproduction of Schedule A. The lack of detail is amazing, even compared to what the IRS provides--and it offers a number of supporting worksheets for Schedule A that aren't part of the TaxBrain interview at all.
TaxBrain is recommended only for taxpayers who know their way around the IRS forms and can do most of the work themselves.
The others take a far better approach. All the other programs show you the forms, schedules, and worksheets you'll need based on your answers to earlier questions.
CompleteTax shows you the IRS forms for Schedule A. Even this is better than TaxBrain's approach.
TaxAct falls somewhere between TaxBrain and CompleteTax in handling Schedule A. For example, as it leads you through the questions about medical expenses, TaxAct uses multiple screens when one would do.
However, its coverage of some areas is simply inadequate. In particular, medical travel by means other than automobile and medical lodging are not mentioned. You must already know your way around Schedule A to use TaxAct.
Review: Schedule C
TurboTax offers the most complete and detailed interview to help you complete Schedule C. TaxCut is almost as good, followed by CompleteTax. TaxBrain has all the questions that are on Schedule C, but very little more. With TaxAct, it takes a long time to plod through all the screens.
Many people run small businesses in addition to their regular employment. They are victims of Schedule C. Software can be a real help--or a real nuisance. At minimum, the questionnaire should duplicate the IRS categories on Schedule C. Fortunately, some of the tax packages improve on the basic IRS form.
CompleteTax tries to compromise between information density and number of screens. Sometimes this leads to a good result. For example, presenting all the expenses for which you should enter totals on a single screen is excellent.
However, this can be taken too far. For example, CompleteTax does not handle Schedule C vehicle expenses in enough detail. It asks only minimal questions such as the mileage and use (which could cause you to miss some deductions). In contrast, TurboTax drills down and asks whether other people use a vehicle, and about your documentation.
TaxCut does a pretty good job on these issues. It displays Schedule C expense items on four screens. Vehicle expenses are handled as part of asset depreciation, with specific questions related to cars and trucks.
Once again, TaxBrain does little more than show you the IRS form--which makes calculations a pain. For example, it replicates the form for the asset depreciation schedule and provides a rudimentary questionnaire regarding vehicle use.
TaxAct uses the same maddening interface for Schedule C that characterizes the entire package. The program asks very few questions on each screen, extending across several screens a series of questions that could obviously be combined. Most of the programs handle such questions with a single screen of yes and no radio buttons.
Even picking a business activity code is a challenge in TaxAct. The IRS requires this six-digit number to place your business into an industry. Most of the programs produce lists of categories and subcategories. However, TaxAct shows a single, very long list of all the numbers.
You must select from the list; you cannot simply enter the number. Worse, the list is not in strict numerical order. If you enter 5 as the first digit of your business activity code, TaxAct produces a block of numbers that start with 5. Unfortunately, the list has two or three more blocks. I had to search awhile to find my code.
CompleteTax uses a better method for handling long lists. It lets you sort the list by either code number or category. Clicking the code you want automatically fills in the space in Schedule C.
Review: Schedule D
If you have complex asset transactions, TurboTax is the only way to deal with Schedule D. If your transactions are fairly simple, choose either TaxCut or CompleteTax. Both do a good job and let you enter your data fairly efficiently.
Schedule D is the bane of the taxpayer's existence. Changes taking effect in 2003 make Schedule D even worse. For the first six months, the old tax laws apply to dividends. Starting July 1, the new, lower tax rates apply. That means your form 1099-DIV now has a new box: 1a, which shows dividends paid before June 30. Box 1b shows the amount of "qualified dividends" under the new tax law.
One complication that drives many investors crazy is calculating the cost basis for stock when they bought the stock on several dates at different prices and the stock has split. (If you've held Microsoft stock for more than five years, the stock has split several times.)
Of the programs, only TurboTax actually calculates these for you. It runs through the cost basis and summarizes the capital gains and losses.
If you need any other reason to choose TurboTax, consider this: It is the only program that recognized my investment expense carry-forward from previous years and suggested I convert some of my capital gains to income. The excess investment expense can offset the income, reducing my tax bill.
Not everyone's taxes are this complicated. But if yours are, TurboTax Premier provides these features. TurboTax Deluxe doesn't include the detailed capital gains questions.
The downside is that TurboTax Premier costs $60 ($30 for the Web-based version), which is $20 more than the Deluxe package. If you don't want to spend that much, here are some alternatives.
CompleteTax also helps calculate the basis for multiple transactions of the same stock. The documentation is perfectly adequate, but you must do your own calculations. (Entering 99/99/99 for the date purchased tells the software you bought the stock on various dates.)
TaxAct also does an adequate job. As usual, the program takes too many screens to get through the process. However, TaxAct permits only 15 characters to enter the description because that's all the IRS allows. Other programs allow more and reduce the font size when printing the return. For example, you can enter the information as "100 sh Microsoft" or "100 sh MSFT." TaxAct also leaves it to you to calculate the cost basis for each asset.
TaxCut does a better job, making more efficient use of screen space and allowing longer descriptions of transactions.
However, TaxBrain shares several of the less friendly features. Like TaxAct, it allows only 15 characters for the transaction description. Also, TaxBrain tries to use screen space too efficiently. It permits only one line for all details of a transaction. Further, TaxBrain forces you to decide who owns the transaction: The only choices are T (taxpayer) or S (spouse), not shared.
Review: Form 2106
TaxCut is the clear winner in the Form 2106 category. The program efficiently asks for many details, using only a few screens.
CompleteTax is second best, because it gets you through this form quickly. TurboTax is just too inefficient at moving through the information. TaxBrain is best suited for those who know their way around the IRS forms, while TaxAct was made to order if you like watching screens download from the Web (in the online version).
If you received a W-2 form, you probably have some employee business expenses. These can be reported as miscellaneous deductions on Schedule A. You use Form 2106 to itemize these expenses.
TaxCut does a particularly good job with employee expenses. It provides clear, efficient screens for you to enter travel expenses and auto expenses.
CompleteTax does little more than show you the IRS form on the screen. It's adequate but not particularly useful. The program could also have saved some time by not asking screens full of follow-up questions if it had noticed my wife's occupation was "None." Interestingly, TurboTax shares this deficiency.
Like the program's approach to Schedule A, the TurboTax interview leads you through a lengthy series of screens. However, at least TurboTax puts several questions on each screen.
TaxAct is clumsy in this category. It asks for information you've already entered (for example, which expenses belong to which taxpayer). Then it asks only one or two questions per screen, which is particularly annoying if you're running the program online.
TaxBrain again emulates the IRS form. If you're comfortable with IRS forms, this is the program for you.