It's Tax Time: We Review the Boxed Software

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With another tax season comes another round of tax law changes and the accompanying new versions of tax software. Once again, three companies--Intuit, H&R Block, and 2nd Story Software--offer their shrink-wrapped products to make the annual formfest less unpleasant.

We looked at the midrange editions of these desktop packages: Intuit's TurboTax Deluxe, Block's TaxCut Deluxe + State, and 2nd Story Software's TaxAct Deluxe.

Intuit Tops the List

As we did last year, we found that TurboTax leads the pack in overall quality. But TaxCut has narrowed the gap and may well provide the best overall value. TaxAct continues to be a low-priced alternative for those with fairly simple returns.

In fact, if your return is simple enough for you to file using form 1040EZ, you shouldn't pay anything at all. Either download TaxAct's software (or pay $6 to have TaxAct send it to you on CD) and file a paper return for free, or (if you meet this year's qualifications, including adjusted gross income of under $50,000) use one of the many Web-based tax prep services available in the IRS's Free File program.

Few Rebate Offers

One of the new developments in boxed tax software this year is that there are no more rebates--almost. The three companies have all but eliminated them. The only significant rebate program left is H&R Block's offer to refund the $16 you'll pay them for e-filing your TaxCut federal return.

The bad news is that only TaxCut reduced the software price along with eliminating the rebate. TurboTax eliminated the rebate but kept the same price. However, both TurboTax and TaxCut now include their deduction management software (ItsDeductible and DeductionPro, respectively) as part of their deluxe packages (retail versions only; you don't get the freebie if you decide to download the software). Both companies used to charge $20 for these add-ons.

Block has also upped its offer of help should the IRS want to delve into your TaxCut Deluxe + State return: An H&R Block enrolled agent will accompany you to any audit. And if you start to use TaxCut, then decide you need professional help, H&R Block will credit the purchase price of the software toward the cost of an H&R Block tax preparer.

With a price of $30 and a rebate for the $16 federal e-file fee, TaxCut is easily the best value of the three. You'll still pay $16 to e-file your state return, however.

New Year, New Interface

TurboTax and TaxCut have both changed their user interface. Each now uses a tabbed selection screen for their interviews.

Intuit's TurboTax Deluxe offers a range of navigation aids that make it easy to work on different sections of your return as you're ready for them.
Intuit's TurboTax Deluxe offers a range of navigation aids that make it easy to work on different sections of your return as you're ready for them.
The TurboTax tabs include Personal Info, Federal Taxes, Federal Review, and so on. Each major tab has one level of submenu with more details. Clicking a submenu item displays a screen with the items available. For example, clicking Federal Taxes, Income, Interest, Dividends and Investments brings up a list of topics from which you can choose. Or you can simply click Walk me through it all to see everything.

In fact, TurboTax offers a staggering array of navigational tools:

  • Select Tools, My Tax Data to open a line-by-line summary of your taxes. From that window you can jump to either the form or the interview topic for a particular item.
  • Click Tools, See Topic List to open the usual list of interview topics. Each item is a link to a page in the interview.
  • Choose Tools, Tax Summary to open a box with the major Form 1040 items listed. Right-clicking an amount, then selecting Data Source opens the form and line number.
  • Click the Where do I enter ... ? button to open a searchable menu.
  • Right-click the desktop to open a context menu with the major tab categories.

H&R Block's TaxCut Deluxe requires fewer screens to enter W-2 data than it did last year, but still more than Intuit's TurboTax.
H&R Block's TaxCut Deluxe requires fewer screens to enter W-2 data than it did last year, but still more than Intuit's TurboTax.
TaxCut, meanwhile, has improved data entry in several places by merging formerly separate screens. In past years it took half a dozen screens to enter basic W-2 data; now it takes four. But TurboTax still makes the best use of screen space: A W-2 form takes only two screens.

TaxAct's interview is basically unchanged from previous years. Each screen asks for a snippet of information. For example, it takes ten screens to enter a single W-2 form.

Counting the Beans

All three programs do the basic tax calculations correctly. But there are subtle differences, as well. For example, if you bought a new cell phone for business use, you'd want to create a new depreciation entry for it. TurboTax and TaxCut each include a cellular telephone category in their depreciation interviews; TaxAct does not.

In fact, TaxAct offers only 12 categories of business equipment for depreciation. You could probably guess that a cell phone belongs in TaxCut's "Office Equipment" category, but you'd have to search the tax guides to find out the depreciation period and other rules.

When TurboTax ran into a bit of difficulty interpreting an entry for the special depreciation allowance deduction, Intuit's telephone support representative was able to clarify the issue.

Far more problematic was TaxCut's attempt to import my 2004 TurboTax return. Each depreciable asset was entered three times, so I spent considerable time editing the list. If you have many assets on your depreciation list, you should probably avoid importing last year's return from TurboTax.

How Deductible Is That Doggy in the Window?

H&R Block TaxCut's Deduction Pro provides help on a wide range of Schedule A deductions.
H&R Block TaxCut's Deduction Pro provides help on a wide range of Schedule A deductions.
As mentioned earlier, TurboTax and TaxCut have bundled their deduction managers (ItsDeductible and DeductionPro, respectively) in their deluxe packages this year. DeductionPro lets you manage quite a few of your Schedule A deductions, including charitable donations (cash, mileage, and goods); medical expenses; and a strange mix of other deductions. ItsDeductible tries to manage only charitable contributions.

But DeductionPro organizes some donations oddly. For example, the noncash donations section lists three major categories: gifts of stock, donations of clothing and household items, and donations of art and other collectibles. While each category is indeed a noncash donation, the tax code treats each differently. And some features of the tax code apply to stock gifts only.

DeductionPro falls down a bit here: It asks you only for a description of the securities donated, their fair market value, and whether or not they are publicly traded. An obscure IRS rule says that if you've owned the stock for less than a year, you can deduct only the original cost, not the current market value. Since DeductionPro doesn't ask when you acquired the stock, it would miss this important distinction.

Intuit's ItsDeductible asks for detailed information on stock gifts to reach the correct valuation.
Intuit's ItsDeductible asks for detailed information on stock gifts to reach the correct valuation.
By contrast, ItsDeductible asks for the donated stock's ticker symbol, company name, value on donation date, the date you acquired the stock, and the original cost before telling you how much you can deduct.

There are other differences. I regularly donate a lot of household items to charity, and DeductionPro's valuation of these items was 57 percent of ItsDeductible's total. That's because ItsDeductible bases its valuations on prices from eBay, while DeductionPro uses prices gathered from thrift shops. Both methodologies appear valid, but the message is clear: If you donated many items to charity, use ItsDeductible. On the other hand, if you want the deduction manager to help you track more of your Schedule A expenses, go with DeductionPro.

Marketing Scorecard

Several other features differentiate the products. TaxCut has eliminated most of the screens that try to sell you other products. However, in several places it still tries to convince you to upgrade to the Premier version. TurboTax continues to make sales pitches throughout its product, winning a dubious championship in this category. TaxAct falls somewhere in between the two.

New this year: TurboTax has partnered with a number of companies to spend all or part of your tax refund on vouchers worth more--in some cases, about double--the amount that Intuit debits from the refund. But aside from how you feel about Intuit's including these offers in its tax software, there's a $30 fee just to sign up, so you have to spend a fair amount to make the deal worthwhile.

Best Deal Versus Best Software

Of the three major desktop tax prep packages, TaxCut probably offers the best value for the money. Those new to tax software should seriously consider H&R Block's offering--if only because they may want to use a professional preparer after spending some quality time with the tax code. Block's offer to credit the purchase price of TaxCut against professional preparation in one of their offices gives rookies a hedge against the unknown.

However, TurboTax remains the number one choice for those who need high-powered, complete tax software. You should also choose TurboTax if you donated many items to charity because its bundled ItsDeductible deduction manager is more generous in its valuations.

TaxAct remains the choice for those who have simple returns and want a low-priced alternative. However, this offering is under significant pressure from the IRS's Free File program. If you've used TaxAct in past years and have a simple return, I'd recommend switching to its Web-based service because that's the direction the 1040EZ end of the market is heading.

Even though there are only three major products in the market, shrink-wrapped tax software still manages to offer a choice appropriate to individual tax situations. Choose wisely and you won't be disappointed.

For pricing information and ratings of all three of these products, see the chart "Features Comparison: Pricier TurboTax Is Still Tops."

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