Tax software makes filing your own easy
By Jennie L. Phipps • Bankrate.com

Do-it-yourself tax preparation is getting easier and cheaper, even if you have a complex return.

Bankrate.com gave four major tax software packages a workout: Quicken TurboTax Deluxe, Kiplinger TaxCut Deluxe, 2nd Story Software's TaxACT Deluxe and CCH Inc.'s CompleteTax.

The personal computer, not Macintosh, versions were tested to see how they would handle the 2001 tax return for my family of four -- an employed husband (who happens to be a CPA), two children (one in college), and me (sole proprietor of my own small business).

Just like the cobbler whose children have no shoes, I -- not my accountant husband -- have been the family tax preparer for several years. But he reviews the result and makes changes when I screw up. I started with TurboTax Deluxe. After my live-in accountant pronounced the result accurate, I worked my way through the other three tax packages.

Which one wins? That depends on how you score.

Accuracy counts
Our tax return is complicated by my small business. To be fair, none of these packages claims to be for a small business, and both TurboTax and TaxCut offer upgraded, more expensive small-business tax software. But all four say they can handle Schedule C, which a sole proprietor must file. The confusing news was that all four gave me a different result because each dealt differently with the home office deduction and accompanying depreciation.

TurboTax had the smoothest way of walking me through Schedule C and the related home-office issues. TaxAct's presentation offered less explanation, and I was forced to make judgment calls a couple of times that left me feeling uncertain. Ultimately, these two programs produced tax forms with bottom lines that weren't exactly the same, but were probably close enough for government work.

Kiplinger's TaxCut offered more-sophisticated options, and I inadvertently chose a depreciation method different from that used by TurboTax or TaxAct and got a startlingly divergent result. A representative for TaxCut says that their tax experts are aware they handle depreciation differently than their competition, and they believe themselves to be right.

CompleteTax ignored one of the depreciation issues altogether and for that reason also came to a significantly different bottom line.

If you don't have a small business, none of this matters. Regardless of which package you use, the results for a more-standard return will be identical.

But if you must file Schedule C, particularly if you take the home-office deduction, TurboTax Deluxe is my first choice, with TaxAct second. If you feel knowledgeable and confident, you might like TaxCut best. It gives you the most options, but it's complex. Home-office filers should steer clear of CompleteTax.

Software assets and debits
CompleteTax shines in other areas. For a simple return, it was way ahead. The display is clean and easy to read. The help section offers minimal but coherent advice. Unlike competitors, CompleteTax allows users to opt out of those tax sections that don't apply to them and speed through the return.

The debits: CompleteTax doesn't offer some of accessories found in the other software. You can't import data from personal finance software, although if you used CompleteTax last year, you can import that data. The program is only available online, which won't satisfy those people who think saving their tax information to somebody else's server isn't very secure.

TaxAct is also friendly, written in simple English on an uncluttered screen, although the constant pop-up advertising for other products is annoying. Tax forms can be viewed at the bottom of the screen as you answer questions at the top. One click and you can maximize the forms to review your progress. A nice feature is the option to compare the impact of filing married jointly or separately.

The debits: There's no import of financial information from other programs. Tax help requires an active Internet link and downloads slowly even with a DSL connection. If you're a Macintosh user, you're out of luck. The program doesn't support Mac.

TaxCut has the most bells and whistles of the four, with import capabilities from last year's data and financial management programs. You can import information from W-2s if your company's payroll processor participates. There's also a feature called a "Shoebox" that will help you organize your data before you try to enter it into the program. Personally, I've always found tax organization the toughest part of filing, even for a devoted financial program user.

Tax Cut is easy to navigate. If you change your mind about a previous section, it's no challenge to go backward. The tax forms reside at the bottom of the screen and maximizing them is a one-click process. If you need tax advice, you can get it instantly from an H&R Block tax preparer for an extra $20. You also can decide to give up on the process and for another $79 turn the whole mess over to a professional preparer. Another option (an additional $29.99) is a professional review for those in need of reassurance.

The debits: The language is heavy with accountant-ese, and the program seems to assume a higher level of financial sophistication than many users have. If you are filing a simple return, you might be better off with a simpler program.

TurboTax walks you through an eight-step process, beginning with the option of importing your information from a financial management program or last year's return (even from some competitors' programs). W-2s and selected financial statements can be imported from the 50 largest payroll processors. If you're a Countrywide Mortgage customer, you also can import your mortgage information.

The questioning process keeps even novices from missing tax-saving (and tax-paying) opportunities. Plus, there's a ton of tax advice in both video and text, and for an additional fee (determined by the amount of help you need), you can contact an online tax expert to pose questions.

The debits: The linear Q-and-A program doesn't allow for skipping a section, so you spend lots of time clicking "no" to question after question. You can opt for just filling out the forms themselves, if you know what you're doing and don't feel the need for someone to walk you through the steps. On the other hand, if you're that expert, one of the less-expensive programs, might suit you better.

The prices
Comparing prices isn't as simple as you might think. Each program offers various levels of sophistication, online and CD options, rebates and bundled packages.

CompleteTax: It is online only and runs $17.95 for federal and state and electronic filing. Part-year or nonresident state tax filings are not supported.

TaxAct: If you're willing to use the online version, you can prepare the federal return and print it out for free. Electronic filing is $7.95 and adding a state return is $4.95 for a total of $12.90. Additional states are $12.95 with an extra $4.95 for e-filing.

If you want TaxAct on a CD, it's $9.95 plus $5.95 shipping and handling. Filing one return electronically is included. It will cost $7.95 each for up to three additional electronic returns. State tax CDs are $12.95 plus $4.95 for electronic filing. If you bundle a federal and a state CD, it's $19.95 plus $5.95 shipping and handling. Printouts are free.

TaxCut: Base price is $19.95 with one state and one electronic filing included whether you use the online version or buy the software at a retail store. Pick the right store and you might find it at discount. If you use the online program after April 1, the price goes up to $29.95.

TurboTax: Quicken offers three versions of this tax preparation software. TurboTax Deluxe is $39.95 with a $10 rebate. The price includes material of one state filing. Many stores discount this product.

These also are available as online versions. The premium model is $29.95 before April 1 and $39.95 after, plus $12.95 for the state. Electronic filing is an additional $12.95. Online TurboTax regular or CD is $19.95 before April 1. After that, it's $29.95, plus $12.95 for the state. Electronic filing is included

Taxpayers who only need the simplest form should check out TurboTaxEZ. Available only as a download, this program for 1040EZ filers is $9.95 before April 1, $12.95 after. It costs an additional $4.95 a state return, plus $12.95 if you want to file electronically. If you have an adjusted gross income of less than $25,000, you can use this product free of charge, including e-filing, though the Quicken Tax Freedom program.

The bottom line
These aren't the only tax filing programs by a long shot. The Internal Revenue Service's latest list of approved e-file partners offers taxpayers 21 computer-assisted options. Dennis Schmidt, a professor of accounting at the University of Northern Iowa, maintains a Web page that lists links to more than 20 online tax-filing sites.

If you're filing a single, basic 1040EZ return, go the simplest, cheapest route, which may be Quicken's Tax Freedom. Likewise, if you don't own a home and don't have many other deductions but make enough that you must file a 1040, then almost any of these programs will help you create an accurate return quickly.

Taxpayers who itemize deductions will find it gets more complicated fast. The more advanced programs do a much better job of flagging potential deductions and keeping you from making mistakes. They also make it easy for you to look harder at your numbers and redo sections if you find more receipts hidden in the bottom of the drawer. Spending an extra $10 on sophisticated software could be a bargain in the end.

Jennie L. Phipps is a contributing editor based in Michigan.

-- Updated: Jan. 22, 2002