Tax preparation pitfalls
By Peter Diekmeyer • Bankrate.com

Almost three-quarters of the 23 million federal returns filed by Canadians for the 2003 taxation year involved the use of tax preparation software or electronic filing, and that number is sure to rise this year. But are these technologies worth the money and time invested to use them?

To find out, this year I completed my returns and those of my wife using one of the most popular packages available, Intuit's QuickTax. I purposely avoided asking the company's public relations department for help, so I would be forced to deal with the same challenges that affect the average user.

To be fair, I have a bit of an advantage, because I worked many years as an accountant, and I write regularly about tax issues.

My verdict: using tax preparation software will cost most Canadians more time and money than completing their returns manually. It usually takes me about a day to complete our returns manually, but it took almost twice that using QuickTax.

So, why is tax preparation software so popular? I believe it's because most people don't count the incidental costs and time involved in buying and using the software. To help you decide whether tax preparation software is right for you, I've listed some of the pitfalls I ran into.

Software cost
I paid about $40 for the 2004 version of QuickTax, which sounds like a bargain. But there are some important restrictions. For one, you can only use the software to complete six returns. (Returns for those earning less than $25,000 a year are not included as part of the six.) Worse, the 2004 package is only good for one year.

Since the tax code changes all the time, you have to buy a new version each year. A better way of thinking about the dollar cost is to calculate the expense over a period of five years, which is closer to the average life of most software. Forty dollars a year for five years works out to $200.

Shopping time
A lot of people love shopping and don't count the wonderful hours they spend in malls. I hate shopping and counted every minute I spent looking for tax software.

Unfortunately I couldn't find the software in any of the stores at the local mall, so I had to make a destination trip to a big-box office supply store the next day. The two trips cost me two hours. In years when I completed my returns by hand, the federal and Quebec governments mailed me blank returns, and shopping time was not an issue.

Installation time
The QuickTax installation was a breeze, but there were some confusing aspects. For example, to activate the software you have to call a computerized telephone system and punch in a bunch of numbers.

I had to keep track of a 14-digit installation code, a 13-digit computer key, an 11-digit activation code and a 10-digit customer number. Worse, it was not altogether clear to me which code I should punch in when.

I managed to activate the program after going through the process a couple of times; other users might not be so lucky.

Learning time
One of the most important rules about computerizing an operation is never to do so unless the operation is understandable and easy to document. Canada's tax code is neither. What's worse, the regulations change each year.

That means tax preparation software users need to learn the tax code changes and make the changes in the software every year. And since most users only fill out one or two returns each year, the time invested in learning the product does not amortize well.

No manual
Few software programs today come with printed manuals, so QuickTax, which archives help information on its website, shouldn't be faulted on this front. But studies have shown that because of eye fatigue and slow screen navigation, reading information online is about half as efficient as reading on paper.

In a complicated field such as income tax preparation, the wasted time spent flipping through a website becomes a real problem, especially if you can't find an answer to your question.

The help desk
Since the tax code is so complex and the laws and software change every year, you stand a good chance of ending up at your tax preparation supplier's help desk. In theory, QuickTax's help service is free -- except that you have to pay long-distance fees to get in touch unless you live in Edmonton.

Those long distance fees add up. You spend time on hold before you get an operator. Then the operator asks you a series of questions about seemingly secondary information such as your name, address and so on so he can open a file.

But that first operator won't answer your questions. You have to queue up again for a second employee, who asks the same information all over again before dealing with your problem. If the problem is not easily solved, you'll likely be put on hold to talk to still another employee.

The other problem is that the help line phone number is well hidden. When I began to run into trouble, I called the only number I could find on the software box. After going through a voice mail relay, I finally talked to an operator who told me I'd called the wrong number and would have to start all over again.

Error Code QT 600
Almost every software I've ever bought comes with some sort of bug or glitch. Usually the problem is minor, and, once solved, you get a couple of good years of use from the product. But for products designed to be used for one or two days, those glitches become a much bigger deal.

With QuickTax, my problem was Error Code QT 600, which was the message that flashed on my screen when I tried to file my returns electronically. Even after bouncing around QuickTax's website and help desk, I was unable to resolve the problem.

Finally, one employee helpfully e-mailed me instructions regarding a diagnostic program that she said would help QuickTax's experts figure out what the problem was. The e-mail included a six-step instruction sheet on how to download and run the software. She also told me they would get back to me without fail within 72 hours.

But I'd had enough. After spending two days doing a job that last year only took me one day, I wasn't going to wait another three days to find out if they might be able to get the software to work. So, I printed out the returns and mailed them in the old fashioned way.

Good for accountants
So, if the benefits of tax preparation software are questionable, why do so many people use it? The answer becomes clear when you look at the numbers. Of those who filed their returns online last year, almost three-quarters were prepared by accountants or other tax professionals. Of those tax returns prepared by individuals, most did them by hand.

Tax pros have the time and energy to learn all the bugs of tax preparation software. They also have co-workers who can answer their questions, and they don't have to deal with the software companies' help desks. They also complete a lot of returns, so the amount of time they spend learning the system and compiling returns diminishes with each return. The average taxpayer reaps none of those benefits. As a result, I think the value of tax preparation software for the average consumer is far less clear.

Peter Diekmeyer is a Montreal based business writer.