Tax software: We check out the top three to see which is best for you

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here’s an explanation for

Got 13 hours to work on your tax return? That’s what the Internal Revenue Service estimates it will take the average taxpayer to complete Form 1040.

Sure, that includes the time it takes to pull together records, learn about the form, decipher tax laws, copy the return and send it in. But even discounting these ancillary duties, the agency figures it still will take more than six hours just to complete its most popular income tax form. If you have additional schedules or tax credits to file, you might be measuring your tax time by the calendar instead of the clock.

This time demand is why more and more filers turn to computer tax preparation each year. These packages promise time as well as cash savings. And, some tax prep devotees contend, they can even save your sanity during tax season.

To test those claims, Bankrate Taxes tried out the three major tax software packages: Quicken TurboTax Deluxe, Kiplinger TaxCut Deluxe and 2nd Story Software’s TaxACT. We loaded all three and used each to prepare the 2000 tax return for a family of four — two working parents, young kids, a little interest income, retirement plan considerations, itemized deductions and some tax credits.

And we did it all in one afternoon. Take that, you IRS tax return completion-time estimators!

Which wins? It depends
Of course, saving hours isn’t worth much if the end result is a sloppily prepared return that overlooks legitimate cost-saving tax moves. Which program won our tax prep contest? That depends.

If you judge by which one produced the lowest tax bill for our family, it’s a dead heat. All three came back with the same refund amount. But getting to that figure was a bit different with all three packages.

If the cost of the tax program is your top concern, then there’s a clear winner — TaxACT at $9.95. Electronic filing and state tax returns come with that deluxe upgrade. If your return is relatively simple TaxACT’s free standard version is an even better bargain. However, it has no state filing data (you can buy it separately) and you have to pay to e-file.

TaxCut is next at $19.95. TurboTax, the market leader, is also up front in cost — $39.95 — $10 less than last year.

So what does a taxpayer get for each software investment?

Quicken TurboTax Deluxe
Intuit’s TurboTax has a logical, eight-part arrangement of the tax filing process. You begin by entering your personal information, or importing it from a financial management program or last year’s computer tax return (even from some competitors’ programs).

W-2s and selected financial statements also can be imported if the employer or institution makes them available online. Since we tested this software before any employers or account holders had finalized their 2000 statements, we weren’t able to check out just how easy it is to use this feature, but it definitely is an appealing one. Recreating the documents in the program was tedious.

From the specifics on you and your dependents, you’re then guided through subsequent sections to enter income, deductions, tax credits, state data, check your return and file it.

The linear approach was reassuring, taking the user one step at a time. The introductions of each section also outlined what was covered in that segment so the filer knows what to expect.

The program also lets the filer get more information on each tax situation being entered in two ways: text or video. It’s not a duplication. Thanks to the elaborateness of the tax laws, there’s enough information on most tax issues to spread it out over two formats. If you want to know even more, a prominent help button is a constant at the top of the screen.

Even without opting for more information, the TurboTax user isn’t going to go away without learning something. For example, the itemized deduction section goes step-by-step through Schedule A. This is a good way for novice filers to make sure no cost-cutting options are overlooked.

But if you weren’t charitable in 2000, you still had to click “no” through all the various donation options before moving on to deductions you can claim. For more experienced taxpayers, an easier way to get to just the sections you know you need would be a welcome revision.

In fact, some may consider such thoroughness a downside of TurboTax. The Deluxe edition covers a lot of tax territory, much of it not relevant for millions of filers. Sometimes you find yourself in those program sections without wanting — or meaning — to be there. TurboTax does acknowledge that some of the tax situations it asks the filer about (like the generation-skipping tax) are “not common.” Perhaps cognizant of price complaints, the company took the “you get what you pay for” axiom to heart.

And TurboTax has some nice little touches. For example, it was great to enter birthdays as 1/1/66 and see it automatically convert to the program’s required 01/01/1966 entry style. TaxACT did this, too, but TaxCut flashed an error prompt on the screen instructing the date be reentered in the correct format.

Kiplinger TaxCut
TaxCut also is designed in a linear format, but with only half the sections of TurboTax. This doesn’t mean it’s less comprehensive, only that the designer decided to bunch filing steps differently. For example, the “Prepare” section contains an introduction, income questions, adjustments, credits and deductions rather than spreading them out.

TaxCut, too, allows importation of past tax returns and other financial software, making the filing job easier for folk who’ve been doing this for years. There’s no W-2 import option, however.

Once personal information is entered, TaxCut walks the user through the filing process determined to best suit the taxpayer. Like its main competitor, TaxCut is thorough, clear and generally easy to navigate.

If you’re new to the filing process or want to learn more about an uncommon situation, TaxCut has text and video explanations of the tax entries. Since it’s a product of H&R Block Financial, it takes advantage of those tax advisers in this feature.

And TaxCut has a two-part filing status feature we didn’t find in the other two programs. Clicking “Tax Summary” in the constant right menu opens a pop-up screen that gives you an up-to-date report of where you are on your return and what the cost or saving is so far.

The adjacent “Where Am I?” button tells you just how much of the filing process you’ve completed. Progress is measured two ways: percentage of the filing completed and a list of the forms you’ve done or have left to fill out based on your interview information. These are fun features that help break the monotony of filing and help personalize all the numbers you’ve been entering.

TaxACT Deluxe
As might be expected, the least expensive program offers the least amount of razzle-dazzle.

While you can import personal data from last year’s TaxACT return, that’s it. You can’t retrieve or convert personal financial data from any competitor program. And there’s no option to import financial or W-2 data.

Like the other two, TaxACT follows a step-by-step (seven in this case) approach to filing, using an interview to ensure the program selects the most appropriate filing regimen. Rather than using the IRS forms as a guide, it offers the filer a selection of life events that could affect taxes. It also provides tax advice, but in text form only. No flashy videos here.

There are no glaring holes in the program (especially for our basic family filers), but it’s not always as clear as it could be. For example, when entering a child as a dependent, TaxACT instructs the filer to enter the number of months the child lived with the taxpayer in the United States, noting that information is necessary to automatically calculate the Earned Income Tax Credit. It doesn’t specify that it means how many months in the tax year, so someone unfamiliar with the credit may think it necessary to convert the child’s full age into months. When that larger number is entered, an error message pops up noting that the month number should be between 0 and 12. The error is caught, but it takes the filer an extra step and someone already intimidated by the tax laws may be upset because software purchased to help out has just reinforced the filer’s lack of tax knowledge.

Problem entries, however, are likely to be caught by TaxACT’s helpful alerts option. Here you are given notices (with an accompanying traffic signal icon) about your return. Red alerts indicate something needs to be corrected before the return is filed, usually incomplete or inconsistent data. Yellow alerts identify potential problems or suggested additional taxpayer attention. Green alerts offer potential tax saving tips, meaning you may want to go back and make changes to your return.

The alerts check both federal and state entries and are a nice feature. However, they run after the return is finished as part of the review process. It would be nice if they could be activated beforehand so that the warnings could be weighed before information was entered.

Nice common features
All three programs loaded quickly and without incident on a Windows 98 system. Once loaded, there are several nice features common to all three deluxe software packages:

  • Comparison of your tax return to IRS national averages to see where you fit in — and whether you’re so far off the scale that tax examiners might want to take a closer look at your return.
  • A check of which status is more tax advantageous for married couples — filing jointly or separately. This is a relatively easy one-click step with TaxCut and TaxACT. With TurboTax, you have to run each filer separately to get the actual number.
  • Multiple return preparation, although only one can be e-filed for free.
  • State forms for taxpayers whose filing jobs don’t end at the federal level.

Some common annoyances
On the negative side, both TurboTax and TaxCut included pop-up ads when loading and automatically installed desktop icons for other, fee-required online services (one by TaxCut and three by TurboTax).

All three programs offer update links if you want to check on any new forms or tax rulings that appear after you load the data. In each program, this was problematic although we eventually got through and either got an update or notice that our software had the latest material to satisfy the IRS.

A tip on updating: have your browser open and Internet provider connected before you click the software update button. That makes the update process go a bit smoother.

No shortcuts for experienced filers
As mentioned, all three use a personal interview process to get basic tax and personal data that is used as a starting point for filing your return. This is useful for tax novices or someone whose lifestyle changed dramatically in the 2000 tax year.

Experienced tax filers who want to use the program simply to fill in their data from paper copies are out of luck. You can enter data directly on the forms, but it’s not easy with any of the packages. TurboTax has a question about using the forms on its opening screen. But once you get into the forms, you’re constantly stopped and prompted back to worksheets. There’s an obvious forms icon on TaxCut, too, but it also takes some experimentation to make it work because this program continues to link its worksheets to the IRS forms. TaxACT’s forms icon in the top toolbar takes you to a forms list, where you click to enter data, but sometimes it won’t let you enter info because, you guessed it, it’s tied to the software’s worksheets.

Finally, each package has a tax planning section, just in case you don’t have anything else to do with the time the tax software saved you!