Tax Preparation Software

Best tax software

You have four main options for using software to prepare your taxes. Multiple products and services are available within each of those options. TurboTax and TaxCut can automatically import data from your 2006 tax programs (either TurboTax or TaxCut) and W-2 forms from major companies, as well as from Microsoft Money and Intuit's Quicken financial software.

A third option is 2^nd Story Software's TaxACT, which is only available directly from 2^nd Story Software. TaxACT does not offer any import capabilities, except importing data from last year's version of TaxACT. It is considerably cheaper than the market leaders, and reviews say it's considerably less useful unless your return is simple and you're not intimidated by tax jargon.

The fourth option is free online preparation and filing through the IRS Free File program. Most filers with adjusted gross income below $54,000 are eligible to complete and e-file federal taxes for free. Each of the 19 services listed on the IRS website has additional eligibility requirements. Some charge for preparing and e-filing state returns.

TurboTax, TaxCut and TaxACT are available as software (from a retail box or as a download) to be installed on your hard drive or as online services. If you prefer to possess the software, you can either buy it on CD or download it from the manufacturer or a retailer. Depending on the version, you may save a few dollars by using the online services. However, buying the software has multiple advantages. Manufacturers and retailers combine to bundle free or drastically discounted software and other computer products. You can often get free antivirus software, free Quicken, store gift cards or other utility software by buying the deluxe version of TurboTax or TaxCut and submitting rebate forms. Working off your hard drive is faster (even if you have a broadband connection) and more secure than working online. Plus, you can use the software to prepare returns for several family members. If you are audited or you need to file an amended return in a future year, you have easy access to the software and whatever forms you may need. The online versions also lack some features included on the CD, such as instructional videos. Consumer Reports suggests that online filing offers a more secure method of storage of your tax file. But many computer experts would argue that storing your files on a hard drive or backup media is more secure.

About.com's Financial Planning Guide, Shelley Elmblad, comprehensively compares TurboTax and TaxCut. She concludes, "Both TurboTax and TaxCut are very comprehensive, reliable income tax preparation software packages and you can use either with confidence." She asks herself if TurboTax is worth the higher price, and answers, "In my opinion it is this year." Features and support are primary advantages. This is a strong endorsement, because last year Elmblad decided TaxCut was the better value.

PC World's Tina Orem tests five online tax preparation services, and selects TurboTax Premier as the best. She's impressed with its depth and features. Orem mentions a number of instances where TurboTax Premier went beyond the other services in asking important questions or offering options. Her issues with the service are price and value. Orem says, "People with simple returns may need only a less full-featured, less expensive service such as TaxACT or TaxCut." The comparison is odd, because TurboTax has three less expensive options for online filers.

Kyle Arnold of The Monitor (McAllen, Texas) compares the three leading tax preparation software programs. He concludes, "You get what you pay for." TurboTax is judged the best, followed by TaxCut, then TaxACT. He had problems updating the latter two programs. Arnold's problem isn't unique; we found user reviews of TaxCut in which users describe the same issue.

PC Magazine directly compares TurboTax with TaxCut and TaxACT tax preparation software, and selects TurboTax as an Editor's Choice by a narrow margin over TaxCut. While reviewer Sean Carroll was able to trip up both major programs in tests, TurboTax is still a bit easier to use and more complete.

User reviews are consistent with the professional reviews, except that users encounter more problems, and some specific omissions (in TaxCut) that the professionals could have easily missed in their tests. Because it isn't sold by third parties, TaxACT tax preparation software only has user reviews on the developer's own website. At all the e-tail sites where users rate the other two tax software programs, versions of TurboTax have higher ratings than versions of TaxCut. Users have a variety of complaints about TaxCut, including installation and updating problems, insufficient functionality for certain tax situations and other software glitches.

Other reviewers also pick TurboTax software first. The exception is About.com's Tax Planning Guide, William Perez. He has several issues with the tax prep program, but still rates it highly. Perez disagrees with other reviewers about ease of use. In particular, he thinks it's hard to find specific data-entry screens. Some users agree.

TurboTax

TurboTax is available in eight versions, and distinctions are confusing. The desktop versions available for installation from CD or downloaded file are Basic (*est. $20, federal only) , Deluxe (*est. $45, federal and state) , Premier (*est. $75, federal and state) and Home and Business (*est. $90, federal and state) . Intuit charges $17.95 for federal e-filing and $17.95 for state e-filing. While e-filing generates a faster refund, you can skip the e-filing fees by printing and mailing the forms from any version of TurboTax. You can also e-file your federal return and mail your state return if you choose.

The online versions are not identical to the computer versions; they are Free Edition (free for federal, fee applies to state filing), Deluxe (*est. $30), Premier (*est. $50) and Personal Pro (*est. $100). All online versions cost extra for state software. Prices for state tax preparation software are $25.95 for the Free Edition and $29.95 for all other versions. Electronic filing fees have increased this year, so you'll have to decide on the value of that convenience. If you go with TurboTax, at least you have a la carte options for e-filing and state tax preparation.

All versions of TurboTax are compatible with both Windows and Macintosh computers. All versions also import tagged entries from Quicken, Microsoft Money or Quick Books. If you used TaxCut for your 2006 taxes, TurboTax can import relevant data from last year's tax forms. (TaxCut can also do this trick.)

TurboTax Basic is only for simple federal income tax returns. The Deluxe versions offer two main features that aren't included in the Basic or Free versions. The first is called ItsDeductible -- a guide for valuing goods donated to charity. The second is called Deduction Maximizer Center. Both features are only useful for filers who can itemize deductions. So, if you don't plan to itemize and only need to file a federal return, TurboTax Basic and Free are the best deals.

The Premier versions of TurboTax add help for sales of stocks, bonds and mutual funds. The program can determine the cost basis, which can be a stumbling block for some taxpayers. TurboTax Premier also has extra help for other types of investments. Another feature is extra guidance for rental property income and expenses.

TurboTax Home and Business tax preparation software has extra guidance for a sole-proprietor business. While all versions support Schedule C, the Home and Business version is for filers whose transactions are more complex, especially those with start-up expenditures. The Home and Business edition can help you with employee tax filing obligations as well, such as employee 1099-MISC or W-2 forms (although if you are reading this now, you've already missed the federal deadline for sending those forms to employees).

TaxCut

For the reasons described above, About.com's Shelley Elmblad says comparing the prices of TurboTax and TaxCut is difficult. TaxCut's product distinctions are less complicated. The desktop programs are Premium (*est. $20) , Premium + State (*est. $40) , Premium + State + E-file (*est. $70) and Home & Business (*est. $90) . DeductionPro is included with all versions of TaxCut, but is also available separately (*est. $20).

The Home & Business version of TaxCut is Windows-only. Other versions are Windows or Mac; if you buy one in a store, the CD includes tax software for both platforms. The Home & Business version is not available online. All versions import from Microsoft Money, Quicken, H&R Block DeductionPro and ItsDeductible. In addition, if you prepared last year's taxes with TurboTax, TaxCut can also import the relevant data, but unlike TurboTax, TaxCut can't automatically gather W-2 and 1099 information from major payroll services and financial institutions.

The online versions of TaxCut are Basic + E-file (*est. $15), Premium + E-file (*est. $20) and Premium + State + E-file (*est. $45). H&R Block also offers some value-added online services for people who need varying levels of professional tax help. Prices start at $70. If you plan to e-file and/or must file state income taxes, the higher-end versions of TaxCut are less expensive than TurboTax. Furthermore, TaxCut charges you less than TurboTax to talk to a tax advisor, and with the Home + Business version, you get unlimited free tax-advice calls. TurboTax charges $29 per call.

All versions of TaxCut tax preparation software include Worry-Free Audit Support. If you e-file your federal return using TaxCut, H&R Block guarantees that one of their representatives will assist you in case you are audited. You wouldn't be legally represented by H&R Block, but a tax professional would help you prepare your paperwork if you're one of the unlucky 1% of taxpayers who are audited each year.

TaxACT

TaxACT is a relative unknown when compared with the market leaders in tax preparation software. Its limited marketing is one reason. Because the software isn't distributed through retail channels, you don't see ads in Office Max or Target fliers. It you want to spend as little as possible to complete your taxes and have a simple return, some reviewers recommend TaxACT. You can use TaxACT Online Standard to complete and print your federal return for free.

You can download the program or file online. William Perez recommends TaxACT Deluxe for basic returns. TaxACT Deluxe can also be used online (*est. $10). TaxACT Ultimate (*est. $17 [online] and $20 [download]) includes state tax return software. All versions include free e-filing. If you want to keep a copy of your return on your computer, you must download the software or order a CD. Macintosh users can only use the online versions.

Reviews say TaxACT isn't as sophisticated as TurboTax or TaxCut tax preparation software, but in tests, returns were completed and calculated accurately and quickly. Reviewers say TaxACT offers much less guidance than competing products. William Perez says, "TaxACT is highly recommended for people with relatively straightforward tax returns to prepare." He sees it as a better value than TaxCut, though PC Magazine's Kathy Yakal disagrees. She says the program is only worth using if you've used it previously.

TaxACT includes help and advice from J.K. Lasser, a well-known publisher of tax guides. Unlike the leading competitors, TaxACT will run on operating systems older than Windows 2000. A disadvantage is that TaxACT does not offer any import capabilities beyond importing data from last year's version of TaxACT. If you use TurboTax or TaxCut and used either last year, you'll be able to import data from your 2006 return if it's on your hard drive. This means you won't have to re-enter unchanged information, which can range from your address to the names of accounts that pay you interest.

IRS Free File program

Beginning in the 2003 tax year, the IRS partnered with several online tax preparation and filing services to offer free preparation and e-filing. This year, 19 services are participating. Each service has different qualification specifications; all require that your adjusted gross income is less than $54,000. Some have lower income caps and most are restricted to residents of certain states. TurboTax, TaxCut and TaxACT are among the available services. However, they do not offer the full functionality of the commercial programs.

There are a few catches to the IRS.gov Free File program. First, you must link to the partner website through IRS.gov -- if you don't, your online return will most likely not be free. Second, some of the services only offer free federal tax filing. You may have to pay to prepare and file your state return using the same website or use state tax forms (online, if provided by your state, or on paper). Cost for state preparation and filing runs about $10 for most websites. Lastly, you need to be online to work on your taxes, so you'll need a reliable Internet connection and reliable security software. The free programs shared one significant improvement last year: the IRS banned these tax services from trying to push refund loans.

You'll need to spend some time on the IRS Free File website in order to decide which service to use. Once there, the "Guide Me to a Service" link will help you find a website that matches your situation. If you can use one, reviews recommend the free versions of TaxACT, TurboTax or TaxCut over the other free tax preparation services. At About.com, William Perez says that CCH CompleteTax also offers a straightforward Free File program.

If you are comfortable completing your taxes online, the IRS.gov program is a terrific option. You'll be using government-approved software on secure websites, and the whole process may cost you only about $10 for federal and state online preparation, along with e-filing for both. You'll be able to print copies for your records. If you don't want to prepare your taxes online, experts say your best bet is Intuit's TurboTax. Although it costs more, you'll have a hard copy of the tax software, which you may install on each computer in your home. Plus, you'll be able to work on your taxes offline.

Important Features: Tax preparation software

Experts say to look for the following in tax software:

• Data import compatibility. TurboTax and TaxCut can import data from Quicken and Microsoft Money. Both will import data from 2006 returns prepared in either program. TaxACT does not import data from financial programs; it's best for simple returns. One limitation of the online version of TurboTax is that it only imports from 2005 or newer versions of Quicken.

• A thorough help function for complicated returns. TurboTax and TaxCut both offer scads of in-depth tax information for those who must foray into the land of schedules. TaxACT, as mentioned above, offers only the most basic assistance, but if you're comfortable filling out forms and schedules with minimal assistance, TaxACT is just as accurate as the others.

• State software, if you need it. The cheapest versions of all programs don't include state software. Step-up versions include the software or a free download of software for one state. Be sure to check before you buy.

Our Consensus Report shows how many times products are top-ranked by reviewers included in our
All The Reviews Reviewed chart.

# of Picks	Model (With Retailer Links)	Details from Amazon.com
6	Intuit TurboTax (*est. $20 to $90, depending on version)	details
3	TaxACT (*est. $13 to $20, depending on version)	-
1	H&R TaxCut (*est. $20 to $90, depending on version)	-

This year, reviewers say TurboTax is best, although most also say that if you've used H&R Block TaxCut in the past, there's little need to switch. TaxCut is cheaper, but reviewers give TurboTax the edge nonetheless. TaxACT is primarily a low-cost alternative for those with very simple returns.

The Buzz

At press time, a so-called economic stimulus package has been passed by Congress and is expected to be signed by President Bush. The centerpiece of this legislation is tax rebates. This will not affect the preparation and filing of your 2007 taxes, but you must file to be eligible for a rebate. Your rebate amount will be based on what you report in your 2007 return. In case you haven't followed the media coverage, a CNN Money article, "Rebates: What you need to know" should answer your questions.

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