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Review: TaxCut Is Best Tax Prep Program

Posted on: Thursday, 16 February 2006, 00:00 CST

By ASHLEY M. HEHER

INDIANAPOLIS - As a single renter in my 20s, my taxes used to be so easy I'd do them by hand, in my pajamas, in half an hour. But this year I moved for work, got a raise and started to focus on investments.

Between charitable donations and moving expenses, I thought I might be able to itemize. So I decided to pit the three most popular tax preparation programs against one another, rating them for user-friendliness, design and most importantly, the ability to calculate my tax tab.

My virtual accountants: H&R Block's TaxCut, Intuit's TurboTax and the comparatively cheaper TaxAct, from an Iowa company called 2nd Story Software.

All three products, for those of you new to this method of tax prep, ask you a series of questions and fill out your tax forms based on your responses. How long you travel down the various avenues depends on the complexity of your finances.

I began with TaxCut, which like TurboTax first offers you the option of importing last year's tax return from TaxCut or TurboTax as well as any financial information you've kept in Microsoft Money or Quicken.

TaxAct will only import from TaxAct.

Before we go further, let's weigh the costs.

TurboTax's basic version runs $19.95, including state software, plus electronic filing fees of $14.95 each for state and federal. That puts the total cost at $49.95. TaxCut's comparable package comes out a nose cheaper at $45.94 but you have to mail in for a federal filing rebate.

TaxAct costs $12.95 including state software, and federal filing is free. State filing will cost you $7.95. But thrift, in this case, may come at a price.

I started with TaxCut, which I found user-friendly and helpfully spattered with narrated snippets about changes to the tax code (Did you know the uniform definition of a child has changed?).

The forward and back arrows let me switch pages and didn't delete the data I'd entered - a much-appreciated feature after I typed the interest from my Roth IRA in the wrong category.

TaxCut walked me through standard and itemized deductions, letting me enter amounts for clothes I gave to a thrift store and the money I donated to a pet rescue after I adopted my dog.

As I neared the finish, the program flagged seven possible errors in the form that could trigger an audit - all because the tax forms on the software program had since been updated. A quick download remedied the problem.

My three-hour exercise done, the TaxCut number crunchers pronounced that I'd get a $600 refund. And that's without itemizing (my deductions turned out to be less than the standard deduction).

Next up was TaxAct.

The software assumed I have some financial acumen. Did I receive dividend income in 2005? Nondividend distributions? Since I've always done my returns by hand, I wasn't sure and had no old returns on which I could doublecheck.

TaxAct's gray, white and green color scheme and basic design made the software look antiquated instead of high-tech. Although an easy-to-find help button and a simulated tax form that constantly updates made the program easy to follow, even if the questions seemed more difficult to answer.

Like TaxCut and TurboTax, TaxAct prompted me to enter information about life-changing events, such as my move to a new state. I found the TaxAct questions harder to answer, and the program initially wouldn't let me deduct my $1,900 in moving expenses because I failed to meet a "test" to qualify for the deduction. I tried again, re-read the questions and changed my answers before the program allowed me to write off that tab.

While TaxCut and TaxAct had similar features - choosing between itemized and standard deductions - their outcomes were staggering.

End result? Thanks to a disparity in taxable income - I'm still not sure how that happened - TaxAct said I should get a $175 refund.

I surely wasn't going to file my taxes with this product.

The final contender was TurboTax, whose maker Intuit also owns the Quicken franchise. Like its competitors, TurboTax included a running tally of my tax tab - a nifty feature for the obsessively inclined.

Throughout the program, I was given an option to "learn more" and got to pick what section of the form I wanted to work on first - income, deductions, taxes and credits or miscellaneous.

At each stage, I could select what sections I needed to fill out, or have the program guide me. The program stopped me if it thought data was incorrectly entered or to doublecheck my entries. A nice touch.

Before each section, TurboTax offered easy explanations, telling me that the 1099-INT form I needed was from my bank and the 1099-DIV would come from my mutual fund broker to report dividends on my investments.

TurboTax let me calculate whether to take advantage of the sales tax deduction, a nice feature for someone who spent six months living in an income tax-free state.

TurboTax, like TaxCut, also walked me through deductions that I wouldn't have considered had I been doing my taxes on paper. I appreciated the hand-holding and simple explanations for those who might not be financially savvy.

It calculated my refund to be $588.

Now, several other factors will figure into which program you might use:

Each offers different versions at varied costs, for features that may or may not interest you.

And all three manufacturers sell cheaper versions if used online (though some people don't like the idea of keeping their precious financials online, no matter how secure companies may claim their storage).

Of course you will probably have to pay to electronically file your return - unless you qualify the IRS's free e-filing and meet certain income requirements.

Mac users beware: Only one of the three programs - TurboTax - offered software using a Mac format.

So which program would I choose to actually file my taxes? Certainly not TaxAct.

Between the other two, I found TaxCut more informative and, pardon the jab, a bit more intuitive. Oh, and don't forget the additional $12 dollars in refund it calculated - which these days will get you about three lattes.

Source: Associated Press/AP Online

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