You might well have heard about TurboTax, the most widely used tax prep software among consumers who are doing their own taxes. Yet how does this set of Windows-based and online solutions, offered by Intuit, compare versus similar offerings from other vendors? In the first of a series of reviews on tax prep software for 2013, we take an in-depth look at this question.
With 2013 under way, it's time to start thinking about preparing the tax returns required by the IRS and many state and local tax agencies. For many of us, this will mean "giving" without the warm feelings that came from "giving" during the preceding 2012 holiday season. For others of us, it might mean a nice refund!
Not so long ago, tax preparation was depicted through images of a man or woman surrounded by piles of receipts and bills, a calculator, a pencil, and stacks of tax forms that needed to be filled in.
While there are still people who go through this arduous task exactly as pictured, most of us who prepare our own tax returns -- a growing number each year -- do so with software designed specifically for this purpose. The most widely used consumer software for tax preparation is TurboTax from Intuit, Inc.
TurboTax is offered in various editions, and it's available either as in-house software to install and use on your own PC or as an application where the tax prep process is completed in the cloud. The cloud versions are growing more popular each year.
For this review, I tested the Premier Edition of the Windows-based software. This is available on CD or for download at $89.99. In contrast, the Home & Business Edition, which is the top-of-the-line version, is priced at $99.00. Pricing is $29.99 for the lower end Basic Edition, and $59.99 for the Deluxe Edition. On the whole, TurboTax software is somewhat more costly than its rivals.
The Premier Edition I tested is targeted towards taxpayers who have a fair amount of investment or real estate income, but it's also highly usable by those of us who don't have much (or any) income from those sources. The major difference between the Premier and Home & Business editions can be found in the amount of guidance in areas such as investments and self-employment income. The Basic and Deluxe versions don't include this specialized guidance.
The Premier and Home & Business editions each allow you to prepare up to five federal returns, with free efiling. One state is also included, and you can download the state you need from within the federal program.
Extra states are available for purchase at $37.95 each. Needing more than the one included state is a common situation. (For example, one member of the household works in the home state and the other in a different state.) If you face this kind of situation, it needs to be factored into the cost regardless of whether you use a PC-based or online edition.
In terms of fees charged by the government, only federal efiling is free. Efiling returns for the state needs to be paid for, with the costs varying depending on how much the particular state charges for this service. (The one exception here is New York State, where there is no charge for efiling a state return.)
The Deluxe Edition offers several capabilities unavailable in the Basic Edition, including state tax return preparation and features for finding deductions and credits and helping you to reduce the risk of audit.
All four editions are also available in in-the-clouds online versions. The online Free Edition corresponds to the Basic Edition of the CD and downloadable software. Pricing for the other online editions is $29.99 for Deluxe, $49.99 for Premier, and $74.99 for Home & Business. With the paid online versions, you don't pay Intuit until the return is filed. On the other hand, the disadvantage is that you need to do your tax preparation while hooked up to the Internet.
Intuit also provides special tax preparation deals for those in the military, as well as various packages for small businesses.
I tested the software on a Lenovo T400s laptop running Windows 7. I installed from a DVD, so if you download the software, your experience might be slightly different. As with most software, if autorun is enabled on your system, the installation automatically launches.
The first screen that comes up is one that informs you that the software is preparing to install. After that, it took several minutes before I was informed the install was complete. Then, I was presented with a screen that informed me that updates were available, and I was asked whether I would like to download and install them.
TurboTax checks for updates every time it starts unless you disable this feature. (Considering how often forms and software actually are updated, it's a good idea to download and install any available updates every time you use the software.)
Updating took about 10 minutes, after which the software was supposed to restart. It didn't, for some reason. Instead, I was presented with the Windows desktop. After a few minutes, though, I launched TurboTax again, and I was able to start the preparation process.
As you can see from the screenshots at right, the user interface (UI) is smooth. (For expanded views, please click on the images.)
When the software is launched, the first screen that appears is a welcome, with an inquiry as to whether you want to amend a prior year (which is form 1040X) or file for an extension (which gives you an additional six months past the April 15th filing deadline).
On all of the screens except for certain explanation guides, the rightmost vertical column provides access to the TurboTax community where you can see relevant questions that others have asked and received answers to, or ask your own and see if some other TurboTax user has an answer for you.
All three of the major tax preparation software products (TurboTax, H&R Block At Home, and TaxACT) revolve around a very similar layout, with a structure that walks you through different sections such as family status, income, different types of deductions, and so on, asking questions along the way and allowing you to enter the pertinent data.
Experienced taxpayers, who know which forms they need to file, can skip the handholding and use the Forms view. This allows you to select only the forms you need rather than going step-by-step through what can be a long list of questions.
Quick Transfer of Last Year's Returns
In starting the application, TurboTax first looks to see if it can find a return prepared last year. It can transfer last year's data from H&R Block At Home and TaxACT as well as from TurboTax, which makes it easy to switch if you were using a different vendor's product last year and were not satisfied.
Transferring data from three of last year's returns took about two minutes, and all of the demographic data (names, addresses, Social Security numbers, dates of birth and the like) were transferred accurately, as were last year's W-2 employers and 1099 issuers. This greatly sped up preparation of a current return. Of course, if you've made a lot of changes in these areas, this feature will offer less of a benefit.
TurboTax uses a tabbed display screen, with tabs for Personal Info, Federal Taxes, State Taxes (multiple states are all entered under this tab), Review (which checks the return for errors and omissions), and File. There are subsections under each of the tabs, and each subsection guides you through a particular area of the return, such as entering wage and other income, and various types of deductions.
(Mostly) Simple to Use
For the most part, I found going through the return process to be simple. I have self-employment income, home office expense, and auto expense, and these were handled correctly.
TurboTax has more complex tax explanations in certain areas, such as the new Healthcare Coverage Tax Credit.
I think the average taxpayer may find some of these difficult to understand, though most of the areas with complex explanations and help are areas which the average taxpayer won't encounter.
There's a reason why Intuit's TurboTax has the largest number of users year after year. Intuit has earned its chops in both the consumer and professional tax software markets, and the company invests a lot of money every year into making sure it provides a quality product.
There's also a wide variety of editions in retail, download, and in-the-cloud formats, so it won't be difficult for you to find one that suits your needs. I tested one of the Windows editions, but if you are unsure that a particular edition will be a good fit, you're probably going to be better off using an online version, since you don't pay for the return until it's actually filed.
If, somewhere in the process of preparing your return online, you find that you need capabilities different from those available in the edition currently being used, you can always stop and start again with a different version without incurring an extra cost.
At the bottom line, TurboTax, H&R Block At Home, and TaxACT -- the three most popular tax preparation applications -- are pretty similar in terms of what they offer across various editions. They are all solid products, and each has both a consumer component and a professional component to its business. (Intuit sells ProSeries and Lacerte to professional preparers. TaxACT also has an edition for professional preparers, and H&R Block provides software to the preparers in the H&R Block tax preparation store sites.)
TaxACT's and H&R Block's online and Windows software are priced a bit less than Intuit's. However, if you used TurboTax last year, and were you pleased with it, you should probably stick with it again this year.
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