Best Tax Preparation Software for 2010 — A Buyers Guide

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By Jay Garmon

It may be 2010, but US taxpayers still have 30 days left to file their 2009 tax returns — and there are a number of online services vying to help them. What tax preparation software offers the best bang for your buck? We break it down in this buyer’s guide.

THE CONTENDERS

WHAT ALL TAX PREP APPS HAVE IN COMMON

First, no matter what any of the marketing copy or advertisements promise, there is no such thing as truly free tax preparation software. Every program charges you to file a state tax return even if they give away the federal form. There’s only one exception to this rule, and it applies exclusively to active duty US military servicemen and women.

Second, contrary to what the signup pages may suggest, all tax preparation services require you to create an account to file your tax returns. You can enter all your tax data and generate a return before handing over your contact information — though by that point, you’ve told the service your social security number, physical address, and household income level, so privacy concerns seem a bit moot — but you can’t actually print or file the return until you hand over a valid e-mail address. If you create an account before starting your return, you can save your work at any point and resume later — from any Web-connected PC — which is a huge advantage over traditional packaged tax preparation software.

None of these applications can analyze or sell your anonymized tax data for marketing purposes without your explicit consent, and you’ll be asked to give that consent at least once during the filing process.

All tax preparation software keeps a running tally of your tax return due (or tax debt owed) onscreen, but the figures are generally meaningless until the end of the return process. Don’t freak out until you’re done, because the totals almost always swing wildly.

Finally, all these services offer some kind of guarantee that they’ll compensate you for any penalties or fees that result from the return you file with them, which is laudable, but all of them will also upsell you on additional checks and services before highlighting that guarantee. Bottom line, if you’re going to pay someone to double-check your return, you may as well pay them to prepare the return as well. If you don’t want to pay an accountant or tax preparer, then don’t bother with all the extra audit-proofing services. They’re the extended warranties of the online tax preparation game.

THE TEST RETURN

In 2009, I received unemployment pay, did freelance work, started a new job for an out-of-state employer, paid down a student loan, had a child in daycare, bought one house and sold another, and maintained a home office as a primary workplace. Of particular interest was my need to list two different home offices — one at my old home and one at my new one — which is no easy feat for any given tax return. I subjected each of the above programs to the same set of W-2s, 1099s and ancillary tax data. This is not to say I entered the same data in each program, as some of the apps simply weren’t set up to accept some of my tax information no matter how much I pounded on them for the option. The result of this trial and error was a personal appreciation for which apps can handle complex deductions and income profiles, and which apps can’t.

RESULTS FROM THE TEST RETURN

Program

Fed. Return

State Return

Fed. Fee

State Fee

Profit

H&R Block

$944

-$167

-$49.95

-$29.95

$697.10

TaxAct

$359

-$361

-$9.95

-$8.00

-$19.95

TaxSlayer

$724

-$140

-$9.95

-$4.95

$569.10

TurboTax

$972

-$135

-$29.95

-$36.95

$770.10

BEST PRICE: TaxSlayer

TaxAct is technically cheaper than TaxSlayer if you use the company’s free basic federal filing service tier, but TaxSlayer has the best price for a tax preparation program you’re actually likely to use. The $14.90 I was quoted for my total state and federal filing fees is cheaper than most of the individual filing fees from TurboTax and H&R Block. Moreover, if you’re active duty US military, TaxSlayer will let you file both your state and federal returns absolutely free. That’s the only truly free filing offer I found from any of the tax prep apps I reviewed.

BEST ANSWER SUPPORT: H&R Block At Home

It first must be said that I found Google to be more useful than any of the direct support options offered in any of the tax prep programs, so saying H&R Block was the best is to damn with faint praise. Still, support is ostensibly why you pay H&R Block’s filing price, even though it’s the most expensive of any of the tax preparation software I test-drove. There is an entire community of tax prep pros at your fingertips, and H&R block promises an e-mail response to any direct inquiry within one business day. The H&R Block forums are also incredibly active, and most of your questions have already been answered in those posts.

BEST INTERFACE & EASE OF USE: TurboTax

TurboTax brings an amazing amount of polish to its user interface, likely the result of years of end-user testing with Intuit’s other flagship products, Quicken and QuickBooks. In fact, if TurboTax weren’t riddled with frequent upsells for Quicken, QuickBooks and ItsDeductible, it would be almost flawless in its user-friendliness. The additional hand-holding from TurboTax means it will take slightly longer to complete your return as compared to the other contenders in this guide, but the additional time investment will be relatively painless.

BEST OVERALL EFFECTIVENESS: TurboTax

Bottom line: TurboTax was the only tax preparation software that could handle my having two home offices in the same year, and it was the only tax prep service that found enough itemized deductions that I could decline the IRS Standard Deduction. TaxAct was so baffled by my attempts at listing two home offices that I’m not convinced my return processed correctly through that service, and I literally crashed H&R Block At Home trying to get the program to understand my request. TurboTax took the beating and saved me money doing it. Beyond that accomplishment, TurboTax was also the only tax preparation service that managed to successfully import my W-2s from my and my wife’s online payroll services, which saved me a great deal of data entry.

EDITOR’S CHOICE FOR BEST TAX PREPARATION SOFTWARE: TurboTax Online Deluxe Plus State

2010 Tax Preparation Software Buyers Guide - TurboTaxTurboTax is certainly more expensive than TaxAct or TaxSlayer, and it has far more upsells than H&R Block at Home. Despite this, TurboTax is miles ahead in final polish when compared to its competitors in the tax preparation software arena. The TurboTax interface is slick, simple and welcoming. The value-added services in TurboTax — like direct download of W-2s and investment interest statements from banks and payroll services — work more often and more effectively in TurboTax than in any other program I tried. For households with a simple “W-2 and nothing else” tax return, TurboTax may be overkill, especially given its price. But if you’re even remotely thinking about itemizing your deductions, TurboTax is definitely your smartest bet. Overall, TurboTax is simply the best tax preparation software I reviewed.


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