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Tuesday, March 25, 2008
TurboTax vs. TaxCut: Tax Preparation Software DEATHMATCH: Even more fascinating blogging about taxes!
I know that blogging about tax preparation is not the most interesting thing in the world to most people. But I'm a total geek, so it's interesting to me, and it's that time of the year, so if you don’t like it, click here. I talked about my approach to doing my taxes in 2006 here. This year, I've decided to evaluate tax preparation software in a Tax Preparation Software Deathmatch. I've already completed my taxes manually, and I'll compare the results with three of the most popular tax preparation packages:
H&R Block TaxCut Premium Federal 2007 - $19.99 + $1.65 sales tax at Circuit City
Intuit TurboTax Premier 2007 - $42.50 + $7.00 shipping at SoftbyWeb
Microsoft Money 2007 Deluxe (includes Tax Estimator from TurboTax) - $34.99 from Amazon.com Note: Microsoft Money Deluxe 2007 does a whole lot of other things besides taxes, but it alone isn't sufficient to prepare my taxes, so I'm not including it in the full round of testing.
Manual preparation using forms and instructions downloaded from IRS.gov - $0.00 from irs.gov
Here’s some information about the type of tax return I’ll be preparing:
- I'm single :-( (less deductions)
- I use form 1040
- I itemize my deductions
- I have interest income and capital gains
- Texas does not have a state income tax (one of the many reasons Texas is the greatest state in the union)
- I don't eFile (since I usually pay, there's no point in speeding up the process)
- I have to fill out form 8889 for my Health Savings Account (this is kind of a random form, so I’ll see how each of the software packages deals with it)
- I have easy access to all my financial information in Microsoft Money and online, so no big shoeboxes of receipts
Cost
I used Shopper.com to find the best prices for these software packages on the web, but you may be able to do better. I bought the boxed version, but you can get online versions and downloadable versions of both packages. TaxCut was less than half the cost of TurboTax. To be fair, if I had to prepare a state return, it would have added another $20 to the cost of TaxCut, so they are priced about the same for most folks, but I would have liked to have the flexibility in pricing that TaxCut offers. I downloaded all the forms and publications I needed for manually doing my taxes from the IRS for free.
Advantage: Manual method
Installation
Both software packages were little more than a CD in a box. TaxCut installed in a little over three minutes, and TurboTax took a few minutes longer, because it downloaded updates immediately after installation. TaxCut downloaded updates after I ran it for the first time. TaxCut asked me where I wanted to install the program, and if I wanted to install a desktop shortcut. TurboTax asked me where I wanted to install the program, but installed a desktop shortcut automatically. TaxCut also installed another program without asking, called PDF995, which is an ad-based shareware program that allows you to create and edit .pdf files. Not very well-behaved.
TaxCut asked if you want to install another program, DeductionPro 2007, which allows you to enter your deductions into a database, and import them when you’re ready to file. Since I already track all my contributions in Microsoft Money, I didn’t bother with this. This functionality is already built into TurboTax.
For the manual method, I went to irs.gov and downloaded Form 1040 and Schedules A&B, Schedule D, and Form 1040-V, Form 1040 instructions, Form 8889 and instructions. I also downloaded Form 8283 although I didn’t manage to get my stuff over to Goodwill before the end of the year. I also downloaded Publication 969, Publication 502, and Publication 550, to answer questions that I had. All of this took just a few minutes.
Advantage: Manual method
Speed and Ease of Use
I ran both of the software programs after I had already prepared my return manually. This sped up things a little because I had already assembled all the supporting documentation. It took about an hour or so for each program. Then I waited a couple of weeks, and ran through both programs again. This was to simulate the level of familiarity you’d have if you used these programs every year. I checked for updates on both programs, TaxCut did not have any updates but TurboTax had three. Reading through the details of the updates, none would have affected me, but it’s something to bear in mind, you may want to delay your return until the deadline or rerun your software to see if any updates would affect your return.
Manually I use an Excel spreadsheet to do the math, and I have to revise the spreadsheet based on any form changes from the previous year. I also document any worksheet calculations on this spreadsheet as well.
TaxCut – 25 minutes
TurboTax – 35 minutes
Manually – about 2 hours
TaxCut offered to import information from my Microsoft Money file, but it was only able to import totals for certain categories, like charitable contributions, and not the individual transactions. Some of the information wasn’t complete. I later found out this is because I have created a number of new subcategories, and you have to specify those as tax-deductible in Money.
TurboTax allowed me to import W2’s from both my employers. This not only saved a lot of time and typing, it improved the accuracy of the return by eliminating any potential typographical errors. Both software packages allowed me to easily go back and make changes to the returns. Both software packages had error-checking packages at the end of the process, and I struggled a little with both the first time through. TurboTax didn’t recognize that I was ineligible for an IRA contribution, and wanted me to go through about a dozen screens explaining what an IRA is, and at the end telling me I can’t contribute, each time I made a change and went through the error review again. TurboTax also reminded me that I wasn’t eligible for the Tax Rebate each time I went through the review process, as well.
Both packages allowed me to save the forms as .pdf files, and the IRS provides fill-in .pdf forms to save as well.
Advantage: TurboTax
Technical / Cutting my Taxes
TaxCut immediately identified that I had paid too much social security tax. Both caught it on the return. Both saw that I had a Health Savings Account, but I missed filling out the info both times through on TurboTax, it’s under Miscellaneous Income in the Less Common Income category, and the program didn’t prompt me until the error-checking phase.
TaxCut asked me if I had any carry-over capital losses from the previous year, but TurboTax missed it completely both times through, and I had to go to the help file to try to figure out how to enter it, but it just told me what the maximum allowable loss deduction was. If I wasn’t aware of the deduction and didn’t go looking for it, TurboTax would have missed it. TurboTax missed my Health Savings Account distributions, although they were not taxable. TurboTax also miscalculated my state income tax deduction and I didn’t catch it until I compared the Schedule A deductions from my manual return. This was a data entry error on my part, TaxCut asks for your local sales tax rate but TurboTax asks for the total sales tax rate and I just entered the local rate.
Another thing I couldn’t understand is why both packages round to the nearest dollar. That saves you some time in manual preparation, but there’s no advantage with software doing the math.
Taxes Owed:
Manual $2,189.30
MS Money $2,278.00
TurboTax $2,288.00 (before catching the sales tax error)
TaxCut $2,190.00
Advantage: Manual method
Summary
Both programs saved some time over the manual method. I found TurboTax to be slightly easier to use, but TaxCut found more deductions without me digging around for it. From my point of view, none of the software packages found anything that I hadn’t already found manually, and each one missed something the first time around. It was convenient to have TurboTax import my W2 information automatically, and had I had my categories set up properly, the TaxCut feature of importing information from Microsoft Money would have been useful as well. Neither program justified the cost for my situation, so next year I intend to revert back to the manual method.
Here are some other reviews comparing the two software packages:
USA Today (TurboTax)
CNET (TurboTax)
PC Magazine (TurboTax)
ZDNet (TurboTax)
1 Comments:
I'm lazy. I shipped it off to the accountant.
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10:13 PM
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