A fast route to a great return

February 5, 2001

Still relying on your accountant to crunch the numbers? The leading tax software now makes doing it yourself easier than ever. Here's what's new.

 

Tax Time

A fast route to a great return

Jump to:Choose article section... A step closer to the 10-minute return? Refinements rather than innovations The cost of doing your own return Electronic filing: faster than snail mail, cheaper than ever

Still relying on your accountant to crunch the numbers? The leading tax software now makes doing it yourself easier than ever. Here's what's new.

By Diane Weber
Senior Editor

Ah, spring—it'll be here before you know it. The flowers will bloom, the birds will sing, your tax return will be due. . . .

Okay, that last sign of spring isn't exactly welcome. But thanks to better-than-ever tax-preparation software, you can make easier, faster work of this nasty obligation. Even if you've always used an accountant to do your taxes, you might consider going it alone this year.

For maximum hand-holding, the choice still narrows to Quicken TurboTax, by Intuit, or Kiplinger TaxCut, from H&R Block. Both companies have updated their products again to reflect tax-law changes, and they've added new features. Some changes are truly helpful; others amount to window dressing or even thinly disguised advertising.

First, what hasn't changed. Each program gives you two options for preparing your return: a guided tour, called the interview, or the do-it-all-yourself approach. With the interview, you don't fill out tax forms; the programs present questions and, based on your answers, invisibly select and complete the necessary worksheets and forms. Both programs readily provide answers to frequently asked questions, and the deluxe versions offer video clips and Web-based extras.

If you'd rather cut to the chase, you can decide which tax forms apply to you and fill them out yourself, as you would on paper. Or you can alternate between the interview and the forms.

The programs handle all the calculations; review the return; flag goofs, omissions, and entries that might upset the IRS; and let you print your return or file electronically.

Deluxe versions of both programs include IRS publications, IRS instructions for all included forms and worksheets, and additional reference materials. They can help with state tax returns, too. If you're Web-connected, getting an edition for any state is as easy as clicking on a few hyperlinks.

A step closer to the 10-minute return?

The most exciting change comes from Intuit, which aspires to making preparation of your return a 10-minute job. Toward that end, TurboTax's 2000 edition introduces Automated Tax Return (ATR), which uses the Internet to import key tax information directly from payroll firms, brokerages, and mutual fund companies that provide W-2s and 1099s. Potentially, this can save you time and spare you the tedium of typing in data from one W-2 and 1099 after another.

But for this year, at least, the key word is "potentially," since the new feature's promise hinges on data providers. On the investment front, only Fidelity Investments, Salomon Smith Barney, TD Waterhouse Group, T. Rowe Price Associates, and The Vanguard Group have signed up so far. Three firms involved with payroll—Ceridian Employer Services, PeopleSoft, and ProBusiness Services—have jumped on the bandwagon.

Even with broad participation by financial information providers, Automated Tax Return couldn't gather all the data you'd need. You must get figures such as itemized medical expenses or miscellaneous deductions separately. That means importing them from one of the money management programs TurboTax supports, such as Quicken, or entering them manually.

Moreover, even importing isn't completely effortless; you'll need to decide which information to import and review it for accuracy, particularly if you haven't checked the W-2s and 1099s mailed to you. And importing from personal finance programs can hit speed bumps if you haven't assigned the right tax-form links to all those transactions you've tracked over the year.

If you do import data, though, you'll appreciate the added control TurboTax gives you. Now, before doing so, you can review the data and eliminate anything you don't need. Previously, you could view a list but could adjust only the tax-form and -line links assigned to the data. The 2000 program also accesses the data as needed, rather than presenting everything at the beginning of the interview.

TurboTax has taken advice giving a step further. The help module includes a link to an Internet-based list of tax professionals who'll answer questions via phone or e-mail, for a fee. The cost varies, but typically runs $1 to $2 per minute of the adviser's time. It's a convenient option, but given the information already available through the program, you probably won't need it. Moreover, at $2 per minute, you can run up a significant bill if you have several questions or if the accountant must do research. Before paying for live advice, check out some of the other sites on the Web that provide solid tax information (see "Need help in a hurry? Hit the Web").

An even more dubious enhancement is TurboTax Rewards, a collection of advertisements whose only apparent connection to your taxes is that they can "make your tax refund go farther." For example, clicking on the link to E*Trade takes you to that firm's Web site, where opening an account will get you $75. Other links take you to retailers, financial services firms, and travel-related vendors. Though such "special offers" were available last year, they're more prominent now. Some of these deals may indeed save you money, but they seem misplaced—and irritating—in tax software you pay for.

Elsewhere, TurboTax includes less-disagreeable links to a handful of IRA custodians and a couple of charitable donation portals, which at least relate to your taxes. Establishing an IRA before April 16, 2001, will cut your tax bill for 2000, but don't let one-click convenience rush you into choosing an IRA custodian. The charitable donation sites offer no financial benefit this year; you can't take deductions for donations made now until you file your 2001 return next year.

Intuit has tweaked some of TurboTax's worksheets and forms, too. One improvement: If you must report income in more than two states, but the income is from the same employer, you can now handle the job on one W-2. Previously, the W-2 accepted figures for only two states. The program also does a slightly better job of handling those pesky Box 14 entries, which can include deductible state disability and unemployment compensation fund payments. TurboTax scans entries for codes indicating potentially deductible amounts. It's not perfectly reliable, since there's no standard way for employers to report such information. Still, TurboTax outdoes rival TaxCut, which factors in deductible payments only if you identify them as such yourself.

Refinements rather than innovations

In Kiplinger TaxCut, you'll see a couple of reflections of H&R Block's even closer alliance with Microsoft. The latter discontinued its infant TaxSaver program in favor of collaborating with Block on TaxCut.

The first sign is a plug for Microsoft MSN: You can click a link to sign up for 30 days' free Internet access via that service. A potentially more useful benefit of the Block-Microsoft alliance is that you can now import data from Microsoft Money personal finance software more easily. TaxCut also automatically exports key tax return data from TaxCut to Microsoft Money, for planning purposes.

On the features front, Block seems to have done more tinkering than Intuit, although the changes are generally subtle. Setup is easier than last year: Just insert the disc and click the installer icon. The opening screen has one more tab—Plan—which previously was buried under the Review tab.

Under the Plan tab, you'll find a nice addition to the program: the "life changes" interview, which is at least as good as its equivalent in TurboTax. This lists a series of life-altering events, such as getting married or having a baby, and helps you understand and calculate how those events will affect your taxes. One scenario that TaxCut addresses but TurboTax doesn't: caring for an elderly parent. TaxCut points out that you can still deduct medical expenses for a parent, even if that person earns enough to keep you from claiming a dependency exemption. TurboTax just asks you to enter a total amount for all your dependent care expenses.

To simplify and speed you through the interview process, TaxCut has abandoned last year's two-option interview approach—The Fast Lane and The Full Interview—in favor of one, more-user-friendly version that customizes the interview for you. The presentation seems a little friendlier, as well. For example, rather than hitting you with a list of forms on which income may have been reported to you, TaxCut groups them by subject—IRA payments or rollovers, and government payments, for instance—then lists the applicable form or forms.

Streamlined, too, is the Forms function, which last year forced you to click past a quick tour video and choose either Fast Forms or All Forms before you could view a list of the forms themselves. TaxCut has nixed the Fast Forms option, which posed a few questions to help TaxCut choose the needed forms. Now you go directly to the full list.

In place of last year's Navigator button is a more helpful "Where am I?" button that allows you to travel through all parts of the program at will, not just the sections under the particular tab you're working in. Less impressive is the addition of a gimmicky progress bar that shows what percentage of the process you've completed.

TaxCut also adds personal tax advice this year through Ask a Tax Advisor, which links you electronically to one of H&R Block's accountants. Rather than the per-minute fee TurboTax charges, you'll pay a hefty $19.95 for each subject you inquire about. On the other hand, H&R Block guarantees the advice and will pay any penalties and interest that may result should it prove incorrect.

Which program is best remains mostly a matter of personal choice; either software package will likely serve you admirably.

TurboTax has a slight edge, however, for user-friendliness. Here and there it provides a bit more up-front assistance on points that could prove confusing, such as consolidated tax statements from brokerages and charitable contributions. And if you have a lot of W-2 and 1099 data to enter and can take advantage of its Automated Tax Return feature, the time saving makes it a clear winner this year.

The cost of doing your own return

Quicken TurboTax Deluxe costs $39.95 (suggested retail, before $10 rebate). The software comes with a rebate that entitles you to a TurboTax state edition at no cost. Additional state editions cost $29.95 each. You can opt for the basic version of the federal program, stripped of the extras—video clips, tax planners, IRS publications, and "Money Magazine's Income Tax Handbook"—for $19.95 (before the $5 rebate). The basic edition lets you electronically file one federal return free, after a rebate. For more information, visit www.turbotax.com .

TaxCut Deluxe costs $19.95 (suggested retail). The price includes rebates for one free electronically filed return and one state version of the program. Additional state versions run $19.95 apiece. The basic federal program is also devoid of the videos and other extras, but it costs just $9.95. A $34.95 mail-in rebate for Microsoft Money software comes with the basic and deluxe versions of the federal program. For more information, visit www.taxcut.com .

Electronic filing: faster than snail mail, cheaper than ever

When you're done with your return, there's one last decision: Should you mail it in or file electronically?

If you need a quick refund, this is a no-brainer. Filing electronically speeds the process considerably, because the return arrives almost instantly and the IRS doesn't have to transfer your figures into its computers. Avoiding that step also cuts the chance of errors. The result: You're apt to get your refund within two weeks of filing, rather than wait for up to eight weeks.

The IRS is working to make the process easier, too. In the past, you had to sign a statement certifying that the return was accurate and mail that to the IRS, along with a check for any amount due and a voucher indicating that you'd sent the return electronically. Now the agency has established an electronic identification procedure that eliminates the need for e-filers to mail in forms with their signatures. And rather than sending a check, you can now authorize the IRS to deduct from your savings or checking account any payment you owe.

Both Quicken TurboTax Deluxe and Kiplinger TaxCut Deluxe include rebates that allow you to file your federal return electronically for free. For a second federal return, you'll pay $11.95 if you use TurboTax or $12.95 if you use TaxCut. You can now file electronically in 38 states and the District of Columbia using TurboTax, and in 26 states using TaxCut. TurboTax charges $5.95 for a state return filed electronically; TaxCut charges $6.95 (or $2 if you file it along with your federal return).

If you plan to use electronic filing, keep in mind these precautions: First, when preparing your return, don't use either program's override feature; that can cause a short-circuit. So can plugging unnecessary zeros into your return; instead, leave blank any fields that don't apply to you.

You can electronically file no more than five federal returns, and for each federal return, only one state return. Additional returns must be mailed. And unless your state return is for California, Illinois, Maryland, Massachusetts, Minnesota, or New York, you can't file it separately from your federal return.

There will be a quiz—and a chance to win $2,001!

 

Diane Weber. A fast route to a great return. Medical Economics 2001;3:69.