For many computer users willing to tackle the task themselves, there are several income tax software programs available. A visit to any local office supply store, electronics store, or even the discount stores and club stores, will enable the user to find a selection of popular tax programs available to the retail customer.
The two top retail sellers are H&R Block’s “TaxCut” series, and Intuit’s “TurboTax” series. Both are available in basic and deluxe packages offering a variety of services. Both are often available with high value rebates, making them very inexpensive, sometimes even “free after rebates”. Both are often available with bundles of personal finance programs, antivirus programs, legal assistance software, and other perks, typically free or very inexpensive after rebates. I recently purchased one of these programs, along with a finance program, legal program, and an antivirus program, all for about $10 after rebates. The level of competition between TaxCut and TurboTax is obviously very high.
Both programs are easy to use, offer free online updates, include almost all common tax forms, print IRS approved tax forms on most printers, and include some type of guarantee of accuracy. For those living in states with a state income tax, both programs offer an option to do those taxes as well. “E-Filing” is included with both, often free for one or more returns. Both programs can import financial data from a variety of popular personal finance software, as well as previous years’ programs. Both offer connections to corporation, mutual funds, and others who allow the downloading of income and withholding information online. Both offer sophisticated error checking, and warn of potential audit flags. Information from a variety of IRS publications, as well as third parties, is often included to answer any questions that may arise.
Since both TaxCut and TurboTax have been selected as the “best” by different financial and consumer publications, neither one has any clear-cut software advantage over the other, as both are more than capable of accurately calculating and printing tax forms, provided that accurate information is entered. The old computing acronym “GIGO”, meaning “garbage in – garbage out” applies especially well to tax software. If wrong information is entered, the results will be wrong. To minimize the effects of “GIGO”, both programs offer a variety of checks, but it is still the responsibility of the user to verify the accuracy of the data entered.
Once installed from the CD, the software presents an attractive and intuitive interface. If prior years’ taxes were done with an earlier version of the software, and in some cases even competitive software, that data can be quickly imported, pre-filling many of the lines on the tax forms. If personal financial software, such as Quicken or Microsoft Money has been used to track personal finances, appropriate information can often be imported into the tax programs. Again, it is imperative to recognize that the software can only compute the taxes accurately if accurate information is inputted.
Since our income tax system is complicated, with many twists and loopholes, a variety of methods are available to enter data. Both programs offer three basic options that can be used interchangeably to enter data. One way to enter data is to use the onscreen tax forms that can be filled out line by line, with all calculations made by the software. Another way is to use an interactive questionnaire, where the answers given by the user are used to fill in appropriate forms, make calculations, and recommend potential tax-saving options. Another way to enter data is the “shoebox” option, where W-2, 1099, and other forms are entered on a fill-in-the-blank basis, with the information automatically posted to the correct places. Regardless of the entry method used, context sensitive and interactive help is always available to help explain most questions or difficulties that may arise.
Once all of the data has been entered, the programs will calculate the taxes, determine any refunds or payments, check for errors and audit situations, provide vouchers for payments and estimated taxes, and print relevant forms ready for submission on paper or electronically. The software may recommend changes to W-4 withholding forms, to better meet future tax needs, including printing a new W-4 to be provided to the employer. Both programs will also provide “what-if” scenarios, showing the impact of IRA accounts, or other tax saving strategies.
Since neither TaxCut or TurboTax has any clear-cut advantage over the other, and both are quite capable of preparing accurate tax returns, it is a matter of personal choice which program to use. Whichever program is used, it is important to realize that the data must be entered accurately in order for the tax returns to be calculated properly.
April 15 is coming in about three months, and the use of tax software may be a way of easing the tensions associated with that date.
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