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The Ultimate Tax Preparation Guide

by Bill Elias and TechTV Labs

April 12, 2002

When it comes to money, there are few dates as foreboding to middle-class Americans as April 15, bringing with it the threat of unpaid taxes and the open hand of Uncle Sam. Worse than owing unpaid taxes is the process of paying an accountant to calculate how much is actually owed. Accountants are important when things become complicated. But for those who like to take a hands-on approach, tax-preparation software can get the job done equally well.

With that in mind, TechTV Labs takes a look at several of this year’s options.

Intuit TurboTax Deluxe 2001 — When it comes to tax-preparation software, Intuit (the maker of Quicken) always has been near the top of the heap. Improvements for this release include Tax Law Advisor updates that educate users on the effects of new federal tax laws. With options for fee-based tax advice, video explanations, and online filing, this $40 deluxe version of the program offers almost everything a user could need.

H&R Block TaxCut Deluxe 2001 — Near the top of the heap of do-it-yourself tax preparation packages is this offering from H&R Block. While its import features aren’t as robust as those found in TurboTax, TaxCut’s price-point is much less at $25. While TurboTax favors importing information from Intuit’s Quicken, TaxCut is more tailored toward Microsoft Money users.

Online Options

2nd Story Software TaxAct 2001 — On the lower end of the price scale is TaxAct 2001. The online version is free, but it omits the frills of embedded video explanations, tax planners, 401(k) maximization suggestions, and detailed suggestions on how to take advantage of tax law changes. And the deluxe downloadable PC program does not allow users to import information from popular finance-tracking applications like Quicken or Microsoft Money. Users looking to get away without paying a cent should note that there is a $7.95 filing fee to electronically submit a return.

CompleteTax.com — The best thing CompleteTax.com has going for it is that utilizing the site is free. Using this Web-based option will only cost users $17.95 for electronic filing of both state and federal returns. Unfortunately, the advantages to this method stop there. In our tests, TechTV Labs found the site less user-friendly than other options. Our biggest complaint is that once a user completes a return, it can only be accessed via the CompleteTax website. There is no option for downloading a copy to your local hard drive.

ITax.com — For those wanting a no-frills approach to tax preparation, iTax.com provides just that. This Web-based service charges $7.95 for each state and federal return filed. Not compatible with Windows 95 or Macintosh, TechTV Labs can only recommend this alternative for those with simple 1040EZ returns.

Preparing for Next Year

Don’t remain content after organizing last year’s pile of receipts into this year’s tax return. Stay on top of your budget, and prepare for next year’s return with money-management software. Intuit’s Quicken and

Microsoft’s Money are two venerable contenders worth checking out. Quicken 2002 Deluxe — Featuring easy account setup, automatic expense categorization, and a portfolio analyzer, there’s not much lacking in Quicken 2002 Deluxe. New users might find it hard to navigate the many options available, but this is definitely an application that can grow with your needs.

Microsoft Money 2002 — The biggest online innovation for Money 2002 comes in the form of MoneySide, a new service that helps you keep track of your online expenditures. When you’re going to make an e-purchase at a vendor, invest online, or do your banking, MoneySide will look for any information that might be pertinent to the purchase and then display it in a window. For example, if you go to Amazon.com and want to purchase a book, MoneySide will show you your balance, tell you if you can afford the purchase, and tell you whether or not it conflicts with the budget you planned.

Product Comparison Chart

Tax Software 2001 Price Federal Filing Fee State Filing Fee Total Cost After Rebates Features and Comments

Intuit TurboTax Standard$19.95 $12.95 (free after mail-in rebate)**n/a$19.95 Best for 1040EZ filers whose state doesn’t support e-filing; cheaper, less robust alternatives exist. Intuit TurboTax Deluxe*$29.95 (after $10 rebate)$12.95 (free after mail-in rebate)**12.95**$42.90 (includes state download)Best for Quicken users; video tax explainers; tax law advisor; fee-based experts; tax planners; good for 1040 filers; website contains helpful information.

Intuit TurboTax 1040EZ (Federal and State Web Edition)no charge$9.95**4.95**$14.80 Good choice for no deductions or extensive adjustments to income; primary benefit is quicker refund, and low state filing fee.

Intuit TurboTax State Edition$29.95 not applicable12.95**$42.90 Not evaluated; costs more than any other state filing software.

H&R Block Tax Cut Deluxe$19.95 (after $5 rebate)14.95 (free after mail-in rebate)**8.95**$28.90 (includes state download)Best for Microsoft Money users; import features not as robust as TurboTax; video tax tips; website (www.taxcut.com) not as helpful as www.turbotax.com.

H&R Block Tax Cut State Edition$19.95 n/a8.95**n/aNot evaluated

H&R Block Web Editionfree19.95**9.95**$28.90 Not evaluated

Go Daddy iTax.com (Federal edition)no charge$7.95 n/a$15.90 Acceptable for 1040EZ filers; lowest cost; clunky edit features; 1040 forms are PDF files; not compatible with Mac OS/Windows 95. Go Daddy iTax.com (State edition)no charge$7.95Not supported n/aNot evaluated

CompleteTax.comno charge$17.95 n/a$17.95 Difficult to wade through; fewer bells and whistles than others; less user-friendly than others.

2nd Story TaxAct 2001 Deluxe*$9.95 included in pricen/a27.85 (includes state download)Best low cost alternative; helpful features; good overall value for 1040s on PCs; low filing fees. 2nd Story TaxAct 2001 State Edition$12.95 not applicable$4.95 n/aNot evaluated 2nd Story TaxAct 2001 Web Editionno charge7.95$7.95 $15.90 Not evaluated

*TechTV Labs Pick
**Filing fees increase beginning 4.1.2002

Tax Preparation Tips

These 10 tips from TechTV Labs’ software analysts Roy Santos and Mick Lockey are designed to help ward off common mistakes when using tax software.

Choose the right software so you don’t pay for more than you need. If you’re filing a 1040EZ form, use one of the cheaper alternatives or basic versions of the TurboTax or TaxCut software, the two industry leaders. Another option, TaxAct 2001, won’t provide many bells and whistles, but it’s free and works well.

Double-check numbers, particularly your Social Security number. Statistics show that this number is the one most prone to error. Many tax returns are sent back because Social Security numbers have been transposed or incorrectly entered.

Consider doing Web-based filing, especially if you have a broadband connection. All of the major software companies, such as Intuit and H&R Block, offer online ways to file, and you don’t have to install software. It’s also generally cheaper, and you can access your information from almost anywhere via a Web browser.

If you’re using tax software and filing electronically, don’t be in a rush to file too early. There may be updates to tax software that could make a difference in your calculations. Check the company’s tax software site for updates before you file.

On the other hand, don’t wait to prepare your taxes too late because tax software is generally quicker than visiting your neighborhood tax office. You’ll be more prone to mistakes if you rush through tax forms, software or no software.

Instead of using the fee-based tax advice that software packages offer, try calling the IRS first. Over the last few years, they’ve made big strides in being consumer-friendly. They may have an answer for your particular situation for free. If your question is too difficult, it may require research, but IRS promises that someone will call you back with an answer.

The well-worn homily, “A good beginning makes for a good ending,” applies especially to tax software. Instead of lumping statements and receipts in one big pile, organize them first by separating them into income items and items for which you can claim deductions, since this is the way software is broadly organized.

As you’re using tax software, save your work frequently. H&R Block’s TaxCut Deluxe offers this feature, but not every software package does. In the event of a system crash, it will be easier to return to the form you were working on if you’ve saved it. When you complete your return, double-check the numbers you’ve entered against the statements you’ve received. Even though tax software usually comes with a guarantee of accuracy, it doesn’t cover data entry mistakes.

If this year’s tax filing was a disaster even with preparation software, resolve now to keep better records of your finances. Consider investing in a financial management software application, such as Intuit’s Quicken or Microsoft Money. Transactions you enter into the software can be imported into next year’s tax forms.